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  1. 1. FLOW THROUGH DISTRIBUTION CREATING VALUE IN YOUR SUPPLY CHAIN If you manage your supply chain solely to reduce costs or improve efficiencies you are missing an opportunity to create value. Your supply chain can and should go beyond achieving Key Performance Indicators. Implementing a flow through distribution strategy, with fast-to-market capabilities, can generate value as well as improve operational effectiveness and bottom-line performance. Use of a third-party logistics provider for flow through services eliminates your investment in warehouse space and reduces the lengthy development process. Your business realizes its anticipated results, faster. Flow through distribution, also known as pool distribution, combines economy-of-scale opportunities with the flexibility of just-in-time initiatives. Broadly defined, flow through distribution is the process of centralizing inbound shipments, sorting them by delivery destination and then sending them out – all in the same day. This process eliminates the need for fixed assets, like warehouses; reduces the dependence on high inventory levels; and improves the time it takes to get the product to market. Companies become more nimble and create value by being better able to help customers respond to their consumers’ needs. Flow through distribution is not a new concept. Transportation companies have provided cross docking services for their customers for many years. However, today’s flow through distribution networks go beyond transportation with centers that offer other value-added services, such as pick-and-pack, kitting and crating. In addition, flow through centers frequently use enhanced information technology to make it faster and easier to move cartons from inbound to outbound trailers. Who uses flow through distribution? Retailers are the most common users of flow through distribution, as it provides a means to accelerate products through the supply chain and better respond to point-of-sales data. In the case of upscale retail “lifestyle centers,” with their limited backroom space, flow through distribution helps stores reduce inventory levels and enhance their ability to frequently refresh shelves. Retailers are not the only ones to deploy flow through practices. Manufacturers are finding success with the strategy as well. They can consolidate their inbound orders for component parts or ingredients from different suppliers and transport larger outbound shipments. In addition to realizing economies of scale in transportation, this approach also supports just-in-time processes and eliminates the need for warehousing inventory. yrclogistics.com
  2. 2. What activities are included in flow through operations? In the case of retail, individual store purchase orders (ISPOs) for a single supplier are combined into one bulk order, giving the retailer the greatest leverage in buying power. The consolidated purchase orders are transported in a bulk truckload shipment from the supplier, which lowers inbound transportation costs. When the truckload shipments arrive at a flow though center, they are broken down by ISPOs. Within 24 hours, full truckload shipments leave the flow through center with multiple-store, multiple-supplier shipments. Each shipment is built based on the specific needs of each individual store. This supports the distribution-on-demand approach, expedites order processing through the distribution center and optimizes both inbound and outbound transportation. There are four main activities generally included under the broad heading of flow through. They are: Vendor consolidation: consolidate purchase orders from multiple suppliers going to a single distribution center. By consolidating vendor purchases, the company benefits from greater buying power, which usually means an improved pricing structure. For retailers, vendor consolidation supports a reduced-inventory strategy. This means for their nonseasonal SKUs, retailers can cost effectively replenish distribution centers with smaller order quantities on a more frequent basis throughout the year. Pool distribution: a truckload of product from a distribution center is sorted into individual orders for delivery. This increases throughput at the distribution center. Inbound pallets are unloaded and staged for outbound delivery, often times combining pallets from several vendors to create a full truckload. Import deconsolidation: similar to consolidation, with import deconsolidation the product flow originates at the port and goes to a distribution center. Rather than make distribution decisions at the country of origin, this process allows the company to wait until the product reaches the port to determine its ultimate destination. As a result, companies are more flexible and can allocate distribution based on need and timing. The retailer can allocate to a seasonal warehouse, distribution center, pool point or directly to individual stores. Flow through order fulfillment: product arrives from vendors in bulk at a flow through center where it is then allocated to orders. Retailers benefit by avoiding the need to maintain high inventory levels at the local store. Flow through centers typically are located at the beginning or end of the supply chain. The primary services offered at the center dictate its location. For example, import deconsolidation activities are located close to ports. Origin vendor consolidation activities are located near major vendors in cities such as Los Angeles, New York, Chicago, Atlanta and Dallas. Pool distribution locations are situated in areas of high population density. In addition to flow through centers in North America, facilities may be located at country-of-origin ports as well. Typically, this supports an ocean consolidation strategy for cost-effective transportation and is most effective when the degree of destination allocation is static. What are the advantages of using a third-party flow through network? Companies can benefit from third-party flow through networks in many ways: Increase revenue. In addition to improving their in-stock position, companies can use deconsolidation and flow through order fulfillment services to manage inventories. For retailers, this may mean a reduction in the need for markdowns. Decrease expenses. Companies can better schedule their receiving dock personnel, consolidate invoices, reduce transportation costs and improve management of their shipments, all factors that contribute to selling, general and administrative budgets. Reduce cost of goods sold (COGS). The inbound consolidation of shipments reduces the inbound transportation cost element in the COGS equation. Reduce inventory requirements. Benefits in inventory management range from the economical handling of small order quantities; delivery of goods directly to stores or manufacturing locations, bypassing the warehouse; and logistics that support just-in-time initiatives. Reduce days sales outstanding (DSO). With shorter order/delivery cycles, companies can get merchandise on shelves faster for faster sales. Reduce fixed assets. Flow through facilities reduce or eliminate the need for costly real estate and material handling equipment.
  3. 3. How do you select a flow through service provider? When planning to implement a flow through solution, take care to find a provider that seeks to understand your business and your customers’ expectations of you. For example, do you need a service provider that can handle your dock, offer specialized store-site services or follow your specific SOPs (Standard Operating Procedures)? Would access to air and ocean capacity during peak season be of value? Or transportation networks that ensure time-definite deliveries? A provider with a thorough understanding of your operations and the ability to deliver a customized offering will go a long way toward ensuring a smooth integration and helping you achieve your supply chain goals. While bar-code scanning, power conveyors and quality security systems are important features to consider, companies are smart to also look at the service provider’s business model. Does the provider employ a regular dock staff or rely heavily on the use of temps? Are the drivers professional and well trained? Flow through services are just one element in progressive supply chain management. With a disciplined look at network design, supported by technology tools and information services, companies are discovering new opportunities through global freight forwarding, transportation services and distribution processes to operate more effectively and create value in today’s dynamic marketplace. For more information: David Griffith is vice president, Distribution Services for YRC Logistics. He can be reached at David.Griffith@yrclogistics.com or by phone at 913-906-6850 to discuss operational issues associated with flow through services. About YRC Logistics To learn how YRC Logistics can create intelligent solutions and powerful results for your business, contact us at: YRC Logistics 10990 Roe Avenue Overland Park, KS 66211 Phone: 877-246-4909 Web: yrclogistics.com YRC Logistics, a wholly owned subsidiary of YRC Worldwide Inc. (Nasdaq: YRCW), is a global logistics company. Based in Overland Park, Kansas, and with offices in North America, Asia, Europe and South America, YRC Logistics enables companies to improve their transportation network and overall supply chain efficiency by offering flexible logistics solutions supported by Web-hosted technology and global logistics management capabilities. yrclogistics.com © 2008 YRC Logistics, Inc. All rights reserved.