Sustainable Retail Distribution.doc


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Sustainable Retail Distribution.doc

  1. 1. Sustainable Retail Distribution Introduction Deliveries are important to all industries, but particularly to the retail industry, where the primary function is to bring products and services to customers. Increasingly sophisticated customers expect a full range of high quality products, available throughout the year at reasonable prices. In order to ensure continuity of product availability, it is essential that deliveries are not disrupted as space in store is dedicated to customer service activity and surplus stock holding is minimal. Disruptions to the supply chain mean that products do not reach the stores as expected, the store runs out of a product and customer satisfaction falls as they are unable to buy the goods they require. The challenge for retailers is to balance the need to reduce cost and streamline operations with the need to have products available at all times. Retail Logistics It can be difficult to generalise about retail logistics as virtually every retailer operates a different system, although on the whole most large national retailers operate or sub- contract the operation of their fleets from regional depots and distribution centres. Most large retailers use state of the art logistics systems and manage vehicle scheduling to ensure just in time deliveries, 1 enabling retailers to operate from smaller premises, reducing the number of deliveries required and consequently the number of vehicles on the road. By contrast, the majority of small retailers have little control over their supply chains and do not own a transport fleet to convey their goods at their convenience. Most single store SME retailers either have their stock delivered by suppliers and wholesalers or collect their stock from cash-and-carry stores. Deliveries can be complex with many SME’s getting over 30 deliveries a week. Core products like newspapers and magazines or fresh grocery are time sensitive and can not be rescheduled or moved. If newspapers are late, shoppers go elsewhere and trade can be damaged irreversibly. Efficient Distribution In order to get products to market retailers have developed highly advanced supply chains to minimise cost and environmental impact. An efficient supply chain and distribution network is essential if retailers are to succeed in an increasingly competitive, global market place. In recent years control of the supply of goods has gradually moved from manufacturers to retailers as retailers have sought even greater efficiencies in the supply chain to improve the way they serve the customer. In the modern marketplace therefore, goods are pulled through the supply chain by the customer rather than pushed through the chain by the manufacturer. 1 Just in time refers to the movement of merchandise to the next point in the supply chain just as it is required for use or consumption and is used to describe the philosophy of short lead in times and low inventory levels.
  2. 2. During the 1970s, retailers began to develop Regional Distribution Centres (RDCs) as they sought to reduce unnecessary journeys, cost, and delivery times to stores. The introduction of Regional Distribution Centres has helped to dramatically reduce the number of deliveries by individual suppliers direct to stores. Where previously all suppliers delivered goods to individual stores, contributing to congestion, today, suppliers distribute goods to a central depot where different types of goods are consolidated to reduce the number of vehicles travelling to stores. New haulage systems and more efficient use of vehicles have also enabled cost savings and environmental benefits to be secured. As a result of extensive continued investment to improve the efficiency of its distribution networks, retail delivery vehicles now account for less that 2 per cent of total HGV vehicle kilometres. 2 Retailers no longer hold large stocks of raw materials, components or finished products 'just in case', but instead rely upon their suppliers' ability to meet the needs of their production lines consistently, reliably, and "just in time”. The aim of the modern retailer is to make stock available on a daily basis but with the stock held as high up the supply chain as possible. In striving to make deliveries as efficient as possible retailers seek to avoid traffic congestion and so aim to avoid peak travel times, by making use of the road during the night. Store access however, can be restricted by delivery curfews, as a result of planning restrictions established when the store is built or noise abatement orders implemented by a local authority after the store has opened. Almost one third of retailers are affected in this way. 3 Technological Developments The UK retail sector industry has successfully adapted to exploit economies of scope and scale and to maximise the advantages of "just in time" practices throughout the sector. The introduction EPOS (electronic point of sale systems) and EDI (electronic data interchange) for example, have enabled stocks and order placement to be managed on a real-time basis, with rapid and precisely controlled replenishment of items sold. Electronic data interchange between stores, head offices and warehouses enable just in time deliveries to reduce the amount of capital held in products as stock holding can be reduced to minimal levels. Retailers use modern computer scheduling and route planning systems in order to maximise vehicle 'fill' whilst minimising the total mileage travelled and the number of vehicles and journeys required. The route planning systems use the motorway and trunk road networks wherever possible, thus encouraging greater fuel efficiency and reducing disturbance in residential areas. Similarly, global positioning systems enable vehicle movements to be tracked and routes effectively managed saving fuel and reducing congestion. 2 Retail Delivery vehicles accounted for 1.6% of total HGV vehicle km in 2001. CSRGT, DfT'. 3 BRC Delivery Curfew Survey 2001
  3. 3. Factory Gate Pricing The point at which retailers take control of the transport of goods will vary greatly dependant upon individual circumstances. Increasingly however, retailers are choosing to collect the product direct from a supplier’s factory, leading to the development of a number of Factory Gate Pricing (FGP) initiatives. Buying directly from the factory gate enables the retailer to identify the different cost in distribution depending on the route to market as product price and transport costs are separated. By opting to collect goods themselves direct from the manufacturer, retailers are able to determine the most cost effective route to market, often making use of vehicles that would otherwise be travelling empty. Modal Shift Retailers require agile supply chains that are responsive to customer and consumer needs - demands which trucks and light vans are well equipped to respond to. The production techniques of manufactured white goods or product perishability of drink and food stuffs for example, demand lean inventories and regular small volume deliveries which road transport is well suited to. For the delivery of many goods therefore, there is little or no viable alternative to road transport. As congestion on UK roads worsens, retailers, continually looking to improve efficiency of distribution networks, are keen to exploit the potential benefits of rail for long distance deliveries. Modal shift however, requires significant investment and long term commitments to production facilities and markets. This can act as a brake on rail growth as companies increasingly strive for flexibility of production location in order to keep costs low. 4 A number of retailers are currently experimenting with rail transport and while some pilot projects have proved successful, rail use is unlikely to rise significantly until the reliability and efficiency of the UK rail network improves. Capacity is equally constrained at sea ports as fewer ports have berths that can handle the increased size of vessels terminal facilities and space to handle higher cargo throughput. Air transport is minimised in the food supply chain due to its self-prohibitive cost compared to other modes of transport. It is however the only mode of transport which can deliver highly perishable goods (e.g. exotics) quickly and efficiently. Food Miles Consumers expect a full product range available all year round and now demand supplies of certain products throughout the year. Given the seasonality of some products it is necessary for the food supply chain to access imports to meet this need. Most food retailers operate some level of local and regional sourcing. Key to all sourcing policies however is product quality, availability and cost. Where products are available, with guaranteed quality and at a competitive price, then local sourcing will be the preferred option. But when products are out of season, unavailable locally or 4 Source FTA Freight Transport – Delivering for a successful economy. December 2002
  4. 4. not of the required standard then retailers must source elsewhere if they are to offer the choice consumers demand. 5 While growing conditions can be artificially extended through investment in climate control to allow an extension in domestic production, this can be extremely costly in energy terms. Domestically grown foods for example, may require a greater use of natural resources than the same products grown in alternative climates or geographical contexts. BRC and Sustainable Transport In November 2001 BRC produced a sustainability strategy “Towards Retail Sustainability – protecting our environment for the future”. This strategy was the start of a process of continuous improvement, and set out objectives and targets for the BRC and retailers for the next five years. As part of the strategy, BRC committed to producing a Sustainable Transport Strategy to supplement the initial strategy and set out some further aims and objectives. Individual retailers are engaged in an extensive range of initiatives to promote the sustainable development of the sector, a small selection of which is outlined below.  Satellite tracking and onboard vehicle monitoring that provides information on fuel performance, real time vehicle location information and the ability to communicate with the driver to avoid congestion and blocked routes  Computerised vehicle scheduling to minimise vehicle movements  Satellite tracking and onboard vehicle monitoring that provides information on fuel performance, real time vehicle location information and the ability to communicate with the driver to avoid congestion and blocked routes  Driver training – to reduce fuel consumption and reduce accidents  Back hauling of products, packaging and waste  Regular vehicle maintenance and replacement programs  Increased used of telecommunications to reduce the need for commuting and business travel  Driver training – to reduce fuel consumption and reduce accidents  Back hauling of products, packaging and waste  Introduction of travel plans for their stores, offices and depots to encourage both employees and consumers to leave their cars at home and reduce their environmental impact through travel choices.  Participation in Freight Quality Partnerships to improve the sustainable performance of freight movement in towns and cities. 5 The term 'food miles' refers to the distance foods travel between the farmer and the consumer.