In the current climate anything retailers can do to save on transport costs and maximise efficiencies will help. As Liz Morrell discovers there are still big wins to be had
Shifting goods from A to B does not come cheap. The transportation of product accounts for almost half of retailers’ distribution costs. Last year’s fuel price increases showed how important managing those costs are, but many of the larger retailers have already saved significant amounts of cash through sustainable transport initiatives. As Asda network transport manager Chris Hall says: “Becoming more environmentally friendly is good for the bottom line as well and if we can’t get people’s attention by talking about the environmental benefits, we talk about the cost benefits.”
Many UK retailers are working together through forums such as IGD’s ECR UK sustainable distribution group to share ideas on improving transport efficiency, and have jointly pledged to save 120 million miles by the end of 2010. They have already saved 53 million.
But more than 25 per cent of trucks still run empty. Backhauling – where a trailer leaves the DC with a store delivery but returns with a load from a nearby supplier – is commonplace. Hall says: “We started it many years ago. Last year we saved 1.2 million incremental miles and think we can save another million this year,” says Hall. Asda is now working with 130 suppliers – doing around 2,100 collections a week in this manner. However for the last 18 months it has also been fronthauling. “Carriers that would normally go to their base empty (having dropped off a supplier’s goods at the retailer’s DC), are reloaded with a store delivery,” explains Hall.
Ultimately, many believe retailers and third-party logistic providers must work together to reduce the empty miles. Improved forecasting can help both parties plan routes and shipments.
Driver management software firm Isotrak this month launched its 3iS (3rd party integrated services) package to improve such visibility. Isotrak sales and marketing director Craig Sears-Black says: “Any fleet operator connected into the Isotrak system can become a member of the 3iS club, so their transport activities are available to be made public to other nominated people.”
Sharing capacity between supplier and retailer is all well and good, but the sharing of deliveries by retailers would be a far more radical move. In some cases, it is already happening. Since last year Boots has been sharing deliveries with TK Maxx in the Isle of Mann. Gavin Chappell, Boots the Chemists supply chain director and co-chair of the ECR workgroup says both retailers are also looking to do shared deliveries to Ireland.
Richard Ellithorne, Chartered Institute of Logistics and Transport head of information, forums and influence, says the ultimate test is “whether an Asda and a Tesco will share a vehicle”.
Rather than competitive resistance, it is the practical hurdles – such as whose product to leave off if the lorry is full – that needs to be overcome. As Hall says: “There is a willingness to share. The competitive battle is on the shelves rather than with the supply chain.”
But bigger wins seem to be coming from supplier collaboration. Chappell says there are literally thousands of manufacturers willing to work together with their retail customers in this way. “That will continue to have 90-95 per cent of the focus. However if retail collaboration comes off then great,” he adds.
While such collaboration provides many opportunities, there are other ways retailers can save cash. For those that have outsourced their operations it may be time to revisit their 3PLs. As Ellithorne says: “If it’s outsourced, a lot is done on a closed-book contract paying so much per delivery.
Retailers may start looking at their commercial agreements to see what they are being charged for,” he says.Graham Stubbs, senior partner at supply chain consultancy SCALA Consulting, urges retailers to look at delivery slots and restrictions, too. “The Department of Transport wants to get local authorities to relax some of their restrictions and the same applies to suppliers and retailers – the more flexibility they can put into their systems, the better.”
Network design is also important. Depots need to be as closely aligned to the stores as possible. Hall says that last year Asda consolidated its home and leisure categories, and this year it will do the same with ambient groceries.
Simple measures, including keeping track of equipment such as pallets, also helps to cut costs. Similarly, Stubbs says retailers should improve their load handling methods – in other words, ensuring they have the right-sized pallets.
Vehicle fill is another important issue. According to the World Economic Forum, even when “loaded”, trucks are only 57 per cent full by weight. Asda has saved 3.4 million miles in the last year alone simply by ensuring better vehicle fill. “In 2005 our average cases per vehicle was 1300 but over the last four years that’s been a big part of our efficiency saving and now our average casing is 1645,” says Hall.
Packaging design is another consideration. Some manufacturers are starting to look at the volume of product, the pallet space it takes up, and adjusting the design accordingly.
On the roads many retailers have already deployed traffic management software to plan routes, identify training opportunities and tracking fuel usage. Asda runs Isotrak’s ATMS (advanced traffic management) system. “That tells us the driving style of all our 3,000 plus drivers and gives us the first ever full, detailed view of our colleagues’ driving styles,” says Hall. “We are now able to pinpoint who needs training and we will see a 3 per cent improvement in our fuel efficiency this year.”
Tesco is completing the rollout of a telematics system from Microlise for its home delivery fleet. Duncan Vavangas, fleet engineer for Tesco.com home delivery says: “We don’t use it as a big brother but mainly to monitor fuel consumption. Vans also used to do a lot of idling – drivers are meant to turn the engines off but we knew they weren’t doing that – now we have the ability to monitor it,” he says.
Driver training has also been introduced. Drivers are able to drive a 3.5-tonne delivery van on an ordinary drivers’ licence, which can result in a huge amount of damage to vehicles because of inexperienced driving techniques. Tesco has introduced a training plan and a weekly phone-based accident review board, which will look at whether an accident was preventable or not. It also has a central database that holds information on any damage, so it can tell if a driver needs training or disciplinary action.
Although a huge investment, it has reduced van damage costs by 6.5 per cent and fuel savings are likely to run into seven figures this year. Vavangas says: “We spend£12m on fuel for the home delivery business a year so if we can save anything on that, it’s a bonus. It will pay for itself relatively quickly,” he says.
Such systems can also help with better driver planning. Isotrak’s Sears-Black says: “On average you can look at around 15 per cent opportunity to increase your productivity using the same resources [the same number of drivers].”
Today, the sophistication of traffic management technology allows for automatic updating of stock records in-store. Sears-Black explains: “When the truck is approaching the shop you can determine that to be a specific event. That saves time and takes away manual compliance issues too, also allowing for automatic replenishment orders.”
A kiosk at the back of store gives the estimated time of arrival for impending deliveries. This enables people to be available and bays kept free, speeding up the delivery process. Ensuring the most suitable equipment is used can also cut costs. Asda introduced double-deck trailers in 2006 and now runs 72. “We can get 70 to 90 per cent more volume on those and last year saved 1.4 million incremental miles.”
Transdek, which works with the likes of Tesco and Boots, supplies lifts for installation in retailers’ DCs that allow them to use fixed rather than powerlift double-deckers, which take up more space in the trailer. Managing director of Transdek UK Mark Adams says Tesco has found it can get an extra 10-tonne capacity because they have gone from single to double-deckers.
Better management and flexibility in the retailer’s operations can also deliver benefits according to Stubbs. “There is still a tendency for orders to be turned away because the truck is late or there is something wrong with the order,” he says.
Accenture global director of supply chain fulfillment Jonathan Wright agrees. “Many stores run rigid routines that ensure the shop is fully stocked and the shelves are perfect for store opening. This is ideal for customer service however the trade-off is un-optimised transportation,” he says.
Retailers are also looking at alternative power. Tesco is running hybrid vans (a diesel and electric combination) in King’s Lynn and is saving around 10 to 12 per cent in fuel costs. The retailer also has 15 electric vans running across the UK.
Asda is running one electric van in Fareham but Hall says that it is four times as expensive as a normal van, the costs are currently prohibitive and reliability issues a problem. “We will continue to support field trials and talk to van buyers but there needs to be a sea change in cost and reliability,” he says.
There is an abundance of opportunities for retailers to improve transport efficiencies, and retailers need to grab them. Many, such as backhauling and fronthauling need no capital investment. Even for those that do, there is usually a strong return on investment. As Hall says: “The devil is in the detail,” and the savings speak for themselves: “It’s all great for the environment but it’s fabulous for the P&L.”
Top tips to drive fuel economy
Maintain correct tyre pressures and replace worn tyres
Correctly maintain the tractors and trailers in your fleet
Manage vehicle aerodynamics
Choose the appropriate route
Cut down on unnecessary wheel load
Choose the right tyres for a specific application
Driver training, performance monitoring and improvement programmes
Consider alternative trailer designs
Source: IGD & ECR UK