Retailers think 3PLs can improve customer service and better serve them through transparency, a keener understanding and appreciation of their business, and by acting as partners that identify and develop efficiencies and innovations.
This information was collected during the 2017 Global Cold Chain Expo through a 90-minute focus group with 10 retail supply chain executives that employ temperature-controlled 3PLs. The qualitative research was the latest initiative in GCCA’s year-long customer research study undertaken to provide members a competitive edge, identify opportunities for growth, and strengthen the temperature-controlled supply chain.
Consisting of both qualitative and quantitative phases, the qualitative phase launched in June 2016 with a roundtable discussion with members’ customers, primarily food processors. The data gleaned provided invaluable insights that helped create a deeper understanding of how GCCA members can better serve their customers, cultivate relationships, and is the foundation for the quantitative research to come.
With the success of the first roundtable discussions, GCCA decided to continue the qualitative research with cold chain users further along the supply chain and expanded the roundtable discussions to retailers, which are the customers of food processors.
The retail executives who participated in the focus group represented varied and distinct national and regional grocery retailer operations, markets and target consumers. They also varied in how they use 3PLs. Some use 3PLs for all of their frozen and refrigerated products, some self-distribute and use 3PLs for warehousing only, others contract 3PLs for transportation only since these retailers have distribution centers, and others use 3PLs solely for seafood, overflow needs and seasonal needs.
Despite these differences, retailers face many of the same challenges and experiences on an industry level and a micro level as 3PLs. In addition, their perspectives often echoed those shared by food processors and distributors during last year’s customer roundtable discussions.
The value of qualitative focus groups is in their ability to provide rich and detailed data and unfiltered comments. Italicized verbatim comments from the focus group participants are used throughout the article to underscore key points.
The Retail Landscape
A number of factors affect the food retail industry that create tremendous pressures and, in turn, impact cold chain industry operations and finances.
Financial pressure, not surprisingly, is one of the many pressures retailers face. The entrance of new competitors that offer lower prices adds fuel to the pressures of margin reduction, along with trying to manage logistics costs.
“State minimum wage laws have changed quite drastically the last three years – there are fast food jobs in California paying $10.50 an hour. That pushed up the base for distribution and warehouse-type jobs dramatically over the last two-and-a-half years.”
Increasing regulations from the Food Safety Modernization Act (FSMA) and the Sanitary Transportation of Human and Animal Food (STHAF) rule make compliance challenging. This increasing complexity translates to added costs and additional time needed in the supply chain for compliance and evaluation.
“Our stores are at daily delivery now – every store gets a product every day which is again increasing stops. The trailer door is open a lot during delivery, and sometimes we don’t even have a 20-minute recovery before the next store delivery. With the Sanitary Transportation Act – that black hole of transportation has now been visible.”
Consumers’ ever-increasing preference for fresh foods has a multifaceted impact on retailers. These preferences result in shortened shelf life, further expansion of product from the store perimeter, decrease in storage space and a need for reduction in overall days of inventory. The impact on operations is more frequent, smaller orders and an increase in frequency of deliveries.
“When you are trying to have fewer days of supply, now you have to try to be creative to make sure you are getting full truckloads, to make sure you are getting efficient transportation. You may be buying less than full skids, and now you are dealing with layers and having to break those down at the dock, so you are getting more receiving, more put away, and other complications.”
With the increase in fresh offerings and the surge of home delivery providers and alternative delivery channels, the compression of the center store real estate creates a greater need for temperature-controlled goods and reduces the inventory of dry and packaged goods. This is a factor that impacts and changes the companies’ supply chain logistics.
“I think there is a de-emphasis on the center of the store. More produce offerings, more chill offerings, less packaged goods for everybody. That trend is just pushing more and more towards the cold supply chain.”
Consolidation amongst 3PLs reduces choice for retailers and creates a perception that 3PLs don’t have to be so competitive in their offerings. As a result, retailers changed providers and are forging new relationships with temperature-controlled 3PLs.
“They don’t have to come to the table because they know they’re going to get it. We don’t have a lot of choices.”
The increase of home delivery from online grocery retailers has vastly and rapidly changed the supply chain transportation infrastructure. Navigating the tidal wave of online trade adds more pressure on supply chain logistics.
“A lot more customers are buying now using Amazon and other avenues to get center-of-the store products. That’s where we are starting to see sales impact. Not so much on the fresh side.”
Time and time again, the shortage of truck drivers came up in discussion. As transportation companies go out of business, retailers believe the few remaining drivers can command high wages. The type of environment where drivers can name their price creates uncertainty and complexity in the planning of the supply chain.
“…whether it’s a driver shortage or we have trouble with one-way transportation or getting additional loads, we’re just struggling sometimes to make our on-time deliveries because we just can’t get enough trucks. Especially when we spike. It only takes one hot ad, and I need six more trucks to go up to northern California and [we are] just not finding the availability.”
Up at Night Issues
Aside from the impact of the macro trends just listed, retailers face a swarm of day-to-day issues. Here is a quick list of some of those issues:
On-time deliveries to stores, on-time speed to market – the complexity of shorter and more frequent deliveries.
Continuity of the supply chain, arrival of quality produce and unforeseen circumstances.
Planning future food and capacity along with forecasting incorrectly.
Decisions made without knowledge of C-Suite logistics executive.
Labor shortage and recruiting talent.
Going to zero waste facilities.
Sustainable sourcing.
3PL employee turnover.
Local sourcing.
What Retailers Think of 3PLs
Similar to last year’s discussion, executive retailers are frustrated with their 3PL relationships. They characterize the relationships as lacking in communication, both in-person and in electronic form.
They believe 3PLs neither understand the client’s business nor appreciate the challenges and issues they face. They perceive the 3PLs as working only for financial gain and consider their clients’ shipments as “moving freight.”
Furthermore, the retail executives think 3PLs do exactly what is asked of them without providing innovative ideas to improve efficiencies. With fewer 3PLs around, retailers think they have fewer options from which to choose and that 3PLs are not incentivized to improve.
On the positive side, retailers trust their 3PLs to do their job. They just do not perceive 3PLs have a vested interest in working together.
“What innovation could they bring? Maybe we don’t know what we really want or how to ask for what’s faster. We’re just telling them what we want and they’re providing it. We very seldom get challenged with ‘No, that’s not how you should do it. There’s a better way. We know a better way because we’ve done it for somebody else.’ This is what you should do.”
Better Service Providers
Retailer executives were clear and quite vocal about how 3PLs can better serve them. They articulated several specific ways to improve customer service.
Transparency
Traceability was echoed strongly in this year’s roundtable discussion and last year’s discussion. Having the technology to provide visibility provides a sense of assurance that timely deliveries will be made and can be used to anticipate issues in the supply chain.
Also similar to last year’s round table discussions, transparency was mentioned as severely lacking. Retailers want to know about 3PLs’ production systems and costs. One participant new to the industry attributed the lack of transparency to the 3PL culture.
“My issue is that I would like to see better transparency in their production. Not so much KPIs, but actually what they’re doing in terms of labor management systems, because with a third-party you have your fixed costs, you’ve got your variable costs, but my company expects me to drive efficiency. So, as labor goes up, I’m able to do more cases. I would expect the same thing out of them, and it seems like we’re having trouble finding out what those numbers are, and there’s obviously margin hidden in there. I want them to make more money, but I also want to reduce our costs and I see that we struggle with a lot of our third-party vendors, especially in the distribution center area, for that visibility.”
Communication and Reporting
Retailers expressed a strong need for multifaceted communication with 3PLs. Having quarterly face-to-face meetings and frequent electronic communications will go a long way in helping retailers do their job.
Developing regular reports with key performance indicators (KPIs) resonates with all retailers. Reporting is urgently wanted and retailers are willing to work with 3PLs to develop standardized metrics.
Not only do metrics and regular reporting help ensure compliance with regulations; they also increase visibility as to where an issue lies in the continuum of the supply chain. Being able to expediently resolve an issue is critical, and reporting will help with accountability.
“With our current providers, we ensure that the processes are in place. Typically, we send our regulator folks over to ensure they have their proper documentation and procedures, but unless there is an inspection on our end, the FDA is involved with the facility, we then have to go back and either reconstruct information about the supply chain, or get reference from them regarding their compliance with various aspects of reporting, be it transportation, or be it warehouse. It would be great if the industry could move toward a more regular reporting and more of a structured process, so that we, as retailers, are sure that they were compliant. Maybe a multi-report or something of that nature.”
“I don’t think that there is good communication today, a least with our third-parties, it’s more situational. It’s more when you’ve got an issue – when something blows up and you’ve got the FDA standing there inspecting a facility, you get into it with the third-party. Does the facility have the information and where do I get it? What format is it in? Do they have everything that the FDA requires? I think the industry could use some standardization, frankly, in terms of their reporting back to their clients or retailers. Consistency would represent a big step.”
Understanding Retailers’ Business
An understanding and appreciation of the retailers’ business are highly valued. Currently, retailers have the perception that 3PLs do not understand their business – they want partners that are sensitive to their client’s business, and do not conduct business solely for financial gain.
“I think education and alignment are key to working with third-party warehouses and third party transportation. If they are aligned on what products they’re dealing with and the importance of the product – when I say, on-time delivery, you know on-time delivery is defined as this: being within this window or whatever it might be. I think that’s key.”
As in last year’s discussion, retailers value working with a strong general manager. An experienced manager can facilitate and quickly resolve issues compared to an inexperienced manager.
Efficiencies and Innovation
Retailers want to partner with 3PLs to identify and develop ways to improve logistics, reduce the time in the supply cycle and bring innovation to the customer.
“If you go back a few years, you got more feedback such as, ‘Hey, if you would do this, it would help me reduce cost for you.’ Now it’s, ‘Hey, we’re doing exactly what you told us and now the costs have gone up.’ Instead of asking, ‘How do we improve business?’ or ‘Hey, if you could change this behavior, if you could do that, we can do better.’ Very little of that.”
The Future
Retail executives’ tone became more positive and enthusiastic when envisioning the future.
Just in time (JIT) inventories, shared capacities, flexibility, paperless, and automation are some of the future trends they described. They believe that with the increase in automation and robotics, the labor pool will decrease and labor rates will continue to rise. Retailers see the supply chain as having less brick-and-mortar warehousing and more integrated systems between retailers and 3PLs. According to the participants, this will yield a mutual gain.
This presents an opportunity for GCCA and its members to be on the vanguard of these developments.
Alexandra Walsh is Senior Publishing Consultant with Association Vision and Managing Editor of COLD FACTS. This article was originally published in the November-December 2017 issue of COLD FACTS Magazine.