Pepsi and Coke Urge CPGs
To Consider DSD to Drive Growth
By Al Heller
PepsiCo and The Coca-Cola Company are urging other suppliers of consumer packaged goods to consider Direct-Store Delivery of their products to drive and sustain growth by effectively delivering what shoppers want at the shelf.
“DSD drives product flow that is almost a just-in-time replenishment engine for stores,” said John Phillips, vice president, customer supply chain & logistics at PepsiCo. “Manufacturers can use it throughout the year to leverage promotional events, to ensure the right amounts of product are in stores, displayed as planned, to satisfy demand on a local basis.”
Ann Dozier, vice president, collaborative customer capabilities, The Coca-Cola Company, said, “CPG companies have an opportunity to focus on superior execution at the shelf. DSD is a key driver of flawless execution in stores.”
The executives made these comments as part of an exclusive interview with CPGmatters about a new study from the Grocery Manufacturers Association (GMA) that highlights the value of the DSD distribution model, even for some CPG products that currently go through retailer warehouses. The benefits of DSD are indisputable and appropriate for targeted new-product launches and seasonal promotions year-round and store-wide, according to Phillips and Dozier, who were key contributors to the research.
“DSD done right is a great demand-sensing mechanism,” said Phillips, a member of the GMA committee that spent more than a year developing ‘Powering Growth through Direct Store Delivery,’ the new report that quantifies DSD performance and predicts a strong outlook for its use.
The study states that DSD products account for 24% of unit
sales and 52% of retail profits in the grocery channel. Noting these
figures have been consistent the past two years, Dozier portrayed DSD companies as among the most innovative suppliers
and collaborators.
“We’re seeing the top new items and top sellers overall coming out of DSD,” she said. “That’s happening in an environment of rapid change where people seek more variety in the stores they shop, and retailers are placing a focus on understanding the shoppers they want to attract. The speed-to-shelf for DSD goods is unparalleled, a day or two versus 10 days through the warehouse. This gives CPG flexibility to try new products, get them to the shelf faster, and continually analyze the shelf to ensure the right assortment.”
It’s also one reason why 77% of U.S.-based retailers told researchers they expected to use DSD the same amount or more in 2008. Seven of the 10 largest grocery categories – carbonated beverages, bread and baked goods, fresh produce, milk, salty snacks, beer and frozen prepared foods – rely on DSD. These categories, the study said, grew sales nearly 15% between 2003 and 2007, outpacing others by 52%. The use of supplier representatives – to reorder, restock and merchandise shelves, identify and rectify problems quickly and increasingly with near real-time data-driven insights on hand-held technology – contributes 25% of total store labor in the North American market.
Analytical-minded retailers that understand cash flow and the
benefit of turning products three or four times before they pay the manufacturer are the biggest proponents of DSD, according
to Phillips.
“As consumer products companies build demand-driven capabilities, DSD – with three times faster shelf sensing and five times faster replenishment – becomes important to conquer the challenges of last-mile delivery,” said Lora Cecere, research director-consumer products, AMR Research, the firm that conducted the study for GMA along with Clarkston Consulting. The study used Nielsen data. “These capabilities increase in importance in executing perfect product launches and tailoring neighborhood assortments.”
The study had two research phases. In 2007, Clarkston interviewed 41 suppliers, retailers, technology and data providers, and examined more than 100 research sources, to assess the state and perceptions of the evolution of DSD. Clarkston also analyzed Nielsen data on DSD performance. Late last year, AMR and GMA surveyed 37 retailers and 42 North American suppliers online to understand their perceptions of the DSD model.
Phillips called “effective collaboration the key to unlocking the next generation of improvements in DSD productivity and in-store execution.” He noted PepsiCo’s success streamlining the DSD check-in process through Advance Shipment Notifications (ASNs) for beverages and snack foods. “This technology delivers significant improvements in order accuracy, and saves time for retailers’ backroom receivers and our front-line sales representatives.
“From an execution standpoint, we are working with retailers to leverage POS data in new ways to develop actionable reporting and work-flow tools to drive improvements in on-shelf availability and in-store service levels,” he added. “This collaboration allows us to create a true ‘Shared Supply Chain’ focused on delivering the highest possible service levels at the lowest possible cost.”
Dozier and Phillips noted that their companies, plus Kraft and others on the 26-member GMA committee, offer scaled warehouse delivery methods as well as the DSD they’re most known for. “Our DSD system is a key enabler of collaboration and growth with our retail partners,” she said.
Companies that have both warehouse and DSD capabilities are continually evaluating the optimum system to launch new products based on an extensive set of product and system characteristics like shelf life, bulk density, and promotional lift, according to Phillips. “We focus on working to create the highest possible growth, optimal inventory levels and better cash flow, and help to deliver the best possible shopping experience,” he said.
Market Watch
Most Retailers Bullish
On Direct Store Delivery
By Lynne Cooke
Nearly eight of ten (77%) U.S.-based retailers expect their use of direct store delivery processes (DSD) will increase or remain constant in 2008, says a new study, indicating a significant opportunity to drive sales growth.
The study, called Powering Growth Through Direct Store Delivery, was released by the Grocery Manufacturers Association (GMA) and conducted by AMR Research and Clarkston Consulting.
“Direct store delivery improvements represent manufacturer-customer collaboration at its finest,” said Stephen Sibert, GMA senior vice president of industry affairs. “This study indicates that both retailers and manufacturers are being rewarded for DSD innovations -
from enhanced promotional effectiveness to increased brand and store loyalty.”
As evidence of the sales opportunity that DSD can create for retailers, the study noted that sales of DSD products account for 24% of unit sales and 52% of retail profits in the grocery channel. What’s more, seven of the top ten largest grocery categories employ DSD, and these categories experienced a nearly 15% growth in sales from 2003-2007.
By placing supplier representatives in the store, the DSD model not only helps ensure proper execution of trade promotions but also contributes 25 percent of total store labor in the North American market, the study suggested.
“DSD offers unparalleled capabilities to meet shoppers’ needs,” said Ann Dozier, The Coca-Cola Company’s vice president, collaborative customer capabilities and chairman of the GMA Direct Store Delivery Committee. “By collaborating with DSD suppliers, retailers can maximize operations while delivering a unique shopper experience at every store.”
The analysis, based on quantitative and qualitative research of DSD and non-DSD company environments, was initiated by the GMA Direct Store Delivery Committee.
JDA Acquires i2
JDA Software has acquired i2 Technologies, a leading global provider of supply chain solutions. The merger will represent a combined annual revenue of $635 million, including nearly $300 million of annual maintenance and recurring subscription fees.
JDA CEO Hamish Brewer stated that the acquisition of i2 doubles JDA’s addressable market in manufacturing to include discrete manufacturing, complementing the company’s current market leadership in process manufacturing, while strengthening its retail and transportation management presence.
Naturipe Scores with CHEP Pallets
The significant benefits from the CHEP pallet pool have convinced Natauripe Berry to continue shipping on platforms from the
world’s largest equipment pooling company. Naturipe previously used one-way pallets, but changed because it was expensive, did not meet the requirements of customers, and was not a environmentally friendly.
Using CHEP pallets, Naturipe transports a variety of berries from its growing and distribution facilities in Irvine, Oxnard, Salinas, Watsonville and Santa Maria, Calif. Its primary customers are supermarkets, grocery wholesalers, club stores, terminal markets and foodservice companies across the country.
Minimal Investment in RFID
Some retailers such as Wal-Mart have mandated that CPG companies invest in RFID to improve the supply chain. However, most are only making minimal investments to satisfy their business partners, according to a new report from Diamond Management & Technology Consultants.
The report, entitled “Keeping RFID’s Long-Term Potential in Sight,” states that companies not involved in compliance-related initiatives become increasingly skeptical about the benefits of this technology. Many are undertaking a “wait-and-see” approach. But, the report asserts, closed-loop RFID systems for such applications as in-store inventory tracking and asset management are providing companies with a cost-effective entry point to RFID. These efforts reportedly ensure a much quicker return on investment.
EPA’s Plans Sustainability Web Portal
The U.S. Environmental Protection Agency (EPA) is planning to launch a retail-specific Web portal that will streamline information gathering on environmental sustainability and compliance issues. The Retail Industry Leaders Association (RILA), together with other retail industry trade groups, has worked with the EPA over the past several months to create the portal, which is set to launch later this year.
The initiative aims to centralize information regarding environmental compliance, sustainability and pollution prevention practices relevant to the retail industry. It will also provide easy access to all retail-related environmental compliance information within the EPA website. The industry-specific portal is the product of ongoing dialogue between the EPA and retailers, including members of the RILA Sustainability Initiative.
AUGUST 2008
Coca-Cola Scores with
Collaborative Store Ordering
By Al Heller
A collaborative store ordering test led by Coca-Cola Enterprises and Wegmans Food Markets has driven higher overall sales and in-stock positions of Coke’s branded beverages, and reduced days of supply on hand.
These results were achieved in eight stores across Wegmans’ headquarters market of Rochester, N.Y. versus eight control stores where no other changes were made to direct-store-delivery (DSD) processes “to allow us to test the true value of collaborative ordering,” said Kraig Adams, collaborative industry development director at Coca-Cola Enterprises, Coke’s leading bottler.
The six-month pilot, which ended in May 2008, appears to have put the trading partners on a better course to optimize inventory levels—full and precise enough to meet consumer demand, yet with supply chain efficiencies that have potential to reduce costs for both sides. The Atlanta-based bottler’s participation was supported by The Coca-Cola Company.
“Now that the test is complete, we will leverage this information to enhance the beverage aisle experience by offering the right assortment for the retailer and shopper in the store,” Adams told CPGmatters in an interview.
Key to the pilot’s development and success was open information sharing, building trusting relationships, and measuring results through common goals and measures, according to Ann Dozier, vice president-strategic industry initiatives at Coca-Cola. “This partnership enables us to both learn about a new concept that can positively impact our collective businesses.”
Specifically, the ability to pinpoint the right size and assortment of collaborative orders rested on the use of retailer point-of-sale (POS) data as a key information source. This data gave Coca-Cola account managers complementary insights into each store’s consumer demand trends, and enhanced ordering sophistication.
“The account manager is still a very integral and important part of the DSD process,” emphasized Adams. “Having the account manager review and modify the order was key to ensuring the highest level of in-stocks to meet shopper demand. Data is key to understanding the facts, but turning that data into actionable information requires human intervention from an expert.”
When asked if the importance of in-stocks rises in a tight economy, when shoppers might buy less of certain categories in order to save, Adams said, “Regardless of consumer spending or market conditions, our in-stock position is always vitally important….This process gave us one more data point to ensure we have the highest level of in-stocks. We improved in-stocks in the test stores. We will continue to look at how technology and information can enhance the DSD process.
“Our retailers need scale and consistency in operational processes to be efficient,” he added. “This process was all about learning.
We achieved some positive results and will continue to build on
our learnings.”
Looking ahead, Coca-Cola and Wegmans are exploring opportunities to use store-level sales better throughout their businesses. “This was a proof of concept that we will continue to expand as we learn more,” said Adams.
Moreover, the beverage titan expressed openness to “sharing these results as appropriate with other DSD companies through open industry forums. We are committed to developing standard ways of transacting business with our retail partners to ensure the most efficient and effective business operations,” he added.
The Coca-Cola pilot with Wegmans was part of an industry-wide initiative called New Ways of Working Together. It aims to eliminate business disruptions, while growing sales through improved collaboration. In this pilot, four primary areas were key: sales, in-stock position, inventory, and account manager effectiveness.
Coca-Cola’s Dozier recently gave CPGmatters added context for these kinds of mutual efforts: “The key to growing sales is having a collaborative partnership that promotes developing joint strategies to win together at the shelf and in the hearts of shoppers. As collaboration increases with our retail partners and we share more data and insights, we are using that information to align our deliveries based on shopper demand. Having the most efficient and effective DSD processes…allows us to focus with our retail partner on growing sales and not dealing with inefficiencies and problems.”
From that perspective, the pilot is one more step in an ongoing series of DSD advances made by Coca-Cola in recent years.
Among them:
- Advanced Shipment Notices (ASNs), which enable Coca-Cola to scan a single bar code at point of check-in for an entire shipment to be received
- Standardized processes in warehouses, the delivery pipeline, and at the shelf for greater accuracy and speed
- Data synchronization and shared insights with retailers to help optimize assortments and space allocation in individual stores.
Collaboration Takes Center Stage
As Execs Gather at U Connect 08
By Lynne Cooke
A new collaborative business approach called “New Ways of Working Together” is designed to enable trading partners to focus on agreed-to plans and jointly grow their businesses while working to eliminate supply chain disruptions.
The collaborative approach focuses on the connectivity of cross-organization areas such as marketing and sales, manufacturing, business-to-business collaboration, transportation, and quality and safety to utilize standards to create more efficient and sustainable supply chains. The approach was introduced and promoted in Dallas recently where nearly fourteen hundred supply chain professionals gathered for U Connect 08, presented by GS1 US and VICS.
“The value of business collaboration and the creation of efficient supply chains cannot be underestimated in today's business environment,” said Chip Lloyd, Chief Operating Officer, GS1 US. “With increasing fuel costs, high-profile product recalls and increasing momentum towards sustainable business practices -
U Connect and GS1 System standards have never been more important or relevant.”
Topics covered at the event included new techniques and technologies that help: gain end-to-end supply chain visibility, go green, achieve sustainability and enable business growth. Also highlighted were the importance of data quality, advances in Electronic Product Code(TM)/Radio Frequency Identification (EPC/RFID) technologies and the growing need for track and
trace technologies.
U Connect 08 hosted attendees and speakers from major companies such as Anheuser-Busch, ConAgra, Dillard’s, Kraft Foods, Lowe’s, Miller Brewing Company, Procter & Gamble, Target, The Coca-Cola Company, The Hershey Co., The Pepsi Co., Tyson Foods, Wegmans Food Markets, and Wal-Mart Stores. Speakers provided insight and learnings on how the implementation of standards increased their efficiency and overall profitability.
CHEP Joins SmartWay Transport
CHEP, provider of pallet and container pooling services leasing, has joined the SmartWay Transport Partnership. The latter is a collaboration between the U.S. Environmental Protection Agency (EPA) and the freight industry with the common goal of increasing energy efficiency while significantly reducing greenhouse gases and air pollution. CHEP is working with EPA tools and strategies to measure and reduce its environmental impact, as well as the efficiency of their freight operations and fuel-usage.
To meet the partnership’s goal of reducing 33 to 66 million metric tons of carbon dioxide and up to 200,000 tons of nitrogen oxide per year by 2012, CHEP is improving the environmental performance of all operations. It is already an Energy Star Partner with the EPA as well as the Department of Energy, and pledges to track and reduce energy use in its buildings and facilities across the nation. CHEP maintains strong relationships with several current SmartWay Transport Partners, including retailers and manufacturers such as H-E-B, Meijer, Dannon, Procter & Gamble, Coca-Cola Enterprises, Kraft Foods, Kroger, Safeway, Tyson Foods and Wal-Mart.
Checkpoint to Acquire OATSystems
Checkpoint Systems, a leading maker of identification, tracking, security and merchandising solutions for the supply chain, has entered into a definitive agreement to acquire OATSystems, provider of RFID-based application software and middleware. Both companies offer complementary merchandise protection and inventory management applications designed to strengthen their combined presence in the retail market.
For retail customers, OATSystems solutions help turn large quantities of data from RFID hardware into meaningful and
actionable information. These solutions will enable them to enhance operational efficiency by obtaining accurate perpetual inventory levels, ensuring on-shelf availability of merchandise that is seamlessly integrated within the framework of existing loss prevention strategies and practices.
