CPGMatters: Coca-Cola Enhances DSD with Better Collaboration
By John Karolefski
Through a special arrangement, what follows is an excerpt of a current article from the monthly e-zine, CPGmatters, presented here for discussion.
The Coca-Cola Company aims to make the check-in process of direct store delivery (DSD) more efficient in 2008 as part of a broader goal of improving its supply chain activities in collaboration with retailers.
Plans call for rolling out Advanced Shipment Notices (ASNs) to more retailers, sharing data and insights to schedule deliveries based on shopper demand, and aligning peak delivery times with merchandising to add value for the shopper.
“Having the most efficient and effective DSD processes supports sales growth through ensuring the right assortment of products in the store and ensuring the highest level of in-stocks,” said Ann Dozier, vice president, Strategic Industry Initiatives at Coca-Cola. “It also allows us to focus with our retail partner on growing sales and not dealing with inefficiencies and problems.”
In recent years, Coca-Cola has made several advances in DSD in all areas of its operations including account management, delivery, and merchandising. They typically involve process standardization and better technology. She listed the following:
- Standardizing processes in warehouses, in the delivery process, and at
the shelf. Coke has enabled its warehouses with technology that ensures the
delivery of what was ordered and reduces inaccuracies in picking the product.
- Improving collaboration with retail partners, including connecting information
better through initiatives like data synchronization, leveraging retailer
data to improve shopper insights that lead to ensuring the perfect assortment
and space allocation at the store, and automating the delivery processes.
“We are using that information to align our deliveries based on shopper demand,” she explained. “For example, if the peak time at a store is Saturday morning, we are aligning our delivery to occur as close to that peak time as possible. This ensures we have the minimum amount of inventory in the backroom.”
“Off-hour delivery is another strategy that allows us to better align with shopper demand. It also reduces the wait times at the back door and promotes an efficient back door and back room,” Ms. Dozier said.
The Grocery Manufacturers Association (GMA) plans to release a study on DSD this spring. Notable improvements in recent years include flexible receiving, automated check-in, price and data synchronization.
“What we are seeing is a good increase in retailers wanting to work with DSD manufacturers to improve how things can be done to have better efficiency and be able to meet consumer needs better,” reported Pam Stegeman, vice president of supply chain and technology at the GMA. “And we’re starting to really be able to trust each other more as trading partners.”
Discussion Questions: What do you think of Coca Cola’s and others’ efforts to speed up the entire back-door receiving process? What do you think of its potential to align deliveries based on shopper demand? What needs to be done to make the back-door delivery process smoother for retailers and vendors?
Efforts like this are usually a no-brainer–it’s the responsibility of both parties to keep on taking costs out of the system. If Coke can help this along, as well as reduce out-of-stocks, that’s the perfect win-win situation.
One note–this does not add value for the shopper, unless one thinks that having a product available is “adding” value. This does add value for the retailer–shoppers’ perceptions of the store should be enhanced when the [right] products are always available. But a shopper also assumes that this is the case–they notice unavailability, not availability.
Good for Coke for stepping up, although I have to confess it never ceases to amaze me how slow progress seems to have come in this area. Unless my dementia has progressed farther than I thought, I recall writing about Dreyer’s/Edy’s having a terrific state-of-the-art DSD system well over 10 years ago. As I recall (and this is the part you should be suspicious about), individual stores uploaded scan data on how many of each SKU had been sold since the last delivery. This data arrived a few hours before trucks were loaded at some ungodly early hour in the morning, and so each truck, at least theoretically, had just the right product for its route. I always heard the data was clean enough to make this system work really well. Dreyer’s/Edy’s, of course, has never been particularly loquacious with the press, so you don’t hear about this often. Perhaps someone out there may have an update on this.
Out-of-stocks continue to be a problem for retailers and manufacturers as far as I can tell. If this process not only cuts costs but also allows for better in-stock rates, then there is real value to all parties: manufacturers sell more, retailers sell more, and consumers can purchase what they came to buy. All steps in this direction make it more difficult for the manufacturers and retailers who continue to have out-of-stock problems.
As the world of retailing becomes more and more competitive, it is imperative that retailer and supplier look at every function and part of their business to see how to make it more efficient and also to create better customer experiences.
The initiative that Coke is taking with DSD just shows once again how we can now turn information into intelligence and then use that intelligence to run a more cost effective operation, while at the same time saving man hours and better inventory control.
Speeding up the back-door receiving process can certainly add value of cost savings for both the vendor and the retailer. An automated scan check in can help. The issue is that many back doors do not have technology. The real value though is in aligning deliveries based on shopper demand.
For example, there is a particular soda that several of my friends like. It is delivered to each store in 4 or 5 cases. My friends know what day the delivery gets there and are usually waiting for the vendor to arrive and buy the whole lot. The vendor has been told–as well as the retailer–many times that the demand for this drink is much larger than 4 or 5 cases. Each gives a blank stare, to say well this is how it is!
Duh! Thought you were in business to sell your product! Someone in an ivory tower decided to tell both the retailer and vendor how much to order and never to review the order again. How many dollars were lost on missed sales?
The idea of reducing costs associated with back door deliveries is a great one. The idea of aligning DSD drops against peak consumer demand times/days also makes a certain qualified sense. If every DSD vendor pursued the same strategy (and assuming peak times varied between vendors) the result could be an around the clock check-in, processing schedule that could easily get out of hand. But, in general Coca-Cola should be saluted for trying to streamline the process.
I too salute Coke for continuing to try to streamline the DSD process and drive costs out of the system. It’s amazing that it is so hard to accomplish since the required technology has been available for a long time now. The roadblocks have been and continue to be an inability for retailers and manufacturers to trust each other and have a little flexibility.
I have to laugh though at scheduling the deliveries to arrive at the peak demand time. That’s fine for a few of the largest retailers but it is physically impossible to be at all the retailers at their peak demand times. There are only so many trucks and drivers that can be at every supermarket on Saturday morning for example. Retailers relaxing their receiving hours and allowing overnight deliveries would be a huge plus for DSD manufacturers but adds costs to the retailers to stock receiving staff at those times. Paying on scan sales and not checking in merchandise requires a lot of trust from both parties but drives a lot of cost out if handled properly. It can greatly reduce out-of-stocks too.
I can’t help but wonder which will happen first, the Cubs winning the World Series or DSD manufacturers and retailers finally working together. My bet is on the Cubs.
For most brands, the DSD field forces are treated like unwanted stepchildren. Their technology is often close to nonexistent, and it’s no surprise their productivity increases are also close to nonexistent. The drivers are often reduced to filling shelf space with no computerized analysis, and their time-crunch stress (particularly in urban areas) is awful.
Coke sold off its bottlers years ago because of the low return on investment and low likelihood of any change to that equation.
In an oft quoted report written years ago by the GMA, it was stated that DSD supplies about 53% of store level profit. The only cost a retail store manager has to apply to 53% of his or her profit is a receiver. Too often, receiving hours are erratic and unpredictable. When profits slide and man hours need to be cut, this is one of the first areas impacted. I’ve often heard receivers and managers refer to DSD as a nuisance even though on average DSD provides approximately 7,000 man hours annually per store in free labor.
DSD is still one of the most misunderstood and mismanaged aspects of the grocery retail industry, not only in the value it adds but in the way it is managed.
I once asked a very experienced Publix store manager in Florida why he spent so much time in the backroom during receiving hours, he replied by pointing to the receiving door and saying, “that is where I make my money.”
DSD is culpable in diminishing their credibility through the perversion of category management practices and perpetuating an environment of suspicion and distrust. Both sides of the equation need to back up and recalibrate their efforts in areas that are mutually beneficial and quit pointing fingers at who is failing the process.
The back door at most supermarket chains has come a long way over the last 10 years, and the progress is equally attributable to the retailers and the DSD distributors. Shrink wrapped palletized loads with scannable invoices and real-time order-delivery reconciliation have been key to speeding up check-in times. While we have a ways to go, it’s a lot better today.