The case for smarter deconsolidation
As year-on-year Christmas sales figures indicate, end consumers are rapidly adopting e-commerce. Shopping preferences like this are calling for a change in traditional supply chains. And while retailers are adapting to provide omni-channel experiences, this change is resulting in challenges like an increasingly complex customer base, more sourcing locations, and a highly competitive marketplace pushing to reduce costs and improve service levels.
This article tries to demonstrate how ‘last mile’ deconsolidation solutions such as near sourcing, more distribution centres or crossdock facilities, and customisation near the customer can increase flexibility and decrease costs.
Times have changed
Before we discover how to overcome today’s challenges and turn them into opportunities, let’s understand the trends that are driving change.
The rise of e-Commerce
As predicted by Forrester Research, Inc in a 2013 report, e-commerce has become a significant part of total retail sales. And the two biggest reasons for this growth have been the exponential increase in the use of smartphones for shopping online and the fact that retailers are spending a lot more on e-commerce in order to offer omni-channel solutions to customers.
Giant Retailers X Manufacturers
Today, the demands of giant retailers have a trickledown effect on manufacturers. Take for example the footwear industry in which a retailer sells multiple brands including products in their physical stores as well as online and in smartphone apps. This means several Stock Keeping Units (SKUs) in a number of sizes made available at a range of delivery points with different loading instructions. Add to this the fact that the requirements of one shoe retailer may differ completely from another, and you can see how complex deliveries have become for manufacturers.
An expansion of global sourcing
If we continue to look at the example of footwear, South China was once a hub for footwear manufacturing but now this business is spread across Vietnam and Indonesia, and numerous other locations. Such an expansion in global sourcing capabilities is made primarily for three reasons. Lowering the cost of manufacturing, leveraging favourable duty rebates, and to mitigate risks and increase flexibility by making transitions between locations easy.
Turning challenges into opportunities
As you can see, today’s trends suggest that retailers have to focus on two key aspects
- Becoming more flexible so as to improve customer service
- Reducing supply chain costs. In the next section, let’s discover how last mile ‘destination services’ can help.
How can the ‘destination supply chain’ help reduce costs?
Supply chains have traditionally focused on the origin-to-destination port in order to fill their containers to a maximum, reduce 20’, use consolidation services, and more. For many, the last mile to the destination represents a largely untapped opportunity, due partly to the considerable spread in sourcing locations.
Here, deconsolidation services can be used to further optimize flows from different countries and then redistribute to final customers. A typical deconsolidation service facility manages three aspects with system visibility at the core:
Transport Management System: Information Automated Shipment Notification (ASN) with estimated arrival to ensure warehouse planning.
Warehouse Management System: Stock aging, customer performance, etc.
Transport Management System: Customer deliver, Automated Shipment Notifications, On-time performance, etc.
Within these three aspects, the following have potential cost advantages:
- Inland transportation in 53-foot trailers can often be much more cost-effective than direct containers
- There is greater likelihood of consolidating multi-country products into a single delivery to a store and/or customer
- There are options to leverage better transport rates through consolidation with other brands, particularly if your deconsolidation solutions provider is working with other customers who may be shipping to the exact same retailer
- Inventory holding costs can be reduced or eliminated by by-passing warehouses and DCs
- When a deconsolidation solution is used intelligently, the required storage space can be reduced
How can control over the ‘destination supply chain’ help improve customer service levels?
In addition to cost advantages, the destination supply chain allows companies to create product mixes (like the combining of footwear and apparel in one shipment). Services like cross-docking can save a lot of time, reducing the product cycle time so that products can be moved down the chain faster. In addition, it more readily enables special needs of customers to be fulfilled by value added services, without hurting lead times. All this, to put a smile on the face of the demanding end consumer.
Why can’t that all be done in a warehouse, and how does a deconsolidation facility differ from a warehouse?
Traditionally, supply chains have relied on pushing inventory to big distribution centres where it can be stored to meet possible demand. While this model can still provide the agility expected today, given that warehouses are located optimally to serve specific markets, it may not be a sustainable option simply due to the heavy costs associated with inventory holding. Not to mention, the slower cash conversion cycle.
Also, there is a significant difference between how an optimal deconsolidation facility, or a cross-dock facility, is designed when compared to a warehouse. A traditional warehouse is typically designed for maximizing storage capacity whereas a cross-docking facility places greater importance on ‘ease of product movement’. This means that a cross-docking facility requires very good network connectivity so that products can go in and out faster. Ideally, it needs to be a centre-of-gravity from the perspective of the customers being served.
Finally, it can get extremely expensive for supply chains to own and maintain (or lease) multiple warehouses simply because they require a certain ‘storage place’. The very purpose of cross-docking facilities is to move products in and out quickly, thereby minimising storage requirements.
Is it smart to outsource crossdocking?
This depends very much on the business model and network of customers a company has. If the aim is to reduce asset-holding costs and cross-docking is not a ‘core activity’, it may be smarter to outsource. Outsourcing may also provide benefits such as a better carrier network, flexible contracts instead of long-lease agreements, opportunities to benchmark, and more.
To improve customer service and reduce costs at the same time, supply chains today need to make the most of their ‘destination network’. These networks, however, cannot be designed in isolation. It’s important to take a holistic view - from factories at the sourcing locations all the way through to customers at the destination. Having the right logistics partner with the technology to support these changes will help achieve success in an increasingly competitive environment.
How to determine the right outsourcing partner?
- Tangible USD commitments/CO2 savings:It pays to look not only for a partner who can provide the product, but for one who can give you visibility into the value they create. Further, this data can be used to manage the partner’s performance as well.
- IT infrastructure:It is important to consider the IT infrastructure of a potential partner as this will help determine how efficient their processes are.
- Visibility of supply chain: A partner who has an overview of the extended supply chain may be in a better position to analyse data and propose holistic solutions that take the complete supply chain into account.
Case study: Combining direct and consolidated shipments
A leading footwear company that was using a ‘direct-to-customer’ delivery model, changed its model into a combination of ‘direct’ and ‘consolidated’ shipments, making savings in excess of USD 200,000 annually. Please note that this case study applies to a specific low volume country and not the entire globe.
How Maersk helped: We analysed the containers that were being shipped directly into the final delivery Distribution Centre and discovered an opportunity. We then designed a new solution that changed the customer’s direct supply-chain model (for this market) into a ‘deconsolidation’ model, where different markets were combined to realise big savings.
Case study: Including a destination deconsolidation facility
One new deconsolidation facility helped a large lifestyle apparel corporation save on logistics, inventory, and working capital. It accelerated product time to market and allowed for more efficient shipping. All this, saves the corporation USD 250,000 on logistics and even more, overall.
How Maersk helped: An extra option was added in the supply chain of this corporation to create more possibilities in the decision tree. While large, full containers are delivered directly to the customer, we saw an opportunity in deconsolidating all other orders at a strategically chosen new facility. In addition, our automated system planning for customer orders enabled agility and efficiency in meeting customer needs. Overall, our new solution also provided a standardised process in which to handle newly acquired brands.
Should you want to learn more about how Maersk’s deconsolidation solutions and how they can help you, please contact your local Maersk sales representative.