Reduce logistics costs - SKUFood
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Reduce logistics costs

As we enter 2023, each week we will explore one of our 10 trends for the new year. We approach this a bit differently as our trends are developed for suppliers in the food and beverage industry. They are based on what we learn talking to different retailers, suppliers and stakeholders in the industry.

Our seventh trend is Reduce logistics costs. Products need to get from where they are produced to the shelf and it is costing more all the time. Retailers might entertain creative solutions such as fewer deliveries of more products, to share some benefits.

Moving products around is necessary. It seems if you do it well that is what is expected and if you have problems, it can really hurt your relationship with customers. You have to get it right but you also have to find the most cost effective way to do it. Energy and labour costs continue to rise, which have a direct impact on trucking and every other option you have to move products.

Challenge your own business

Coordination of freight and moving products is a big cost. It is also a challenge to ensure the products gets where it is supposed to be in the right condition. Within your business challenge the people managing freight to find the best value. We define value as a combination of price and quality.

When it comes to price you can explore different options. If you have the volume full loads are the best. This might require some conversation with customers to reduce frequency of deliveries to get more on a truck. When you have less than full loads (LTL) you will have options of paying per pallet or per hundred weight. We see both in food and beverage. Usually, if your product is heavy the hundred weight option is preferable because the more weight, the lower your rate. It is more difficult to forecast this. It is also a challenge because the rate can change as weight goes up and down. Per pallet is easier to forecast of you are shipping full pallets but can be very expensive if you are only shipping part pallets.

Freight is complicated. There are a lot of variables. We recommend you measure your freight per case monthly if you system is capable. Set targets and compare your actual results to the targets. If possible, it is also beneficial to measure freight per case to each customer.

Considerations for producers and processors

If you are using a third-party carrier these people represent your business to your customers. You should measure the job they are doing for you. Certainly, cost is part of the equation, but you also have to measure service. It starts with the pick up of the product, the transit time and the on time deliveries. Quality of the load when it arrives is also an important consideration. Push your carrier to provide this information to you. You are paying for a service so you need to know how it is being delivered.

Fuel surcharge was implemented a number of years ago to allow carriers to recover the increasing costs of fuel. Watch this carefully to ensure it goes down when it should. I would expect it goes up when it should, but you just have to make sure the reverse happens in a timely manner. We would assume this is happening, but it can be a big part of your freight costs, so it is a good thing to keep an eye on it.

Backhaul can be an option with some retailers. Overall this concept seems to make a lot of sense but like many other things in this industry we can complicate it. Retailers have trucks going from their warehouse to their stores every day. Once they deliver the load to the store they have to go back to the warehouse. If they are close to a supplier, it seems everyone wins if they can fill that truck with product and deliver it back to the warehouse. You should ( I say should but but does not always happen) be able to get a better rate doing this than a third party carrier.

We mentioned number of deliveries earlier. Retailers, especially the merchants do not understand freight. These are big organizations and the logistics people can even be in a different location. Merchants want suppliers to deliver all the time, especially in perishable departments. Their rationale is it is fresher. This is true for a few items but not all of them. Merchants do not understand the impact on cost of goods to deliver 3 times per week with a part load compared to 2 times per week with a full load. You might have to take them through the math and agree on a slightly lower cost of goods (share the win) or illustrate how it would offset a cost increase and allow you to maintain your price in these times of food inflation.

Cases on a pallet also can impact your freight cost per case, if you are paying per pallet or per load. Perhaps you have already got this to the maximum which is great. If not one more layer can reduce your freight cost per case.

We almost do not want to bring it up, but compliance fines impact your logistics costs. Make sure you review these with your people and your carriers. Know the rules of the game. These can be arbitrary and there are times when you need to push back. Make sure you have the facts and find the right person to negotiate with. We hear stories of retailers charging fines when they are unable to unload and other questionable practices. Address the issue as soon as you can.

Understand logistics cost and do your best to manage them

There is the old saying, ‘you can’t manage it if you don’t measure it’. This is very true for logistics. It can get complicated but in the end, it is really the total logistics costs per case. Once you know this you can see what is happening and try to break down components to look for opportunities. Our experience people within suppliers coordinating logistics are more focused on getting the product moved than the cost per case. Obviously, they need to get it moved but it is important they understand the impact on cost of goods.

In this period of food inflation and more heightened awareness on costs you might get a different response from your customers to questions you have asked before. For example the opportunity to avoid a cost increase with less frequent deliveries might be an option where it was not 2 years ago. We are operating in a different environment.

If you have any questions about our SKUFood trends, you can always send me an email or call me at (902) 489-2900.

Peterssors and retailers all reacted relatively quickly to get products into the market and on the shelf.

Nestle to increase prices again after 8.2% increase last year

Consumer packaged goods companies continue to struggle with rising costs in their business. We have read about Nestle pulling out of Canada with certain frozen food lines like Delissio Pizza.

Total company sales increased 8.4% in 2022 but they were down in profits. Retailers will continue to push back against cost increases but when supplier profits decrease there might be less of an argument.

Global perspective on food inflation

We saw this post from FCC on Linked In which included some interesting numbers. It does provide some national comparisons which compare Canada to other countries. One thing to remember is this is year over year, so it does not factor in the starting point. In other words, if Canada was over-priced before then the increase should be less.

A very complicated issue but the more information we all have the more informed decisions we can make.

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