Effectively Managing the Supply Chain

Pressure to reduce costs means that wholesalers and distributors need to work with convenience store retailers to trim the fat from the industry’s distribution infrastructure.

by, John Lofstock, Editor

Cutting supply chain costs remains a challenge for convenience store chains large and small—one that, sooner or later, they must confront.

Dealing with primary wholesalers, multiple DSD vendors and local foodservice providers as they do c-store chains are learning to grow more efficient without sacrificing goods and services. Some of the ways they are doing that include maximizing product turns, reducing out-of-stocks and eliminating slow-moving SKUs to make room for potentially better sellers.

“I think it gets back to the fact that you really have to analyze assortment in a very detailed way,” said Kit Dietz, president of Dietz Consulting in Huron, Ohio. “Embracing category management is important. I think recognizing the potential of the store from the standpoint of destination categories and merchandising the stores to capitalize on high-margin impulse categories like candy and snacks is important.”

There are, Dietz emphasized, some big in-store opportunities available since candy and snacks deliver—candy particularly—the highest margin and true profitability in the center store. “It’s very impulse driven. Most candy purchases are unplanned, so the candy aisle should be located in the highest-traffic aisle in the store.”

Operators also need to make sure they have the best-selling SKUs. The top 50 SKUs, which only represent about six-tenths of 1% of all of the SKUs in the convenience channel, drive 32% of the business. “So make sure you have the proper focus on core assortments,” Dietz said.

What Dietz has found in his extensive industry experience is that many retailers want a particular brand and end up carrying product duplications, which builds cost into the system. “Sometimes one SKU is enough for a whole category,” he said. “They should focus on best-selling brands so they can satisfy consumers, and understand what the impact can be on the total supply chain.”

Not Just Price
Many retailers also tend to concentrate on price rather than the total cost of acquisition, noted Steven Montgomery, president of b2b Solutions in Lake Forest, Ill. “Price is what they see on an invoice. Total cost includes all the elements of cost that go into a purchase. This could include cost elements such as terms, return policies, order quantities, delivery and a host of support services.”

Focusing solely on price is a mistake, experts claim. “The most deadly sin is being focused on the lowest cost of goods rather than on how to sell more to the consumer,” Dietz said. “You can’t save your way to prosperity.”

One of the best ways to remove cost from the supply chain is to control the number of vendors making deliveries to your stores. This is an area 7-Eleven has been heavily studying of late. The results of a pilot program the chain is running in California could have a significant impact on how goods are delivered to c-stores across the country,
“We have worked with retailers who have vendors with overlapping items,” Montgomery said. “One of our recommendations is to consolidate vendors whenever possible.”

Benefits of Self-Distribution

With 400-plus-stores Kwik Trip in La Crosse, Wis., operates its own distribution system. “Unlike a lot of other convenience store chains out there, one of our corner stones is controlling our own supply chain,” said Steve Wrobel, the company’s head of corporate communications and leadership development.

Kwik Trip has the right size, volume and geographic locations to be successful with self-distribution. All of Kwik Trip’s stores are located in a three-state region—Wisconsin, Minnesota and Iowa—which allows the chain us to distribute from its central warehouse in LaCrosse. While size matters, execution is just as important. Consider Family Express in Valparaiso, Ind. The company operates 52 stores, yet owns and operates a new central distribution center that controls and prepares fresh food items, baked goods and its growing line of private label products.

Executives at Kwik Trip, according to Wrobel, are constantly working to introduce efficiencies to the system and thus cut costs. “Obviously we watch our inventory turns carefully,” he said. “Our category management team reviews on a regular basis the movement of individual products.”

Buy Direct
Like Family Express, Wesco Inc. in Muskegon, Mich., is a smaller chain producing big-time savings with its own distribution center. “The most effective way we’ve cut costs is through buying direct,” said Russ Bolitho, distribution director for the 51-store marketer. “We lowered  operating costs to less than what the distributors offered. We make sure that our delivery costs are in line, that we have our inventory turns in line and that we keep the cost of goods down for our stores based on buying direct.”

Self-distribution also increases the opportunity to get a piece of additional marketing dollars. “There is a lot of promotional and discount money that is kept by the distributors,” Bolitho said. “By going direct we are able to get a piece of that action, and it’s become a pretty good revenue source.”

The company’s distribution arm, formerly known as On Your Way, has been renamed Wesco Distribution.

Category Management Help
While the industry has matured well beyond where it was just 10 years ago, all retailers can use some help evaluating their category management practices. “Category management is absolutely critical. We have a limited amount of space in the c-store, we have consumers who are primarily focused on instant consumption and there are products being ignored that can perform extremely well,” Dietz said.

There are “significant gaps” in the best-selling SKUs in the marketplace, Dietz added. “That’s not to say that only independents are missing it; some of the big chains miss it as well. When it comes to the biggest opportunity to improve profitability, that comes from finding a distributor that is able to deliver high-quality planograms that are developed not only by looking at national data, but regional data, and from looking at individual retailers’ movement in the store.”

Working with a distributor that can base its planogram decisions on multiple data points is critical. “It all comes down to having the right item for the consumer in the store and merchandising it the right way,” Dietz said.

The Keys to Collaboration
If they really want to take costs out of the supply chain, retailers and distributors need to collaborate to better understand how they are impacting costs in that chain. “I think this collaborative process is long overdue, but it’s starting to be embraced,” said Kit Dietz, president of Dietz Consulting.

From the years of work he has done with candy and snack manufacturers within the distribution community, Dietz has found that companies are continuing to adapt to the realities of the marketplace. “They are starting to recognize that this is a limited-assortment channel, highly impulse-driven, driven by instant consumables. We haven’t done a good job of rationalizing assortment, and there are some true opportunities there.”

Given the pressures on all members of the supply chain from the economy and other sources they need to look for every opportunity to improve together.

“Even some of the larger manufacturers that were responsible for some of the SKU proliferation are more open in the category management process now. The manufacturers that are doing it right are the ones who are saying, ‘These are the SKUs we have that you should carry and these are our SKUs that you really don’t need to carry, and here are some of my competitors’ SKUs that are doing well that you should be carrying.’ That’s happening more and more now, and it’s something I’ve been pushing for years that will benefit this industry tremendously.”

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