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Collaborative Distribution Is it really a new concept?

By Shippers Warehouse on Jul 25, 2012 at 05:25 PM in Press Releases
Collaborative Distribution  Is it really a new concept?


Is it really a new concept?

By: Ken Johnson
President and CEO
Shippers Warehouse, Inc.

                 There is a tremendous amount of marketing and advertising emphasis these days directed at the “new” concept of collaborative distribution.  Countless providers of 3PL services are touting their abilities to provide this benefit to current and prospective customers, and WMS suppliers are scrambling to prove to supply chain decision makers that their software possesses the most economical and efficient answer to the question of how these programs are organized and administered.  So how did this incredibly innovative concept escape the attention of the many supply chain practitioners and academicians who have made it their life’s work to provide logistics solutions until now?

                 The answer to that question is that it didn’t escape their attention.  The term “collaborative distribution” is the re-branding of a concept that is as old as the practice of moving goods from various sources to one common destination.  Ancient civilizations did the same thing on carts and wagons, the European explorers accomplished it with the use of sailing ships, and at the dawn of the 20th century draymen and commercial warehouses did it utilizing the first generation of gas powered trucks. In the recent past, it has been referred to in logistics literature as “LTL Consolidation” or MVC (multi-vendor consolidation).

                 So what does “collaborative distribution”, “LTL Consolidation”, and “MVC” consist of?  Put simply, it is the process of combining onto one truck the many shipments of various vendors for the purpose of accomplishing a truckload charge from the transportation provider rather than have each individual shipment rated separately.  This results in a lower pro-rata cost per shipment - which in turn saves substantial dollars for each individual shipper on the load by reducing the cost paid by the consolidator (or “collaborator”), thus allowing them to charge less.

                 There are a million different ways to advertise, promote, price, administrate, and sell this service.  But just as there are hundreds of models of automobiles, each model is still an automobile.  If you were to build a new car that had four wheels, an engine, a steering wheel, and was designed to move people from one point to another – can you really turn it into a new product simply by changing the name used to refer to it?  Could an extensive marketing campaign turn that automobile into a “human transportation conveyance”? 

                 This is precisely the case with the term “collaborative distribution”.  There is no magic to the service that this term has come to define.  It is a service that has been provided by carriers and suppliers of supply chain services (warehouseman, physical distribution managers, logisticians – lots of terms for us too) for many years.  At Shippers Warehouse, we have been providing this service to our extensive client listing of CPG customers for over 40 years.

                 That being said, how does “collaborative distribution”, “LTL Consolidation”, or MVC stack up in today’s supply chain?  With the continuing consolidation of brands under a single corporate entity, more and more vendors are doing their own “collaborative distribution” by adding volume to their customer’s order with the addition of additional brands.  Once the size of their order crosses a weight and/or volume level, that shipment is assigned a truckload rate; because the use of the applicable LTL rate would result in a charge that exceeds the truckload rate.  The lesser charge applies.  But even though the cost for the shipment has now been reduced significantly, has the actual maximum savings that could be applied to this (now larger) shipment been achieved?

                 The answer is most often “no”, and this is a concept that is frequently misunderstood by corporate transportation personnel.  The fact of the matter is that many shipments that have surpassed the size necessary to receive a truckload designation (for the purpose of assessing charges) do not completely fill up the trailer that arrives at the distribution center or truck terminal to pick it up.  As many as eight to ten pallet positions may remain once the order has been loaded.  These empty pallet positions represent a tremendous opportunity for additional savings.

                 At Shippers Warehouse, our transportation subsidiary (Grocery Direct Consolidated Transportation, Inc.) considers a trailer to be full when there are no remaining empty pallet positions on an outbound trailer.  The tremendous volume of CPG customers that we have in our network virtually always allows us to find a shipment (or multiple shipments) within our TMS that will fill those empty positions.  This allows us to gain very significant additional savings on each individual outbound load and pass on those savings to our customers.

                 One of the advantages of re-branding an already existing concept is the fact that it allows you to establish self-serving parameters that previously were not in place.  Many of the transportation and supply chain providers who have marketed this “new” concept to the logistics industry have done this very thing.  Typically, companies who utilize the term “collaborative distribution” require their customers to move their inventories into a single distribution facility or campus environment.  What if the space for a potential or existing customer’s inventory doesn’t exist within this limited area?  Does that mean that they are not able to utilize “collaborative distribution”?  What if your inventory is already stored within the “collaborative distribution” area and your provider is able to establish a new customer relationship with a company that will allow that provider to make higher margins than they do on your inventory?  Are you now forced to move your inventory elsewhere?  Will they provide “collaborative distribution” services in the facility that you are forced to move your inventory to?

                 At Shippers Warehouse, we’ve never had that requirement (by the way, we still call this service LTL Consolidation).  Shipments originating from any of the 8 facilities that we operate in the Dallas/Ft. Worth area may be consolidated from any facility to any facility, dependent upon the most advantageous cost savings to our customers.  Shipments are moved to the facility with the predominant volume of freight to be included on each consolidated trailer by our company trucks.

 Obviously there is a cost to us of moving these goods, but having the volume of CPG customers that we enjoy and the 40+ years of experience at putting together LTL consolidations allows us to overcome that challenge.  Our customers tell us that the savings they realize using Grocery Direct Consolidated Transportation (GDCT) exceed those that they receive from providers in markets not served by Shippers Warehouse or GDCT.

 There is, of course, a marketing angle that has not existed throughout the many years that LTL consolidation (collaborative distribution) has been utilized.  It is a valid, very positive, by-product of this process.  I am referring to the fact that the efficient consolidation of multiple LTL shipments onto one truck quite obviously reduces the use of fossil fuels in the supply chain.  How could anyone not like that?  Unlike many business practices, something that has been in use for all of my lifetime actually is good for us and our environment.  Shocking.

 As I conclude this discourse, it occurs to me that Shippers Warehouse should probably join the crowd and begin to put a great deal of effort into marketing “innovation”.    Some of my initial thoughts involve “new” services such as “commodity enveloping”, “vessel unburdening”, or “stowage conveyance” (we currently refer to these services as packaging, container stripping, and trucking – but those terms are so mundane). 

 All kidding aside, it is imperative that our industry continues to look forward and anticipate the needs of our customers before the future becomes today.  In that quest to add value to our customer’s supply chain, we must be diligent in our approach to problem solving, analyze and be open to all forms of potential innovation and improvement, and never lose the absolute dedication to real service enhancement that has driven the growth of the 3PL marketplace.  In addition to Shippers Warehouse and GDCT, there are numerous exceptional organizations in our industry that have experienced significant growth and success based upon hard work, innovation, and cost containment – not by re-branding a service that has been in use for ages.  Let us hope that the development of truly new ideas is what carriers us forward into the future.