In an effort to improve logistical efficiencies, retailers and wholesalers are leveraging economies of scale by increasing order sizes, reducing inventory item counts, and relying more on full-pallet shipments. However, many retailers still find themselves stocking numerous slow-moving SKUs, which ironically contribute to the inefficiencies they aim to eradicate.
Wholesalers face the added challenge of balancing efficiency with maintaining variety, as they must manage a wide range of stock keeping units (SKUs) to meet the diverse needs of their member retailers, who must stay competitive across various channels.
“We have to look at variety vs. duplication and efficiency vs. variety,” said Dave Jonckowski, Vice President, Operations, Associated Food Stores, Salt Lake City. “The uniqueness of independents is in delivering unique and specialty foods as an option without tying up space in the warehouse, which is at a premium.”
The continued introduction of new items in the marketplace has negatively impacted productivity, despite some manufacturers reducing product sizes in certain categories. According to the Food Marketing Institute’s “Food Industry Distribution Center” report, the trend toward expanding SKU counts shows no signs of slowing down.
Operational execution remains a key strength for many retailers and serves as their primary competitive advantage. Some industry insiders argue that slow-moving items are justified in the logistics stream because they fulfill specific consumer needs. However, most logistics experts advocate for the removal of these slow-moving SKUs, which consume valuable time and space in distribution centers.
“The bottom line is profitability,” said consultant Roy Strauss, Vice President and Principal, Gross & Associates, Woodbridge, New Jersey. “To keep slow movers in the mix, warehouse operators have to purchase 25% to 35% more space, plus equipment and conveyers. Pickers get fewer hits per order and have to travel a long time to pick fewer selections.”
On the other hand, some operations experts posit that having slow-movers available for customers is imperative to providing a positive shopping experience for the consumer. Independent operators, in particular, aim to ensure that the items customers want are readily available on the shelf, as consumer preferences drive purchasing decisions. Maintaining the right product assortment is key to retaining customer loyalty, as shoppers will go elsewhere if their needs aren’t consistently met.
“If purchased and inventoried properly there should be a low investment in slow movers. They shouldn’t take too much space in the warehouse,” noted Strauss. “The goal should be to use less square feet, not traveling as far to fulfill orders and use less equipment to achieve a complete order.”
Wholesalers are focused on optimizing efficiency in retrieving items, and Associated Food Stores has applied this strategy at its Salt Lake City distribution center. To better manage unique and slow-moving products, the wholesaler recently expanded its facility. The additional space has allowed AFS to create a four-level module specifically for dry grocery items. After analyzing member orders over a typical week, Associated Food Stores identified 2,500 dry grocery items that qualified for this section of the facility. If less than one or two pallets of a product were ordered by the group’s largest retailers, it was flagged for inclusion in the module. “It was not traumatic for our members,” said Jonckowski.
By implementing the module approach, Associated Food Stores has significantly expanded its item selection. This system enables multiple orders to be picked simultaneously, resulting in improved efficiency in the selection process.
“Size constraints did play a part in identifying items,” said Jonckowski. “We use an automated sortation system and high-cube items, such as bathroom tissue, are too large to fit on the shelves and fit onto the belt. Those items that don’t warrant a full pallet selection slot are hand-stocked.”
A pick-to-belt system directs selected items to the loading lane, where cases are placed on an outbound conveyor, gathered, and then loaded onto outbound trucks. Items that are odd-sized, such as general merchandise, are stored separately in a section of the distribution center without conveyors. This setup results in the loss of family groupings within the facility. Consequently, unique items and new product extensions are managed within a designated module.
“Using the module system, inventory will fit in the selection slots,” said Jonckowski. “We have generated efficiencies and saved grief.”
Special Ordering accommodation is another strategy that could be used to address the consumer service issue.
“Operators that do not stock slow-moving items in the warehouse could handle requests as special orders for their top customers,” said Strauss. “If operators have really good customers they want to service, using special orders offers the service, without having to stock the items day-in and day-out.”
To further leverage the module program for slow-moving items, Associated Food Stores is considering transferring such items out of its distribution facilities in Montana and Idaho and consolidating all slow movers into the Salt Lake City facility.
“This will free up warehouse space in Montana and Idaho,” said Jonckowski. “With slow movers, service levels are less of an issue than with Miracle Whip. We have to be prepared to accept a lower service level, say in the 90% range, for the slow movers.”
Distinct shelf labels at retail let operators know that when they order they have to allow for a four-day lead time. Salt Lake City members will receive their slow movers in the subsequent delivery, said Jonckowski.
Wholesalers are exploring strategies to maintain low inventory levels while ensuring high customer service. Cross-docking is one effective method for receiving products without storing them in the warehouse. This approach helps keep inventory levels minimal, particularly for slow-moving items.
URM, based in Spokane, has advanced this approach by partnering with a third-party operation to handle specialty, ethnic, and gourmet foods, which often include slow-moving products. The wholesaler utilizes cross-docking for these items and uses specialized tags to match orders with shipments, delivering these products to retailers on a weekly basis. In contrast, some wholesalers establish separate facilities for slow-moving SKUs. While retailers might receive up to seven deliveries a week for fast-moving items, slower-moving products are delivered less frequently, typically three times a week. Retailers can opt for increased delivery frequency for these slow-moving products, though this service comes with an additional charge.
Before pursuing any of these strategies, industry leaders recommend that warehouse operators perform a purchasing and inventory analysis to identify which items should be stocked.
“Operators need to determine how much space they require, how much storage they require and at what cost,” said Strauss. “Most costs are wrapped up in materials-handling equipment and personnel costs. The object is to match cost to the profitability of items.”
Unfortunately, warehouse executives note that the operations departments are often not involved in the purchasing decisions that affect the logistics chain. “Sales and marketing makes decisions that have profound impact on operations,” said one industry expert.
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