Case Study
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Pooling in the retail FMCG sector
European Commission
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CASE STUDY
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THE PLATFORM If transport continues to grow at the same rate as the economy, this will become both an economic and an environmental problem. lncreasingly congested roads are as much a disadvantage to European business as they are to society at large. The bestlog project, initiated by the European Commission, will establish an exchange platform for the improvement of supply chain management practice across Europe.
OBJECTIVES • • • • •
To improve logistics practice and logistics education To raise the overall standards of practice across Europe To set high standards for logistics education and practice To create economic growth and job opportunities as a result Achieve a better match between EC policy and business decisions
SOLUTIONS & ACTIVITIES • • • • • • •
European platform for sharing logistics best practice Online directory of logistics best practice case studies Online directory of European logistics education opportunities Benchmarking on line for European companies European conferences to share logistics best practice Web forum, award directory, media directory, and more lndustry workshops
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CASE STUDY
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Pooling in the retail FMCG sector PROBLEM DESCRIPTION The beginning of 2005 was important for the Polish market due to several changes that were observed in the FMCG sector. Sales volume increased, which resulted in a higher frequency of retailer orders placed with producers, who wanted to ensure that each order was fulfilled in line with the retailers’ requirements. This situation influenced the operations of the logistics service provider, as it was necessary to handle more orders in the same amount of time. Transportation costs were soaring due to LTL (less than truckload) transports which were not cost-effective. Moreover, fuel prices were also rising, and both traffic jams and congestion made the distribution process in FMCG sector more complex. In the Polish market, it also became aparent that due to the high share of conventional trade in the distribution channels, logistics processes were not efficient enough and the cost of performing these processes was growing rapidly.
The pooling practice aims to group assets and equipment in the field of logistics management in order to maximise advantages for all users. For FM Logistic, this means optimisation of transportation utilisation and sharing distribution and warehousing costs between project partners. The main purpose of pooling is to combine orders placed by retailers with producers in order to create full truck deliveries. There are dedicated days for deliveries to the particular points of delivery, but frequency is higher and products on the shelf are fresh – not at the end of their dates. FM aims to adapt supply chain solutions to customer needs worldwide in industries like food, high tech, general goods, automotive, personal and home care products. The company strives to be competitive in terms of reliability, innovation and costeffectiveness.
COMPANY FACTS Company name: FM Logistic Location: Poland Industry/sector: Logistic Service Provider Company size: Large Employees: 12,000 employees Turnover: 517 mio. € Services/products offered: Transport, warehousing, co-packing and co-manufacturing
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CASE STUDY
www.bestlog.org THE SOLUTION The pooling concept, commonly known as sharing, aims to group assets and equipment in order to maximise advantages for the users. In simple terms, it means sharing transportation, warehousing and distribution. Pooling helps to regroup flows of goods coming from the food industry and heading for the same points of delivery – which in turn reduces operational costs. Instead of concentrating on owning assets, pooling encourages the company to adapt its solutions to new market conditions, extremely fierce competition and the economic downturn. Based on FM‘s experiences in France, the Polish subsidiary implemented the idea pooling, but the pooling concept was geared towards the specific market characteristics. In France, where the pooling concept originated, FM Logistic and Carrefour have decided to cooperate with FMCG suppliers in order to optimise the logistics processes on the one hand and gain a greater competitive edge on the other. They searched for innovative logistics operations which would be suitable for the FMCG sector in France. Pooling began in 2004, when it was implemented in France by FM, Carrefour and three FMCG producers - Benedicta, Nutrimaine and Pastacorn. In 2005 three more producers joined the system and in mid-2007 six regional forwarders were also “signed up”. The system was tailored to the needs of all partners.
In the Polish market, different FMCG producers are involved and the practice itself has different characteristics. Pooling is extended to other retailers besides Carrefour – and FM Logistic has defined several points of delivery which are the same for all the participating producers.
The FMCG sector requires a high frequency of deliveries. LSPs need to tackle this by ensuring high service levels and low costs.
FM Logistic Poland adapted the French solution to the requirements of the Polish market, where conventional trade has a high market share in the FMCG sector. This meant that a high number of distributors had to be involved in order to ensure the profitability of the model. Moreover, in order to cover the whole market, the products of the FMCG producers had to be available at numerous points of delivery.
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CASE STUDY
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The pooling process is organised by FM Logistic, who plays the role of coordinator. The producers, for whom FM is a logistics operator, pass on their clients’ orders to FM, whose responsibility is to deliver the required goods in the specified time frame. Before this practice was implemented, deliveries were conducted regardless of FTL (full truck loading). Frequently, only LTLs were used. With pooling, it is now possible to link orders from different producers with the same destination.
CHALLENGES Pooling was a new concept for FM Logistic Challenge 1: Cooperation with four different FMCG producers - they are competitors and at first they were unwilling to engage in the process and share information. Challenge 2: The absence of the proper infrastructure constitutes an obstacle to the definition of a specific point of delivery to permit pooling. Challenge 3: Assumptions of economic effect were difficult to calculate before pooling was properly implemented.
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CASE STUDY
www.bestlog.org LESSONS LEARNED AND SUCCESS FACTORS • The need for cooperation, trust and information sharing between partners. The practice of pooling is based on information sharing, especially in the case of ordering and distribution requirements. All producers should pass on orders from their clients according to a scheme prepared by FM Logistic. Moreover, including FM in promotion planning turns out to be essential in order to ensure the continuous flow of the right products within the right time frame.
„The goal of FM Logistic is to look for innovative solutions which are suitable for the Polish market. Pooling was one such solution developed together with FM Logistic’s clients.” Dariusz Badelek, Key Account Director
• The internal processes of FMCG producers are an indispensable part of the overall process. This applies to both the logistics and the sales departments, who perceive pooling in different ways. The sales department does not concentrate on reducing costs but on increasing sales volume and value. For FM Logistic, it was important to show the sales department that pooling does not adversely effect sales. • Pooling is a life-long learning and change process. Rapid and frequent changes in market conditions and structures mean that once the practice has been implemented, continuous monitoring is also essential. Delivery points can differ in time (depending on the existence of the proper infrastructure) or delivery volumes may increase. FM Logistic links orders from producers and performs one delivery to one retailer’s premises comprising all the ordered products from the various producers. Thanks to this system, FM sends FTLs to retailers and offers higher delivery frequency, something that is very important in the FMCG sector.
STARTEGIC IMPLEMENTATION AND CONTINUITY Pooling supports FM Logistic’s strategy of high-quality service. The company strategy of “Made in satisfaction” is focused on offering a tailored solution for each client and on gearing all processes to market needs. FM searches for new delivery points and reviews existing ones each month to ensure visible benefits for all partners. In order to ensure continuous development of the pooling practice, FM Logistic conducts targeted negotiations with potential food suppliers who also want to participate in the project and makes a huge effort to convince its clients of the advantages of pooling and to encourage them to cooperate in this area of logistics management.
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CASE STUDY
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THE BENEFITS
SUSTAINABILITY
Economic The practice has a substantial impact on service quality, resource utilisation and the response capability of FM Logistic and its clients. The quality of services offered by FM has improved and its portfolio has been widened, making FM more competitive. Almost all deliveries are made on time, and the time required for unloading of goods has also been reduced. As for capacity utilisation, pooling has improved filling rates for road transports and almost eliminated LTL deliveries. Moreover, pooling allows all the players to ensure that all consumers can enjoy fresh products, as the frequency of deliveries is higher. In France alone, delivery frequency has increased by 34%.
Environmental The pooling practice has had a considerable influence on CO2 emissions (which are down by a massive 51% in France). In view of the fact that 28% of all waste gas emissions in the market come from transport operations, pooling represents a simple solution to the problem. Furthermore, fuel consumption has been reduced by 50%. The practice also positively impacts waste and recycling, as it reduces the quantity of obsolete goods in warehouses or in retailers’ DC.
Social During the implementation of the pooling practice, it was observed that the health and safety of the local comunities were improved, but no exact measurements were performed. Nevertheless, there are fewer trucks on the roads, which means lower congestion levels and reduced emission of various hazardous chemicals. One very important benefit of the pooling practice is the way it improves employee skills in the fields of operational planning, negotiating and training.
CHALLENGES
TRANSFERABILITY
Country
Transferables Pooling as a practice is a global solution for FMCG manufactures, as it perfectly meets their needs, ensuring high delivery frequency and fresh products on retailers’ shelves. It can be implemented in regions where it is difficult to find transport resources and where identifying ways of reducing costs is very important.
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Sector
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Company Size
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Limitations The most important limitation of the pooling practice is susceptibility to transport conditions (fragrance, quality, possibility of product stacking). It is also essential that delivery channels and delivery points are the same for the pooling partners. Furthermore, small companies do not have sufficient delivery volumes to become partners, and leading FMCG manufacturers are unwilling to cooperate with smaller competitors.
++: very high, +: high, o: neutral, -: low, --: very low
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PROJECT SECRETARIAT Berlin Institute of Technology H90 - bestLog Strasse des 17. Juni 135 10623 Berlin - Germany Phone: Fax: E-Mail: Web:
+49-30 - 314 299 80 +49-30 - 314 787 94
[email protected] www.bestlog.org European Commission
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The Case Study developed by Katarzyna Gapska under supervision of Krzysztof Rutkowski. Department of Logistics, Warsaw School of Economics (2009). The copyright owners admit the use for informatory and educational purposes. Any commercial use of the document or parts thereof is prohibited. Published and designed by BestLog Project. www.bestlog.org.
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