How to make DSD more efficient
June 12, 2012
by Dan Malovany
Throughout the years, bakers and snack manufacturers have taken great strides to lower their operating costs by investing in new equipment that provide greater efficiencies on the production floor. In today’s competitive environment, however, companies need to find additional ways to drive costs out of their operations. Perhaps one way is to focus on improving distribution systems. Baking & Snack asked Chase Hippen, director of software development, Supply Chain Services, Stillwater, MN, about how to automate direct-store-delivery (DSD) systems to save money and improve customer service.
Baking & Snack: What are the biggest challenges do DSD bakers face today, and how can they find provide practical solutions for resolving those issues? What is the proverbial low-hanging fruit?
Chase Hippen: Growth and profitability driven by cost reduction are the main challenges of baking and snack companies. Both of these challenges are, in large part, determined by managing and meeting customer demand. However, meeting customer demand levels is not as simple as it seems. Baking and snack companies that deliver direct to the point of purchase are a step away from the final demand and find it difficult to understand customer consumption patterns. However, this is precisely what helps them gauge the level of demand for the products they must have on the shelf. Other difficulties include knowing what product the customers want, and how to optimize spending on trade promotions.
DSD automation includes capabilities that help food companies distribute their goods from manufacturing through to distribution and out to the retailer or other points of use such as restaurants. The capabilities of an automated DSD system include planning and managing the inventory (i.e., load) and route of a delivery truck, dispatching and scheduling deliveries for physical distribution, and reconciling the route after the truck returns from its deliveries. All these capabilities are further automated with mobile computers and printers that allow the immediate and accurate entry of data. When information is up-to-the-minute and visible, sales and production planning can be synchronized with consumer demand.
In today’s challenging market, how can automating DSD systems help bakers lower their costs while improving customer service?
Several factors affect the ability to improve customer service to retailers. It really comes down to helping them become more profitable and helping retailers satisfy their customers with the best product at the best price at the right time. When shelves are stocked with merchandise and stock-outs are reduced, a higher volume of product can be sold. In addition, DSD can help increase the satisfaction of customers because their shelf stock is managed more effectively and their needs are met based on frequent updates and communications.
Finally, there are a number of capabilities of the DSD methodology that work to improve profitability, including improved product presentation, better product pricing, access to market information, efficient new product introduction and efficient promotions.
More specifically, how can your systems help with order fulfillment, maintaining inventory and improved/timely billing and reconciliation of accounts?
DSD puts inventory management in the hands of the supplier. Baking and snack manufacturers control inventory from production through to the point of sale. This is especially the case for perishable products where there is a high need to synchronize production with demand. The system allows delivery drivers to make inventory decisions for the retailer based on service-level agreements. Demand can be planned more accurately based on order and replenishment information thus lowering the need for surplus inventory that may be needed when reaching a customer location.
In a highly competitive environment, it’s imperative for companies to make sure product is on the shelf and available at a time of the products optimal freshness. Eliminating out-of-stocks is the most important metric for retailers in the DSD chain. The DSD solution enables companies to dynamically manage inventory levels between the shelf, the truck and the warehouse while also tracking empties and returns. Giving real-time visibility to inventory levels as well as allowing for automatic triggers and alerts when inventory thresholds are reached allows businesses to ensure their ability to fulfill customer demand.
Traditionally, customers paid upon invoice or receipt of the delivery. Today as options for payment increase and supporting technology allows for new and accelerated payment methods, food companies need to be flexible in how they receive payment. A strong benefit to a mobile DSD application is the ability to transact payments in the field. By being able to automatically perform credit authorizations and take credit cards, food manufacturers can eliminate the delays and resources in collections. A system that supports the automatic collection of payment improves cash flow but also instills transactional integrity and supports accountability for those collecting payment in the field. While bakeries and snack manufacturers are still producing receivables and invoices in the back office for many customers, supporting the multitude of payment activities is a critical function in today’s DSD environment.
How can route drivers reduce delivery times and save labor in completing their routes?
The pressure to remain competitive and eliminate waste is seen most predominately in how DSD companies plan and execute the movement of product from the warehouse to the store shelf. Fuel costs continue to go only in one direction and companies are mindful about the most effective ways of using resources such as trucks and labor. Being able to optimize routes can mean significant savings to the bottom line and allow a competitive advantage to more quickly and effectively servicing customers.
Whether routes are static or dynamic, food manufacturers constantly seek the most effective means of getting their product on the store’s shelves. With increasing fuel costs and pressure to maximize the utilization of resources, DSD technologies provide companies tools that will allow them to analyze routes and the opportunity for improving distribution methods while allowing them to be responsive to new customer demands. Real-time visibility to orders and customer demand compared to route information and truck availability allows food and beverage companies to make decisions on the best means of getting product to market.
The delivery process is at the heart of a solid DSD system. To start the day, drivers download the day’s route, inventory and pricing information. The driver and other parties validate the proper inventory is correctly loaded onto the truck before the day’s deliveries begin. At the customer’s location, the driver will then count and unload products ordered and accommodate for any returns. This information is gathered automatically for tracking and messaging to the back office. The driver then has the ability to confirm the delivery with the customers. Sometimes this means capturing a signature, producing an immediate invoice or collecting payment. The right solution helps automate the steps in the transaction while improving transactional accuracy to speed reconciliation of the route.
What are the latest advances in technology that are being used to streamline distribution?
It’s critical for companies with a DSD distribution method to be able to get the right product to their customers without shortages or an overstocked route. Doing so successfully requires planning to optimize space on the truck. Optimizing the truck load can result in significant efficiencies, but requires a system that supports presales and conventional routes while having the flexibility to accommodate a company’s variable needs. The result is fewer items coming back on check-in and an optimal way of servicing the customer.
Tracking the delivery process is at the heart of a solid DSD system. To start the day, drivers download the day’s route, inventory and pricing information. The driver and other parties validate the proper inventory is correctly loaded onto the truck before the day’s deliveries begin. At the customer’s location, the driver will then count and unload products ordered and accommodate for any returns.
This information is gathered automatically for tracking and messaging to the back office. The driver then has the ability to confirm the delivery with the customers. Sometimes this means capturing a signature, producing an immediate invoice or collecting payment. The right solution helps automate the steps in the transaction while improving transactional accuracy to speed reconciliation of the route.
Where can you find the greatest return on investment with a mobile solution?
Generally, the greatest return on investment comes from the accuracy of transactions and the reduction of time with back-office staff to reconcile and settle routes. We find that many bakeries with a DSD model are very good at getting their product to market and servicing their customers, but they make these achievements often at the expense of overloaded accounting and support staff in the back office. Often they slug through paperwork, in many cases order by order, to make sure that product delivered and the accompanying records of returned product match directly with the cash collected and invoices generated.
An automated system lets these individuals focus only on the day’s routes that present with a variance that needs to be reconciled, thus freeing them up to spend appropriate attention to resolve those issues or on more value added activities.
The metric for completing an ROI from this benefit is calculating the time of account receivables and accounting staff and time consumed on a weekly basis in reconciling delivery routes.
Additional ROI savings can also be calculated from better management of orders and routes. Central visibility of field sales and operations can assist in route optimization calculations and the chance to save on time and fuel costs.
ROI can also be assessed based on the ability to service a customer more effectively and the opportunity to either spend more time on sales based activities or picking up new customers or stops to increase revenue.
Also, increased controls results in more accurate deliveries and fewer returns which leads to better customer retention and consistent, if not improved, revenue streams.