Counting the costs
May 1, 2014
by Charlotte Atchley
Distribution can hide many costs in a bakery or snack operation, some of them obvious but others less so. This backend of the plant holds a plethora of production inefficiencies that lead to mistakes, over-production to correct mistakes, paperwork and lost time. There are many strategies throughout a plant’s distribution plan, from organizing and picking orders to delivering them on the road, which can improve efficiency and shed light on how to reduce waste and unexpected expenses.
In the warehouse
When it comes to organizing and picking product for orders, most bakeries have stubbornly stuck to a paper system. While the rest of the bakery from ingredient handling to packaging is a well-oiled automated process, once the packaged baked goods enter the warehouse, they might as well step back in time.
While automation may have moved employees off the line, many of them just shifted into the warehouse, which is a bustling place of workers and product. Because this part of the operation is organized and maintained by humans and paper, errors can abound, causing over-production to correct those errors. After orders are delivered, administrative personnel must input the data manually, providing greater opportunity for errors as well as more employees to pay. This is how bakers have managed orders and delivered to customers for 100 years. While they’ve automated the rest of the plant, they’ve been slow to bring those benefits to the logistical department.
“Bakers don’t necessarily see that they have a real problem,” said Marc Braun, president, Pcdata USA, East Granby, CT. “They’ve done it this way forever, and it kind of works.”
The employees on the distribution side work hard because the warehouse demands complex, quick decisions. Often, Mr. Braun said, bakers are hesitant to automate their warehouse organization because they don’t believe a software can make those on-the-spot decisions. “There’s disbelief to a degree that the software can make all these complex decisions they deal with on a day-to-day basis because an order change, they over-produced or under-produced or a bad weather system came through,” he said. “It’s hard to believe software can deal with all of those exceptions efficiently, but that has been the heart of the software for 25 years.”
Bakers often seem hesitant to upgrade their distribution departments, but that’s mainly because it is not high on their priority list. At many companies, sales rule for its contribution to profit and then comes the production in terms of importance. Bakers are bakers at heart, after all, and the baking is where they like to invest most of their attention and capital.
All too often, however, distribution comes last, if at all. However, Mr. Braun believes bakers are underestimating the impact distribution can have on sales, their first priority. Reliable and efficient delivery to customers secures satisfied customers and improves profitability. An automated warehouse can ensure that a bakery has an edge on their competition when it comes to filling and delivering orders.
Running a warehouse comes with some obvious and hidden costs. Out in the open, distributing product the old-fashioned way requires labor and trucks. Less obvious costs of distribution are the over-production necessary to prevent or correct mistakes in order-filling, such as making sure there is no shorting of orders or providing a make-good for damaged products.
“Often the baker can’t tell us to what degree they are over-producing,” Mr. Braun said. “If they do make a mistake, they will reship, so there is a lot of error correction.”
And then, a cumbersome paper-based system requires administrators to process it all. By automating their warehouse management, bakers can greatly reduce or eliminate many of these costs. Mr. Braun estimated that when switching from a paper-based system to a Pcdata automated system, bakers can expect at least 20% in labor savings.
Pcdata’s Distrib Put-to-Light uses LED displays to show the amount of product necessary for each order. Employees can use this information, managed by software and not people, to fill orders more accurately and efficiently. While a paper-based system may take an employee 23 seconds per transaction, a light system will take an employee seven. According to Mr. Braun, the system will tell the production side of the bakery how many orders have been filled, reducing the need to extend production runs. “Typical paper-based order picking offers 98% accuracy whereas with a light-based system, you’ll be approaching 100%,” Mr. Braun said. “That may not seem like a huge improvement, but it is dramatic in reliability.”
On the road
Even after the product goes out on route trucks, bakers can still make changes to make routes more efficient, track fleets and products as well as manage errors in the field.
To improve fleet efficiency Supply Chain Services, Oakdale, MN, offers a variety of solutions for bakers. Handheld devices and cellular data plans make it possible to submit invoices in real time to the main office, and mobile printers enable drivers to give customers invoices on the spot. This reduces paperwork and helps drivers adapt to changes on the road. “If the drivers get out there and discover they need an extra case, it can be noted immediately,” said Don Tienter, IT consultant, Supply Chain Services.
Using software to improve deliveries also speeds up the billing and payment cycle, according to Mr. Tienter, because everything is in real time. “Accounting appreciates this,” he said.
When things go wrong and drivers find damaged product when making their deliveries, they can photograph the damaged products and upload the photo to the system, alerting the plant that those goods were undeliverable.
Integration of mobile devices on trucks also enables bakeries to track their fleet while it’s out on the road. This kind of information allows bakers to alert customers if trucks are running late, and that leads to route optimization.
Relying so heavily on technology can come with some concerns. Mobile device management enables operation managers and IT staff to troubleshoot handheld devices and mobile printers should they go down in the field, explained Dan Shreck, senior national sales manager, Supply Chain Services. Drivers won’t be stranded waiting for an IT staff member to meet them with a replacement; the problem can be fixed remotely.
Mistakes on the road do result in added costs and waste, but the fleet itself — from the drivers to the vehicles carrying the product — makes up a large chunk of change in a bakery’s budget. By turning the distribution fleet over to independent contractors, a bakery can eliminate labor costs associated with the drivers and maintenance and ownership of the trucks.
According to John Staker, president, Distribution Consultants, Inc., Purchase, NY, many of the largest US bakeries have already made the switch to independent contractors. Those that made the switch experience an immediate increase in sales of 5-15%. Unlike drivers on company-owned routes, independent contractors own the trucks and make a 20-25% profit margin on every unit of product they sell. This motivates them to sell more baked goods to retailers and provide better customer service, according to Mr. Staker.
Despite the eliminated costs of managing an entire fleet of trucks and drivers and the increase in sales and customer satisfaction, some bakers have resisted turning to independent contractors because they’re concerned about the loss of control. “Managers’ first worry is loss of control of marketing, product and driver,” Mr. Staker said.
They are also concerned about the appearance of the trucks and professionalism of drivers, all of which Mr. Staker said companies can exert some control through agreements with their new independent contractors. He added it’s in the contractors’ best interest to provide the best customer service because they have a stake in the business.
Turning an employee-driven fleet into independent contractors can take about six months to a year. A consultant can offer an economic analysis to ensure the bakery saves money while still making the routes viable businesses for drivers to own. “Payroll tax, healthcare, pension, fleet maintenance all goes away for the bakery,” Mr. Staker explained. “You do have to set profit margins, though, so the driver can make up for those things.”
Typically, Mr. Staker said the transition to independent contractors is met with enthusiasm by the drivers and much of the baking industry has already made the change. “It works well in this industry,” he said. “You need someone servicing the shelf, and you get that with this system.”
The distribution side of the bakery is ripe with opportunities for improvements, and there are plenty of solutions that simultaneously save money and improve sales. Those are the kinds of solutions that cannot be ignored.