Recently, Metro announced the completion of a $1 billion overhaul to its fresh and frozen distribution network. It’s taken seven years to transform its fresh and frozen food network in Québec and Ontario, resulting in four new or renovated fresh or frozen food facilities.

Distribution is a huge cost for retailers, with significant capital requirements such as Metro’s investment and day-to-day operating costs. For most large food retailers, distribution costs between eight to 10 per cent of total sales. In other words, if a produce department’s gross margin is 40 per cent, one quarter of that pays for distribution. Any reductions in distribution costs will fall to the bottom line or be invested back in pricing or other attributes.

Suppliers should understand the customer’s focus

Retailers will implement different forms of distribution. Suppliers should do their best to understand how the retailer wants to operate their network. Some retailers believe it is best to control the inventory and have it available in their warehouse for stores to order. Others are more focused on reducing inventory cost and believe the freshest product will be available with a just-in-time model. 

With the inventory model, suppliers need to find the balance between cost per case and frequency of deliveries. In this scenario, the most efficient quantities to ship and the fewer the deliveries help to reduce the cost of shipping. Retailers believe they can buy the right amount for the demand forecasted by their stores.

In the second model, where only inventory is shipped into the facility to meet the orders for that day, the onus is on suppliers to deliver the right amount of product every day to the retailer’s particular store. Often this is called a flow model.

You should always know how your customer wants to operate their network so you can focus on the attributes most important to them. 

Understand your customer’s expectations

Most retailers will have very specific requirements for shipping into their distribution centers. Retailers create these standards to ensure the most efficient flow of goods into and out of their facility. Whether it is pallet configuration, case labelling, shipping notice or temperature standards, you will be required to have it in place. You should also take the time to clarify these with any logistics partners such as transport companies. Not too many people win an argument with retailers when they do not meet expectations for shipping into a distribution center. Make sure everyone in your organization understands the expectations and how you will deliver. We have all heard about the non-compliance fines, which can be severe.

Develop your relationship with distribution

The people who work in distribution are not the same as the merchants you negotiate with. They are very focused on efficiencies and usually very process driven. You cannot negotiate your cost with them, but you can develop relationships with them. Make sure you take advantage of every opportunity to interact with them and understand how your business can integrate with them.

They like to work on projects to measure results and find opportunities to reduce costs or improve accuracy. If these projects are available, consider if they are realistic for your business. They can add some extra work, but if you can learn and develop better relationships, it might be worth it.

Delivering into a fresh food distribution center includes getting your orders inspected by their quality control people. You should always understand the specs and standards expected of you. These are the people who will make the call if you meet or exceed expectations. Very important to know them if at all possible.

An efficient, effective distribution network is integral to the success of a retailer. When distribution works it will allow suppliers to focus on their role, and retailers to operate stores that are full of great quality products at the best possible prices.