Distribution costs rise, but efficiency improves

Related tags Igd Sainsbury's Logistics Morrisons

Retailers' distribution costs in the UK have risen slightly over
the last year, but stock levels have been reduced and supply chains
are becoming more efficient, according to the latest survey of
retail logistics published by the UK's Institute of Grocery
Distribution (IGD).

The IGD's report shows that the total amount of cases travelling through retailers' distribution sites is just over five billion cases a year, with the number two operator Asda breaking through the one billion cases a year barrier in 2003.

In fact, Asda and market leader Tesco together account for a whopping 47 per cent of total volumes, according to the IGD.

With ever higher volumes being pushed through their logistics networks, retailers are inevitably being faced with higher costs, and the IGD said that average distribution costs in fact increased from 3.44 per cent of total turnover in 2002 to 3.6 per cent in 2003.

More significant, though, is the widening of the gap between the lowest cost and the highest cost in the survey, some 3.9 per cent difference, showing that some retailers are far more efficient than others at managing their distribution.

The survey also showed that the average distribution cost has remained relatively stable, at around 3.5 per cent, since 1998 as turnover has increased and investment in more efficient supply chain management has risen.

Retailers have also changed the way they manage their stocks, according to the survey, with most finding a way to reduce them significantly compared to 2002 levels.

The IGD highlighted the performance of three groups in particular. United Co-operatives reduced its stock levels by nearly 28 per cent to 15 days between 2202 and 2003, while Tesco's dropped by 9 per cent to nine days. Sainsbury's stock rotation is also nine days, a 3 per cent reduction compared to the previous year.

Stocks of frozen food in particular have dropped over the last year, not surprising given that this is one of the most highly advanced categories when it comes to logistics, the IGD suggested. Tesco was the first chain to introduce FGP (Factory Gate Pricing) to the frozen category, but now over 90 per cent of frozen food is delivered through FGP.

Under the FGP system, retailers buy goods at ex-factory prices rather than at delivered prices, taking over responsibility for delivery from the manufacturers' factory gate.

Improving stock throughput times has not had much of an effect in reducing retailers' warehousing requirements, however. The IGD survey shows that the average depot size has increased by 11 per cent to 230,000 square feet over the last year, continuing an upward trend.

But not every retailer has the same requirements. The major multiple chains are moving towards larger depots which can stock a large range of products - for example, the average depot size for Tesco is over 290,000 sq.ft, while Sainsbury has invested heavily in opening a series of large distribution sites such as the one at Hams Hall which is 700,000 sq.ft., the largest retailer distribution centre in the UK.

In contrast, the average site for convenience operators such as Londis and United Co-operatives is 141,000 sq.ft.

The IGD​'s Retail Logistics Survey was carried out between August and December 2003 and involved 13 retailers: Asda, Booker (Big Food Group), The Co-operative Group, Iceland (Big Food Group), Londis, Marks & Spencer, Nisa Today's, Safeway, Sainsbury, Somerfield, Tesco, United Co-operative and Waitrose.

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