Pool Distribution: Sink or Swim?
Determining the Right Model to Distribute High Volume Retail Goods
When considering whether pool distribution is the right model, retailers should assess these vital questions to ensure success.
Sample scenario: Suppose a major retailer has to move goods from its East Coast distribution center into its Southern California market. Retailers have several options to distribute their daily orders. Many times, less-than-truckload (LTL) shipping would be the retailer’s mode of choice. Or, the retailer employs its own transportation assets to long haul the freight. However, an often under-utilized option is the pool-distribution model.
Is pool distribution more cost-effective than the traditional LTL shipment model?
There are two major cost saving opportunities with pool distribution:
Cost save number 1: The retailer will reduce its transportation costs by utilizing pool distribution. Pool distribution allows the retailer to combine all of its orders for a given market, shipping them using a single truckload into a cross-dock facility for final delivery to stores in that market. With traditional LTL, the retailer will incur the cost of many individually rated LTL bills on a frequent basis. By pooling its orders, the retailer is able to move all of that individual shipment volume on a single, mileage-rated truckload, resulting in significant transportation cost savings.
Cost save number 2: The retailer can reduce its distribution costs in a particular market by using pool distribution. Essentially, the retailer can reduce the overhead expense of a distribution center by leveraging a cross-dock facility as part of the pool network. Once the pool-distribution shipment arrives in the destination market, it is offloaded at a cross-dock facility in prep for final delivery. Goods are sorted and segregated, palletized and labeled by store location—and delivered the next day.
In addition to the transportation and distribution cost savings, the pool-distribution model greatly improves transit time and delivery to the store. The ultimate goal for the retailer is not to have inventory in its distribution center, but to get it on the shelf.
How can pool distribution lower the retailer’s transit times?
By moving multiple LTL shipments into a pool-distribution model, a retailer can cut its transit time in half—improving speed-to-shelf drastically. A standard cross-country LTL shipment typically takes between five-10 days in transit, due to multiple stop-offs and deliveries within the LTL carrier’s network.
Including the time it takes to receive, cross-dock and make deliveries the next day, pool distribution allows retailers to have the freight to the store in less time than it takes an LTL provider to move it into the West Coast distribution center.
Will technology help drive additional supply chain cost savings?
Yes, technology helps facilitate the speed and accuracy in which shipments are moved through the supply chain, thus providing an additional cost savings. Many times “tracking” is looked at as providing simple shipment status notifications letting shippers know that their goods are “in-transit.” However, there’s opportunity to do much more.
Technology allows for inventory control at an individual-unit level, throughout all stages of transit. It helps manage overages, shortages and damaged freight and minimizes claims—ultimately resulting in greater efficiency and cost savings.
Technology also allows for more precision in meeting next-day delivery requirements. Most retail store deliveries are based on time-specific delivery windows. Routing and planning technology allows us to hit those windows—which minimizes receiving labor costs for the store.
What are some factors to consider when evaluating a pool-distribution model?
Two major criteria should be considered.
First, the retailer must have enough volume and consistency to take advantage of the benefits of pool distribution. High-volume, daily deliveries typically fit well into this model.
Second, the transportation provider must offer a network of fully equipped cross-dock facilities, allowing efficient next-day distribution into your key markets. The provider should have dedicated transportation assets to provide guaranteed capacity. (We all know that capacity has become more challenging the past few years with regulations and industry shifts.) The provider’s technology must add value for the retailer. Most importantly, a provider should know the ins and outs of the retail industry.
I can’t stress enough the importance of having a strong retailer-provider relationship—where both parties are incented to realize the full benefits of pool distribution.
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