Redistribution Pros and Cons
In 1960, Bob "R.T." Tracy began distributing milk powder from Mt. Sterling, IL to Midwestern dairies, recognizing that "they preferred frequent deliveries and often ran short of warehouse space." By bridging the gap between manufacturers who favored truckload shipments and customers who needed turns, Tracy forged a powerful link in the food logistics chain, which would become known as redistribution.
Redistribution allows chains to consolidate shipments, reduce costs and increase efficiency. Without redistribution, products are shipped in LTL and TL quantities to third-party forwarders, distribution mixing centers, or directly to distribution centers. With redistribution, manufacturers ship truckload quantities of slower moving, promotional or seasonal items to the redistributor, who ships full—and mixed—truckloads of products to foodservice distributors. The redistributor purchases qualified products from the manufacturer or vendor and ships these items to its own warehousing facilities in truckload quantities. The redistributor then creates full truckload shipments of consolidated SKUs of product to the distributor. This process creates a lower cost of freight and a higher reliability of slow moving, infrequently demand, or time sensitive items.
Let’s look at a common item in most restaurant chains: straws. Typically, straw suppliers have a minimum amount they will ship, such as two pallets. So even if a distributor needs only a half pallet, it must purchase two pallets and make extra room in the warehouse. Redistributors regularly purchase large quantities of straws and hold them for distributors, to ship at the right time and in the right quantity. This increases the distributor’s inventory turns and controls costs.
Several quick service (QSR) and casual restaurant giants, including Burger King, Dairy Queen, Denny’s, A&W, Taco Bell and KFC, are achieving significant supply chain cost savings using redistribution.
To food manufacturers, redistribution can provide:
- Outsourced management of small, high cost-to-serve customer orders
- Access to additional "unknown" customers
- Reduced credit risks
- Simplified logistics
- Additional sales support
- Accelerated sampling response
For distributors, redistribution benefits include:
- Faster turns
- Shorter lead times
- Weekly deliveries
- No minimums per manufacturer
- Efficiency of one order, one delivery, and one invoice for multiple manufacturers
And for operators, redistribution offers:
- Reduced food wastage; the average food item travels roughly 5,000 miles before it’s consumed and around 30-40 percent is lost or wasted before reaching the consumer.
- Greater availability of low volume, variable demand, and time-sensitive items
If not implemented smartly, however, redistribution has potential costs:
- Unanticipated costs – there is always the potential for hidden fees when leaving this process in the hands of a third party - increased shipping costs and associated taxes, for example.
- Integration difficulties - the transition process may require financial backing and a considerable time investment from both parties. Even a minor lack of communication can result in mishaps and delays.
- More complex track and trace – depending on the redistributor’s capabilities, added links and complexity in the supply network could create less visibility into, and control over, sourcing
TCU conducted a survey to find out whether ‘redistribution is still a concept that’s not widely understood in our industry’ is a fact or not. The facts bear this out: despite the leadership of chains like Burger King, Dairy Queen and YUM! Brands, 32 % of survey respondents indicated they had not made the leap to redistribution. Of the 64% of respondents who are using redistributors, over 80% are doing business with only 1-2 redistribution firms.
These results suggest that redistribution may be an unrecognized opportunity for many operators. Nearly all restaurant chains with established distribution systems—of any size or shape, including mid-sized companies with 500 to 1,500 locations—can benefit. For chains that deal with less than truckload (LTL) shipments and frequent promotions programs, initial cost savings typically run 10 to 40 percent.