Vendor consolidation is not a new concept, but it is something that hasn't been fully embraced in the retail market. While most retailers are focused on getting new products at the lowest price point possible, they don't focus on how they can help the manufacturer get the product to them faster, cheaper, and more effective. For most small to mid-size manufacturers, transportation expenses can be a huge chung of their COGS (Cost of Goods Sold). From the retailers aspect, late deliveries means lost revenues.

Retail Vendor Consolidation helps both the retailer and manufacturer by reducing the high transportation costs associated with shipping LTL, and helps reduce or eliminate lost sales due to late deliveries or lost/damaged product. Let's start by taking a look at Vendor Consolidation and how it benefits the retailer.

Retail Consolidation is a simple concept. If you walk into any of the major grocery store chains or supercenters, you will literally find thousands of products being manfactured by various suppliers. 90% of those suppliers do not have the volume to be able to ship full truckloads into a retailer, so they are forced to ship their orders via LTL which is significantly more expensive. Retail Vendor Consolidation is exactly what it sounds like.... by taking a group of retail vendors and consolidating them, the vendor can now reduce their transportation costs through consolidation. This not only reduces their overall cost of goods, but it also reduces the lead times for their products.

If you look at any of the major retailers such as Wal-Mart, Target, Krogers, Lowes, etc... most of them have a distribution network that includes multiple Distribution Centers strategically set up to service their retail locations. These DC's act as replenishment centers for the individual stores, which requires the retailer to carry more inventory. For slower moving SKU's, the retailer is forced to carry excess inventory in order to meet order minimums and have it make sense for the associated transportation costs.

Vendor Consolidation can provide numerous benefits for the retailer-

1. Reduced dock congestion- with literally thousands of small LTL shipments arriving on a weekly basis, this consumes a tremendous amount of time and man hours. If you can convert 12-15 LTL shipments into one truckload shipment, not only would it reduce dock congestion but it would result in a significant labor savings for the retailer
2. Reduced inventory on-hand- by creating a consolidation program, the retailer would no longer be required to order large quantities of slower moving product to justify the shipping expense. By pooling together multiple vendors, the retailer could order smaller, more frequent orders which would reduce the amount of inventory they had to carry. This means less capital tied up in inventory, and less storage space required.
3. Greater control of product flow- with a regimented delivery schedule and shorter lead times, on-time delivery performance and product availability would vastly improve. This results in fewer items being out of stock, and additional sales for the retailer.
4. Sustainability- while being eco-friendly certainly isn't a new concept, it has certainly become a hot topic as of late because of the high price of oil and all the reports of global warming. Companies are looking for a way to reduce their carbon footprint and have a positive impact on the environment. Retail Vendor Consolidation helps reduce the amount of trucks on the road and scale back the warehousing requirements, which all leads to less carbon emissions.

For many small to mid-size companies dealing with large retailers like a Wal-Mart or Sam's Club can be a very challenging task. In most cases, Wal-Mart might be 70-80% of their business, and it becomes very difficult to meet the high performance standards that Wal-Mart has. When shipping product through the LTL hub-and-spoke system, shipments can easily be delivered late and the supplier has no control over it. Late shipments means charge backs or even loss of business for the supplier. Vendor Consolidation targets three major areas of frustration.

1. Transportation Costs- In a structured consolidation program, a supplier can easily save 20-40% on transportation costs simply by participating. This is a result of taking multiple small orders and combining them into a truckload.
2. Fewer product touches- In a traditional LTL model, a shipment will be handled multiple times which gives more opportunities for the product to be damaged, mishandled or lost. By consolidating, orders are only touched once which reduces or eliminates the higher damages and shortages associated with LTL.
3. Increased On-Time Performance- By shipping as part of a truckload rather than individual LTL shipments, on-time performance skyrockets. In most cases, the product will receive a live unload which not only increases on-time performance, but also reduces/eliminates chargebacks.

As everyone is well aware, Wal-Mart is the largest retailer in the world and has been leader in supply chain management for years. Wal-Mart is constantly re-evaluating their supply chain and logistics to see where the can increase efficiencies. They have also implemented a sustainability program to help reduce congestion and have an impact on their overall carbon footprint.

In response to this, Casestack, Inc a 3rd party logistics company that specializes in retail vendor consolidation, created 2 distinct vendor consolidation programs in conjunction with Wal-Mart to service their 42 DC's. As vendors are brought into the Casestack system, they are added to the vendor pool. Each week Wal-Mart will create a master purchase order based on the vendors that are participating in the program. Through their optimization system, Wal-Mart is able to cube out a trailer to each DC. So rather than 20-30 different vendors sending in separate LTL shipments on different trucks, everything is rolled into one truckload. From Wal-Mart's stand point, this creates all of the benefits mentioned above. The unique aspect of this program is that, since Wal-Mart is actually building the truckloads, they are guaranteeing a full truckload each week. This creates an extraordinary savings for the vendor on freight (30-40% savings), reduces transit/lead times by 2-3 days, and virtually eliminates chargebacks.

This also feeds into Wal-Mart's sustainability initiatives, which is why they are the industry leaders.