Profitability in grocery supply chains relies on successfully moving product to stores and off shelves into consumers’ shopping carts. Even with trends moving toward farm-to-plate fare and locally sourced products, the industry will always need safe, effective and cost-effective transportation solutions. In managing transportation concerns, grocery retail and wholesale operators face multiple concerns including regulation, wage inflation, rising costs and liability.
- Regulation — Grocery transportation operations are covered by stringent regulations that cover both the transportation industry and food handling and safety.
- Wage inflation — Employment costs in private industry transportation have risen more than employment costs in all private industry, according to the Bureau of Labor Statistics.
- Rising costs — In addition to rising wage costs, escalating fuel prices and increased demand for freight transport services are prompting companies to alter their supply chain strategies, according to Supply Chain Quarterly reports.
- Liability — Insurance costs rarely go down for any industry, and that is certainly true of transportation.
For a growing number of grocery retail and wholesale operations, outsourcing their transportation has become the solution to these challenges.
Transportation trends driving interest in outsourcing
A handful of trends within the transportation industry are heavily influencing grocery supply chains, and driving interest in outsourcing transportation needs. These include:
- Increasing cost pressure — Transportation costs are rising. Driver shortages, increased wages and benefits, and rising insurance costs are the main drivers behind the increases. What’s more, a push for accountability has spurred an increase in lawsuits across supply chains.
- Escalating regulatory pressures — Transportation is a highly regulated industry. Among the many federal and state regulations governing transportation are the Food Safety Modernization Act, e-log regulations for drivers, and California’s fuel consumption and reporting rules. Additionally, the industry self-regulates by setting ever-higher industry standards. Increased regulations are creating greater reliance on expensive technology to support compliance and automate processes that were previously handled manually, and driving fleets to purchase newer equipment to meet industry standards and regulations.
- Growing reliance on expensive technology — Technology is transforming all aspects of the supply chain, including transportation. Of course, progress comes at an initial investment. The hardware and software that make handling the logistics, cost tracking and regulatory compliance of transporting product easier can also be prohibitively expensive — especially for smaller operators. What’s more, even among those operators who can afford to purchase the technology, an unavoidable learning curve could mean costly delays in achieving peak efficiency. Additionally, grocery operations that look to manage their transportation needs with technology also face the costs of integrating those management systems with their existing procurement systems.
- Rising demand for greater efficiencies — Efficiency is directly linked to profitability for supply chain operators. A number of developments in the transportation industry have made it easier for managers to identify sources of inefficiency. These developments include access to data from onboard computers, monitoring solutions, updated routing platforms, visibility of orders and vast amounts of data to process.
Solving transportation challenges through outsourcing
Grocery operations routinely outsource a variety of tasks, from procurement to cleaning. Outsourcing transportation addresses several significant challenges, and provides a range of benefits, including:
Outsourcing can help an organization develop a planned transportation budget, while freeing up cash to reinvest in the business to lower operation costs and improve operational efficiencies. For example, employment liabilities such as dealing with a union, cost of staffing, background checks, and liability coverage on equipment; asset risk, maintenance, and residual value; and technological innovation become the responsibility of third-party providers. Human resources teams need to spend less time managing transportation staff, finance personnel spend less time auditing or managing transportation assets, and operations personnel can focus on what they do best since these roles can be directly employed by third parties.
Shifting regulatory pressures
Navigating regulations is always a challenge, especially in the highly regulated and complex realm of transportation. Many grocery operators lack the in-house expertise to effectively and efficiently manage transportation regulatory requirements. Where grocery companies are experts at regulations at the stores and distribution facilities, transportation outsourcing companies are experts on the regulations that govern their industry and how those rules can affect grocery operations allowing experts to focus on what they do best.
Further, the liability associated with potential non-compliance is largely shifted — and in some cases, entirely moved — to the outsourcing vendor. Finally, third-party transportation professionals are typically better equipped to gather, maintain and communicate the kind of detailed tracking data required by transportation regulations.
Greater technology at lower cost
Technology has transformed the transportation industry, but the cost of acquiring, integrating and operating task-specific technology can be prohibitive for grocery operators, especially smaller ones. When outsourcing transportation, grocery operators can shift the cost of that technology to the vendor. Through their outsourcing partner, grocery operators can have access to the latest technology at a lower cost. Further, outsourcing partners share the financial and time burden of ensuring transportation software and hardware integrate with existing procurement systems.
Driving efficiencies through better use of more readily available big data is becoming of paramount importance in the transportation industry. Innovative technologies enable companies to optimize data and make operations more efficient. Managed transportation systems can be utilized in-house or outsourced with a third party, and provide the ability to consolidate shipments with other operators. The key question for grocery operations to consider is which approach will achieve greater efficiency — managing processes in-house or through a third party?
What to expect from a transportation outsourcing partner
Transportation outsourcing partners should be able to deliver a number of benefits to grocery operators. A third-party partner can provide these components, individually or holistically, to a company to support their transportation needs:
- Technology, including software or hardware, and integration support for existing procurement, warehouse management, or other systems.
- Drivers, either for the grocery operator’s owned fleet, or operating in vehicles owned by an outsourcing partner.
- Assets, that are costly to acquire, maintain, and operate such as tractors, trailers, trucks, etc.
- Service such as maintenance support.
Transportation outsourcing scenarios
Outsourcing transportation does not have to be an all-or-nothing proposition. Each grocery operator’s needs will be unique, and outsourcing solutions can be tailored to match those needs. Options may include:
- Elimination of an in-house fleet and complete outsourcing of all transportation operations.
- Initially outsource the technology and certain management aspects of the supply chain such as transportation, appointment scheduling, compliance records, freight audits, etc in order to give in-house staff the time and experience to bring the tasks back under the grocery operator’s roof.
- Outsourcing assets, such as tractors and trailers, but utilizing in-house drivers.
Topco Indirect has outsourced transportation for several of its grocery companies that has provide to benefits such as greater cost control, reduced liability and enhanced efficiency.