Supply chain going direct, going greener
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- Supply chain
New plan has supply chain moving products directly from product manufacturers to Walmart stores. Kraft Foods and Kimberly-Clark have launched their own initiatives.
Anyone who is involved in contract packaging services should note what’s taking shape at Walmart. The giant retailer is embarking on an ambitious plan to make its transportation and logistics spending even leaner by purchasing consumer products directly from product manufacturers rather than going through the traditional supply chain. In the process, Walmart is increasing supply chain efficiency while also benefiting the environment.
A recent posting from William Cassidy on joc.com explains that Walmart currently purchases less than 20% of its good directly from product manufacturers but wants to increase it to 80%.
One of the major benefits of this approach is that Walmart can assure that much more of the trailers that ship goods to its stores are fully loaded, thereby reducing what those in the contract packaging industry refer to as “touches,” as well as emissions. How? The merchandise goes straight from the manufacturer to Walmart’s distribution centers or stores, bypassing the back and forth in bringing a stop at a contract packager’s separate facility for pack-out into the equation.
With Walmart taking the sustainability lead in making its supply chain even leaner and greener, you can bet competitors will follow. On the product manufacturing side, a few pioneers already are going this route. Kraft Foods has removed 50,000 trucks from the highway since 2005 and eliminated tens of thousands of emissions. Through its “Network of the Future” program, Kimberly-Clark is working toward a goal of 45% of its products direct-loaded by its co-packers in its own facilities and shipped directly to retailers. Kimberly-Clark has eliminated thousands of emissions and now reaches 87% of its customers with transit time of one day or less.
Kimberly-Clark is an example of an emerging trend in contract packaging: The packers fill customers’ multipacks and assemble their retail-ready packaging displays right in the product manufacturer’s own distribution centers. So finished goods travel from their centers directly to the retailer.
Anyone involved in contract packaging should closely analyze this trend if they want their company to be competitive in 2010 and beyond.
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Jim – The sustainability angle on the Wal-Mart move towards a more direct supply from the manufacturers is interesting. Nobody will deny the benefit of consolidating shipments from manufacturers to promote a better utilization of transport assets. That said, extending this to an interpretation of shipping fully packaged products from source directly to retail as a universally positive sustainability strategy I believe is mistaken. Before I go further I must declare a vested interest. Working with ModusLink we routinely analyze and execute configuration strategies for high technology product companies. This is a network design decision and is driven by product and packaging form factors to optimize for either cost, time to market or indeed more recently for GHG emissions. There are certainly occasions where a direct fully packaged shipment is the most cost effective answer but there are many others where it results in wastage from transporting excess packaging long distances from remote manufacturing location. Wal-mart certainly has the supply chain organization to make these determinations but I expect that even they will engage with some form of ‘contract packaging’ organizations to help execute more intelligent configuration strategies.
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