This article is based on the results of the “Benchmark 2009 – Distribution Service” survey, conducted periodically since 1994, first by the Center for Studies in Logistics (CEL) and now by the Institute of Logistics and Supply Chain. In the first part, published in the January 2010 issue of Revista Technological, he demonstrated how the economic environment impacts the purchasing decision of the trade with the consumer goods industry.
This second part will analyze the implications of changes in the competitive environment in terms of the needs of supermarkets, as well as the performance and quality of the distribution service practiced by the industry.
General information
The Benchmark Survey – Distribution Service, carried out periodically since 1994 by the Center for Studies in Logistics and later by the ILOS, has been sponsored by leading industrial companies in their respective sectors.
The research scope considers about 600 interviews, carried out in five Brazilian capitals (São Paulo, Rio de Janeiro, Curitiba, Belo Horizonte and Recife), considering three categories of products: perishable food, non-perishable food and hygiene and cleaning.
The methodology evaluates eight dimensions (operationalized through their respective distribution service attributes): Product Availability, Order Cycle Time, Delivery Time Consistency, Delivery Frequency, Delivery System Flexibility, Failure Remediation System, Support Information System and Physical Delivery Support.
THE SATISFACTION LEVEL OF THE TRADE WITH THE INDUSTRY'S DISTRIBUTION SERVICE
This analysis concerns the level of satisfaction of the retail trade with the performance of industries that hold the best practices, as well as those with typical performance, considering the three main dimensions of the distribution service, namely: Product Availability; Consistency of Delivery Time and Order Cycle Time.
Figures 3 and 4 indicate that, in general, the supermarket trade was more dissatisfied with the Availability dimension of its suppliers' Distribution Service in 2008 compared to the previous year. In the case of Delivery Time Consistency, the best practices showed an increase in dissatisfaction, while the typical industry showed a lower level of dissatisfaction.
On the other hand, both the best practices and the typical industry showed a drop in dissatisfaction in terms of Cycle Time.
In the evaluation made by the trade, the distribution service of industries that have the best practices has shown a slight increase in dissatisfaction in recent years, in terms of Availability and Consistency of Delivery Time, with the exception of Cycle Time, which in 2008 reached to the lowest level of dissatisfaction throughout the period surveyed (see Figure 3). While the number of people dissatisfied with Availability increased from 4% in 2007 to 6% in 2008, in the case of Delivery Time Consistency, the 10% dissatisfied in 2007 grew to 11% in 2008. On the other hand, dissatisfaction with Time of Cycle decreased from 6% in 2007 to 3% in 2008.
Figure 3 – Evolution of the percentage of retailers dissatisfied with
industry best practices.
As shown in Figure 4, the typical industry shows a drop in dissatisfaction with the distribution service in terms of Cycle Time and Delivery Time Consistency. On the other hand, there was a slight increase in dissatisfaction in terms of Product Availability. While the number of dissatisfied with Delivery Time Consistency was reduced from 55% in 2007 to 52% in 2008, in the case of Cycle Time the dissatisfied fell from 28% in 2007 to 24% in 2008. On the other hand, there were an increase in dissatisfaction with regard to Product Availability, from 16% in 2007 to 17% in 2008.
Figure 4 – Evolution of the percentage of retailers dissatisfied with
the typical industry
In short, the economic scenario in 2008 favored the levels of dissatisfaction in the retail trade to remain reasonably close to those of the previous year. However, in view of the reduction in the sector's expansion pace in 2009, as noted in the first part of this article, an increase in the level of dissatisfaction with the industry's distribution service is expected, due to pressure from the trade to reduce costs aiming to offset negative impacts on sales (or lower growth rate than in the previous year). There will be greater pressure from trade for a leaner and more efficient service, as results are lower than those of the previous year.
It should be noted that the retail trade clearly differentiates the industries that have the best practices by demonstrating a much lower level of dissatisfaction with the distribution service when compared to the typical industry.
In the following sections, the components that determine the retailer's level of satisfaction with the industry's distribution service will be analyzed – the retailer's demand level and the industry's performance.
RETAIL'S DEMAND LEVEL AND INDUSTRY'S PERFORMANCE
The performance analysis of the industry's distribution service makes more sense if considered in conjunction with the retailer's level of demand for it. After all, a central issue to be understood in order to design a winning service strategy would be: how to achieve the level of customer satisfaction? In this sense, this section will address the evolution of these components that determine the level of satisfaction of retailers considering each of the three main dimensions of the distribution service in the consumer goods industry.
Product Availability
There is an increase in the minimum expectation level of the trade regarding the delivered percentage of the total order in 2008, as illustrated in Figure 5. Currently, the trade is not satisfied with deliveries that do not comprise at least 85%, while in 2007 this value reached 84,6%.
Figure 5 - Evolution of the delivered percentage of the total order
The industry's performance in terms of product availability in 2008 showed results very close to those of the previous year.
Even so, the best practices showed a slight improvement in the service provided to commerce between 2007 and 2008, while the typical industry showed a deterioration in the period (see Figure 5).
In the case of best practices, the percentage delivered, which was 97,9% in 2007, reacted to 98% of the total order in 2008. On the other hand, the typical industry showed a reduction in the percentage delivered, of 92,7% in 2007 , to the level of 92,4% in 2008.
It is interesting to observe that the increase in the level of expectation of retailers with the performance of the industry as a whole, in terms of product availability, contributed to the increase of dissatisfaction with it.
Delivery Time Consistency
Figure 6 indicates a slight decrease in the demand level for Consistency of Delivery Time of the industry by the retail trade in 2008. Currently, the retailer does not tolerate receiving more than 9,4% of late deliveries, while in 2007 this value reached at the level of 9,2% of orders placed.
Figure 6 - Evolution of the percentage of late deliveries
With regard to performance in terms of Delivery Time Consistency, the industry showed an increase in delays in 2008, as seen in Figure 6. In the case of best practices, delays, which reached 5,1% of orders in 2007, increased to 5,7% in 2008.
The typical industry increased delivery delays from 17,5% in 2007 to 19,6% in 2008.
It is observed that the drop in the level of expectation of retailers for a better distribution service, in terms of Delivery Time Consistency, combined with the worsening performance of the typical industry, was responsible for the reduction of dissatisfied with it. In the case of industries with the best practices, the level of dissatisfaction increased, due to the sharper drop in their performance when compared to the reduction in expectations (see part 1 of this article).
Order Cycle Time
As seen in Figure 7, in 2008 retailers lowered the level of demand in terms of order cycle time, after a strong increase in 2007. Currently, the retailer does not tolerate a delivery time greater than 4,4 days, while this term could not be greater than 3,4 days in 2007.
Figure 7 - Order Cycle Time Evolution
Regarding the performance of the industry in terms of Order Cycle Time, as seen in Figure 7, the best practices improved the service provided to commerce between 2007 and 2008, while the typical industry deteriorated in the same period.
In the case of best practices, lead time dropped from 1,7 days in 2007 to 1,6 days in 2008. On the other hand, typical industry performance worsened from 3,1 days in 2007 to 3,5 days in 2008 .
It should be noted that the reduction in expectations was decisive for reducing the number of people dissatisfied with the industry's performance (see part 1 of this article).
Based on the analyzes of the three basic dimensions of the distribution service, it is interesting to observe that the supermarket trade would be willing to receive its orders in considerably longer terms, without prejudice in terms of Product Availability and Delivery Reliability.
The survey results analyzed in this section confirm the evidence observed in previous editions, that commerce perceives a clear differentiation in terms of performance between the distribution service provided by the best practices and that provided by the typical industry, considering the three main variables of its purchasing decision process.
In 2009, it was expected that the level of demand for distribution services would have increased, due to the reduction in the pace of expansion of the consumer goods sector, as a natural reaction of retailers aimed at mitigating the reduction in results compared to the previous year.
General information
The Benchmark – Distribution Service survey, conducted periodically since 1994 by the Center for Studies in Logistics, has been sponsored by leading industrial companies in their respective sectors. The scope of the research considers about 600 interviews, carried out in five Brazilian capitals (São Paulo, Rio de Janeiro, Curitiba, Belo Horizonte and Recife), considering three categories of products: perishable food, non-perishable food and hygiene and cleaning.
The methodology evaluates eight dimensions (operationalized through their respective distribution service attributes): Product Availability; Order Cycle Time; Delivery Time Consistency; Delivery Frequency; Flexibility of the Delivery System; Failure Remediation System; Support Information System; and Physical Delivery Support.
Conclusions
As noted in previous editions, the economic environment has a strong infl uence on trade relations between supermarkets and consumer goods industries. The recent global economic crisis had significant impacts on the market, requiring executives to adopt creative approaches to mitigate negative consequences on business. The sharp reduction in credit in 2009 put the relationships between supply chain agents in check, due to the risk of disruption in the flow of products and services. This was a very favorable moment to introduce collaborative initiatives aimed at minimizing the negative effects of a market in crisis.
The first part of this article indicated a significant improvement in consumer purchasing power throughout 2009, contrary to what was expected at the beginning of that year. This certainly implied a positive link in trade relations between the consumer goods industry and the supermarket sector, which resulted in a substantial increase in retail sales in the period.
However, the lower growth rate of the retail sector and the slower pace of expansion of consumer income observed in 2009, if compared to the previous two years, combined with a still uncertain future economic scenario, should induce consumers to place more emphasis on to price over product in 2010.
As a result of this tendency to reduce the value of the product sold, supermarkets are expected to put pressure on the industry's distribution service, with a view to reducing operating costs. For 2010, it is likely that the retailer will remain willing to receive orders in historically longer terms, without prejudice in terms of product availability and delivery reliability.
It is important to point out that the distribution service provided by the industry represents an opportunity to differentiate itself from the competition. This observation is consistent with the observed increase in the relative importance of this service in the retail purchasing decision process.
As noted in previous editions of this survey, the performance of the service offered by companies with best practices is clearly perceived by retailers as superior to that provided by the typical industry.
Therefore, it is up to the industry to adapt its marketing strategy, paying special attention to the relative changes between the variables (Price, Product, Distribution Service and Promotion and Advertising) that direct the shopping behavior of the trade.
As a final message, it is important to emphasize that the development of periodic research is essential to keep the business relevant and aligned with the real needs of the market. It is from the continuous monitoring of the competitive environment that opportunities can be identified to better serve the customer, anticipating and surpassing the competition.
REFERENCES
FLEURY, PF, LAVALLE, CR. Evaluation of the physical distribution service: the relationship between the consumer goods industry and the wholesale and retail trade. Management and Production, vol. 4, nº 2, August 1997.
CHRISTOPHER, M.. Logistics and Supply Chain Management: strategies for reducing costs and improving service. Prentice Hall, 1998.
BOWERSOX, DJ, CLOSS, DJ. Business Logistics: the supply chain integration process. Atlas publishing house, 2001.
1Sources: Economic Conjuncture, IBGE, RAIS/MTE and ABRAS.
2Source: ABRAS.
3Respondents were asked to distribute one hundred points among the four purchasing decision variables considered (product, price, physical distribution service, promotion and advertising). A higher score indicates greater relevance. The result indicates the relative weight of these variables in the decision-making process for trade purchases with the industry. In order to maintain data compatibility, the analysis that follows only considers São Paulo and Rio de Janeiro, as these are the only markets that were the subject of research during the 12 stages of the same, between 1994 and 2007. Recife markets , Curitiba and Belo Horizonte were added in the second, third and fourth phases of the survey, respectively.
4The best market practices reflect the best performance among suppliers, and are therefore those that should be pursued as a benchmark. The performance of a typical company represents the market practice among the main suppliers of the researched company.
5Measure: average of the delivered percentage of the total order.
6Measure: Average percentage of total orders that are delivered late.
7Measure: average time elapsed from taking the order to delivering the product.
8The level of demand in question refers to the minimum expectation of service performance below which the customer feels dissatisfied.
