Result of the Survey carried out between 1994 and 2004 on the evolution of the importance and quality of the physical distribution service of the consumer goods industry in the perception of supermarkets
The first part of this article, published in the previous issue of this magazine, sought to assess the impact of the economic environment on the decision-making process for supermarket trade along with the consumer goods industry.
This second part aims to answer, given the evolution of the scenario, the following questions: What is the level of satisfaction of the retail trade with the physical distribution service provided by the consumer goods industry? What is your requirement level? Do the industry's best practices have their performance differentiated by the retail trade? At the end, the conclusions will be presented considering the article as a whole.
It should be remembered that the analyzes that follow are based on the results of the “Benchmark – Customer Service” survey, conducted since 1994 by the Center for Studies in Logistics – CEL/Coppead/UFRJ.
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 the industries that have the best practices, as well as those with typical performance1, considering the three main dimensions of the physical distribution service, namely: product availability2; delivery time consistency3; order cycle time4.
Figures 3 and 4 indicate, as a rule, that the supermarket trade is more satisfied with the industries' physical distribution service in 2004, notably in the case of best practices, after several years of growing dissatisfaction with its performance. The observed exception refers to the increase in dissatisfaction with the typical industry in relation to the product availability dimension.
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With regard to industries with typical performance, as shown in Figure 3, the improvement in the level of satisfaction occurred in the dimensions consistency of delivery time and order cycle time: the percentage of dissatisfied retailers decreased, between 2003 and 2004, from 72% to 63% and from 42% to 39%, respectively. However, the percentage of retailers that would like better product availability increased from 33% in 2003 to 37% in 2004.
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In the case of suppliers with the best industry practices (see Figure 4), between 2003 and 2004 the percentage of retailers dissatisfied with product availability decreased sharply, from 23% to 9%; from 43% to 23% dissatisfied with the consistency of delivery times; and from 20% to 5% dissatisfied with order cycle time.
It is clear, therefore, that the industries with the best practices received greater attention in the evaluation of retailers. This is happening in a period of recovery in the economic environment (see Table 1 attached), which promoted a 2,6% increase in supermarket sales at the end of 2004.
By way of analysis, the prolonged period of fall in workers' income can be divided into: from 1999 to 2001, when the accumulated loss was 9,8%; and from 2002 to 2003, when the loss was a significant 15% in just two years.
In general, between 1998 and 2001 there was a strong reduction in dissatisfaction with typical performance industries (see Figure 3). Retailers dissatisfied with the typical industry decreased: from 31% to 26% dissatisfied with product availability; from 67% to 40% dissatisfied with the consistency of delivery times; and from 38% to 19% dissatisfied with order cycle time. However, in the case of best practices, as shown in Figure 4, the level of dissatisfaction slightly increased: from 7% to 13% with product availability; from 20% to 22% with consistent delivery times; and the percentage of retailers dissatisfied with the order cycle time remained constant.
In the following section of this article, it will be seen that this difference in performance is explained by the fact that commerce perceived a significant improvement in the services offered by the typical industry, while the performance of best practices worsened. Finally, it was verified that, between 1998 and 2001, there was a clear loss of potential for differentiating best practices in relation to the industry in general.
In the following period, between 2001 and 2003, retailers showed growing dissatisfaction with the performance of the industry as a whole. The percentage dissatisfied with the typical industry increased: from 26% to 33% with product availability; from 40% to 72% with consistent delivery times; and from 19% to 42% with order cycle time. In the case of best practices, the percentage of dissatisfied retailers also increased: from 13% to 22% with product availability; from 22% to 43% with consistent delivery times; and from 8% to 20% with order cycle time.
It is interesting to note that, in general, the percentage of retailers dissatisfied with the performance of the industry's physical distribution service reached its highest level in 2003, at the same time that the economy experienced its worst moment throughout the entire survey period. . In 2003, the GDP grew only 0,6%; inflation increased by 10,4% per year; the average income of the worker fell by 12,2%; and supermarket sales fell by 4,5% (see Table 1 in the Annex).
It should also be noted that, during this period, the physical distribution service was at its highest historical level in terms of its importance in the retail purchasing decision with the industry (see Figure 2 in the Appendix).
These observations reinforce the arguments presented in the first part of this article, that economic conditions direct commercial relations in the consumer goods supply chain.
In the following sections, the components that determine the level of retail satisfaction with regard to the industry's physical distribution service5 will be analyzed – the level of retail demand and the industry's performance, as well as the influence that the economic environment exerts on them.
RETAIL'S DEMAND LEVEL6 AND INDUSTRY'S PERFORMANCE
The performance analysis of the industry's physical 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, considering each of the three main dimensions of the physical distribution service.
Product Availability
In the case of this dimension, the minimum expectation of the trade referring to the percentage delivered of the total ordered decreased discreetly from 98,2% in 2003 to 96,7% in 2004, after a long period of sharp increase in the level of demand, as illustrated in the Figure 5. The minimum expectation for product availability which, at the lowest level, was 85% in 1997, reached 98,2% in 2003, its maximum value.
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On the other hand, both the best practices and the typical industry practically maintained their performance in relation to 2003. In 2004, while the typical industry delivered 93,8% of the total ordered to trade, those holding the best practices achieved a performance of 97,6%.
In a previous period, it is observed that the level of product availability of the typical industry improved from 90% to 94,1% between 1997 and 2000, to then deteriorate from 93,5% to 92,3% between 2001 and 2002; reaching 94% in 2003. In the case of best practices, the performance perceived by retailers showed a slight downward trend in the period between 1997 and 2003: from 97,8% to 97,5%, respectively.
It is interesting to observe, in Figure 5, a sharp reduction in the difference in performance between best practices and typical performance industries, over the period surveyed. The difference in performance, which was 6,8 percentage points in 1997, dropped to 3,8 percentage points in 2004. Therefore, it appears that there was a significant reduction in the potential for differentiation in this dimension, when considering the industries that intend to be recognized as having superior performance by the supermarket sector.
Delivery Time Consistency
Figure 6 illustrates a significant decrease in the demand for consistency of delivery time in 2004: the tolerance for late deliveries went from 3,8% in 2003 to 5,3% in 2004. This also happened after the level of demand for a reduction in delays have shown a strong increase between 1997 and 2003: from 15,3% of late deliveries to 3,8%, respectively.
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With regard to performance, between 2003 and 2004 there were improvements, both for typical industries and for those with best practices: from 15,3% to 13,8% and from 5,8% to 5,3% dissatisfied, respectively.
In a previous moment, both the typical industry and the one with the best practices showed a similar pattern of performance evolution. The level of delays in the typical industry improved from 21,1% to 13% between 1997 and 2000, then deteriorated to 14,8% in 2001, reaching 15,3% in 2003. In the case of best practices, the performance perceived by retail showed an improvement trend between 1997 and 2000: from 5,4% to 3,4% of delivery delays; and a period of worsening between 2000 and 2003: from 3,4% to 5,8% of orders with late deliveries.
In this case, the difference in performance in terms of delivery delays between typical industrial companies and best practices, which was 17,7 percentage points in 1997, dropped to 8,5 percentage points in 2004. , that there was a convergence in the performance of the industry as a whole.
Order Cycle Time
As with the other dimensions analyzed, there was an increase in the maximum delivery time tolerated by retailers, from 2,1 days in 2003 to 2,3 days in 2004 (see Figure 7), after a long period of increased demand. As in the previous dimensions, between 1997 and 2003 there was a strong tendency for the level of demand to increase with delivery time: from 4,2 days to 2,1 days, respectively.
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In terms of performance, order lead time improved from 2,1 days in 2003 to 1,9 days in 2004 for best practices, while typical industry performance deteriorated from 2,6 days to 2,9 days in the same period.
With regard to the previous period, a clear trend of improvement in the performance of the typical industry between 1995 and 2001 can be observed, when the delivery time was reduced from 4,9 days to 2,6 days, remaining at this level until 2003. In the case of best practices, the pattern of performance evolution was also similar to that of the typical industry. However, delivery time, which had improved from 2,8 days in 1995 to 1,6 days in 1999, deteriorated again to 2,1 days in 2003.
This dimension also shows a clear convergence in terms of performance. While the average lead time difference between typical industry and best practice was 1,5 days in 1997, in 2004 this difference was down to one day.
CONSIDERATIONS
The results presented in Figures 5, 6 and 7 demonstrate that there is a strong tendency towards an increase in demand for better performance in the industry, considering the three main dimensions of the physical distribution service.
There is also a clear reduction in the potential for differentiating best practices over the period surveyed. This was most evident until 2001, due to the significant improvement in performance of the typical industry, more than offsetting the increase in service level expectations (see Figure 3), which resulted in a decrease in dissatisfied retailers. On the other hand, in the same period, industries with best practices saw an increase in dissatisfied retailers, which was further highlighted by the drop in performance over the same period (see Figure 4). This trend becomes less evident from 2001 onwards.
This difference in assessment by retailers can be explained by the performance base of the typical industry, which was well below best practices in the initial period of the survey (see Figures 3, 4 and 5), which favors the achieving performance improvements more easily and quickly, likely with less effort and cost. It is good to remember that in this period there was pressure for improvements in the performance of the distribution service provided by industries due to the worsening negative situation in the economic environment.
It should be noted that, between 1998 and 2001, as seen in Figure 2 (Annex), the industry's physical distribution service received a strong appreciation in the decision-making process of commercial purchases7 to the detriment of the product. Pressures for better industry services (see Figures 3, 4 and 5) were caused by the 9,8% drop in consumer purchasing power, as well as the 3,5% loss in retail sales (see Table 1) in the considered period. In 2001, price already supplanted the product as the most important variable in the retail purchasing process with the industry.
In this sense, the strong increase in dissatisfaction among retailers in general observed in 2002, which culminated in the record levels of 2003 (see Figures 3 and 4), was probably in response to changes in the pattern of trade demand, which continued not to be duly observed by the industry. This made products and services receive even more pressure in terms of price and rationality of operations.
In this period, the purchasing power of the final consumer, as well as retail sales, again experienced significant losses of 15% and 3,1%, respectively. This likely reinforced the momentum for change, making price more relevant than product in the retail purchasing process. In 2003, in addition to valuing the distribution service even more, retail also demanded better performance from it.
It is also important to point out that the highest levels of demand occurred in 2003, the year in which the physical distribution service reached its highest level in the retailers' purchasing process throughout the survey period. As previously mentioned, this was the year in which the largest number of dissatisfied retailers was verified and also the one with the worst performance in the economy, mainly in terms of loss of consumer income and the performance of the supermarket trade.
In a later period, between 2003 and 2004, it is observed that the reduction of retailers dissatisfied with the best practices was due to the drop in the demand for the level of service combined with the improvement or maintenance of the industry's performance. However, the worsening performance of the typical industry in the period explains the lower rate of retailers dissatisfied with it, when compared to what happened with best practices (see Figures 3 and 4).
These results are consistent with the improvement in the economic scenario in 2004, when GDP grew by 4,9% and inflation was reduced to 6,1%, which, in turn, promoted the slight growth in workers' income, 0,2%, and the recovery of supermarket sales by 2,6%.
CONCLUSION
The pace of economic recovery should have a strong influence on trade relations between supermarkets and consumer goods industries. It is up to the industries to take advantage of the opportunities that will arise from these ongoing changes, being more agile than the competition in adapting their marketing strategies to better meet the requirements of their supermarket customers.
The industries must pay attention to the fact that the physical distribution service is being increasingly valued by their supermarket customers, who are also significantly dissatisfied with it. This means that there is an opportunity to develop a winning marketing strategy by placing more emphasis on aspects of the physical distribution service.
The survey results demonstrate that there is a trend towards performance convergence in the three main dimensions of the physical distribution service. In this sense, is there a tendency for these dimensions to become increasingly qualifying, or minimum requirements for selecting suppliers that intend to serve a given retail chain? Therefore, it is important that companies also start to consider other dimensions of the physical distribution service in order to obtain a competitive differential, at a cost that is probably more attractive. Improvements become more expensive at increasing rates as operational performance excellence levels are reached.
On the other hand, the expressive trend of increasing demand for better performance in the industry reinforces the need for companies to permanently seek to improve their physical distribution service. Current levels of dissatisfaction indicate that there is room for companies to improve their response capacity in order to meet the performance levels demanded by supermarkets.
As a final message, it is important to emphasize that the research effort is essential to keep the business in line 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.
BIBLIOGRAPHY
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.
NOTES
1 – The best market practices reflect the best performance among suppliers, and can therefore be pursued as a benchmark. The performance of a typical company represents the market practice among the main suppliers of the researched company;
2 – Measure: average of the delivered percentage of the total order;
3 – Measure: average of the percentage of total orders that are delivered late;
4 – Measure: average time elapsed from the taking of the order to the delivery of the product;
5 – Named in the survey as customer service;
6 – The level of demand in question refers to the minimum expectation of service performance below which the customer feels dissatisfied;
7 – Respondents were asked to distribute one hundred points among the four purchasing decision variables considered (product, price, customer 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
