Result of research carried out between 1994 and 2007 on the evolution of the importance and quality of the physical distribution service in the consumer goods industry, in the perception of supermarket operators
The first part of this article presents an analysis of the economic scenario, which determines the behavior of agents in the consumer goods supply chain. Next, the implications of changes in the competitive environment will be discussed in terms of the needs of supermarket operators, as well as the performance and quality of the distribution service practiced by the industry.
The analyzes that follow are based on the results of the Benchmark Survey – Physical Distribution Service, conducted periodically since 1994 by the Center for Studies in Logistics – Coppead/UFRJ.
THE ECONOMIC ENVIRONMENT
Finally, the forecasts made in the last edition were largely realized in 2007. In 2006, the positive indicators of the economy had not been reflected in an increase in real sales by supermarkets. As shown in Table 1, despite the strengthening of workers' purchasing power by 5,1% in the same year, workers were not encouraged enough to translate this gain into consumption. Thus, it was observed that supermarket sales decreased by 1,66% in the period considered. At that time, the political environment was viewed with great distrust, given the recurrent institutional crises.
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Table 1 - Evolution of ratesi Brazilian GDP growth rate, exchange rate, average real income of employed persons, INPC and real supermarket sales *forecast |
However, the continued improvement in the fundamentals of the economy brought a boost to the spirits of the agents in the consumer goods supply chain, which translated into very positive results in terms of population consumption, which in turn promoted an increase in supermarket sales. Table 2 shows a significant improvement in the performance of the supermarket sector, with sales increasing by 5,92% between 2006 and 2007.
It can be seen that, in 2007, the sharp increase in GDP of 5,42% significantly boosted the purchasing power of the population, when the average worker income grew 3,2% in the period and the wage bill increased even more (6,30 .35%), also due to the higher level of employment. It should be remembered that, according to the Central Bank, credit reached XNUMX% of GDP, which certainly contributed to the increased demand for consumer goods.
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Table 2 - Evolution of monthly supermarket salesii |
For 2008, it is expected that the current economic conditions will ensure a positive year, both in consumer behavior and in the performance of agents throughout the supply chain.
According to forecasts, despite the current international financial crisis, one can expect a growth of the world economy around 4,1% in 2008, as well as at the domestic level, an increase in the GDP of around 5,20% and inflation (IPCA ) of approximately 4,50%. It is observed that the growth of the Brazilian domestic market has been driven by greater credit, which should be above 40% of GDP in 2008, which has stimulated the increase in household consumption, estimated at around 6% in relation to 2007. This current scenario has had important impacts on the positive performance of agents in the consumer goods supply chain. However, for 2009, a significant slowdown in economic activity is expected due to the worsening international scenario.
The commercial purchasing decision process
This section will address the impacts of changes in the economic environment on commercial relationships between participants in the consumer goods supply chain, as illustrated in Figure 1.
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Figure 1 – The consumer goods supply chain |
Figure 1 presents the logic of the physical flow of goods between the industry and the consumer, which can be done directly, through wholesalers, or through a retail network. This last case is the focus of the research carried out.
Figure 2 shows how the relative importance of the retailers' purchasing decision variables3 with the industry was changing over the period considered by the research.
In 2006, there was a change in the level of importance of the physical distribution service in the retailers' purchasing decision process, when, notably, the promotion and advertising variable gained space in relative terms.
In 2007, the physical distribution service is again growing in importance in relation to all other variables. This fact can be understood insofar as the increase in the purchasing power of the population, by translating into greater consumption, makes the trade demand greater efforts to replenish stocks on the part of the industry to its shelves. Thus, it is to be expected that the physical distribution service will gain importance in the retail purchasing decision process, in order to maintain high availability of products offered at the lowest inventory level.
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Figure 2 - Evolution of the purchasing decision process from commerce to industry |
In short, it is important to pay attention to changes in the relationship between commerce and industry, as there are trade-offs between the purchasing decision variables in commerce. The results indicate that, by giving greater emphasis to the physical distribution service, the supermarket trade seems to be willing to reduce its expectations in terms of product, price and promotion and advertising effort by the industry.
The level of trade satisfaction 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 performance4, considering the three main dimensions of the physical distribution service, namely: product availability5; consistency of lead time6 and order cycle time7.
Figures 3 and 4 indicate that, in general, the supermarket trade was more dissatisfied with the physical distribution service of its suppliers in 2007.
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Figure 3 – Evolution of the percentage of retailers dissatisfied with the industry's best practices |
In the evaluation made by the trade, as a rule, the distribution service of the industries that hold the best practices has shown a small increase in dissatisfaction, after a period of generalized improvement since 2003, with the exception of the cycle time in 2005. Between 2003 and 2006, there were a reduction of at least 75% of retailers dissatisfied with the distribution service of the best industries (see Figure 3). However, in 2007, there was an increase of one percentage point in the number of dissatisfied customers in the main dimensions, with the exception of product availability, which remained constant in relation to 2006.
METHODOLOGY AND MAIN PHASES
The CEL/Coppead methodology is organized into four Modules, which are subdivided into some blocks of activities, as shown in Figure 4.
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Figure 4 – Evolution of the percentage of retailers dissatisfied with the typical industry |
As can be seen in Figure 4, the typical industry had been showing an increasing trend of dissatisfied with the industry's physical distribution service, notably from 2001 to 2005. However, after a significant reduction of dissatisfied in 2006 in the three main variables in terms of customer service, a significant deterioration was observed in 2007: from 50% of retailers dissatisfied with product availability in 2005 to just 15% in 2006, and a slight deterioration to 16% in 2007; improving from 83% of retailers dissatisfied with delivery time consistency in 2005 to 44% in 2006, then falling back to 55% in 2007; and reducing from 71% of retailers dissatisfied with the order cycle time in 2005 to 17% in 2006, decreasing again to 28%.
The requirement level8 of retail and the performance of the industry
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 of retailers, considering each of the three main dimensions of the physical distribution service in the consumer goods industry.
Product availability
It is observed that the level of minimum expectation of the trade regarding the delivered percentage of the total order has continued to fall since 2005, when it reached its highest level in the entire historical series of this research, as illustrated in Figure 5. Currently, the trade does not is satisfied with deliveries that do not comprise at least 84,6%, while in 2006 this figure reached 85,9%, and in 2005 to the highest historical level of 99% of what was originally ordered.
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Figure 5 - Evolution of the delivered percentage of the total order |
On the other hand, industry showed an improvement in the performance of the service provided to commerce between 2006 and 2007, in terms of product availability. In the case of best practices, the percentage delivered, which was 99% in 2005, dropped to 97,3% in 2006, reacting to 97,9% of the total order in 2007. In the same way, the typical industry reduced the percentage delivered from 94% in 2005 to 92,6% in 2006, recovering slightly to 92,7% of the total requested in 2007.
It is interesting to observe that the combined effect of the reduction in the retailers' level of expectation with the improvement in the industry's performance, in terms of product availability, was not enough to reduce the percentage of dissatisfied customers as a whole. In fact, Figures 3 and 4 indicate that the percentage of retailers dissatisfied with best practices remained at 4% in 2007, while those dissatisfied with the typical industry increased slightly, from 15% in 2006 to 16% in 2007.
Delivery time consistency
Figure 6 indicates an increase in the demand for consistency of the industry's delivery time by the retail trade in 2007, after a significant reduction in 2006. It is noteworthy that the level of demand in this dimension of the physical distribution service also reached its highest level in 2005. Currently, the retailer does not tolerate receiving more than 9,2% of late deliveries, while in 2006 this figure reached the level of 14,7% of orders placed. Already in 2005, delays could happen in only 3,1% of requests.
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Figure 6 - Evolution of the percentage of late deliveries |
With regard to performance in terms of delivery time consistency, the industry showed a reduction in delays in 2007. In the case of best practices, delays, which reached 4,5% in 2005, reached 6,6% of deliveries in 2006 – the worst historical level recorded in this survey, improving to 5,1% in 2007. The typical industry, which increased delays from 13,8% in 2005 to 20,7% in 2006, again showed improvement in performance, with 17,5 .2007% of delays in deliveries requested by trade in XNUMX.
However, it is interesting to note that the increase in expectations, in terms of delivery time consistency, was responsible for the generalized increase in the percentage of retailers dissatisfied with the level of delay presented by the industry, notably with regard to market practice ( see Figures 3 and 4). While those dissatisfied with best practices only increased by one point, from 9% in 2006 to 10% in 2007, the market practice had a significant increase in the percentage of dissatisfied, from 44% in 2006 to 55% in 2007.
In short, it should be noted that the level of improvement in the industry's performance observed in 2007 was not enough to offset the more significant increase in terms of retailers' expectations.
Order cycle time
As seen in Figure 7, in 2007 retailers significantly increased the level of demand in terms of order cycle time, after a sharp reduction in 2006. It should be noted that the level of demand in this dimension of the physical distribution service also reached its highest level. in 2005. Currently, the retailer does not tolerate a delivery time greater than 3,4 days, while this time could be 4,3 days in 2006. In 2005 the delivery time could not be greater than 1,9 days ( see Figure 7).
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Figure 7 - Evolution of order cycle time |
Regarding performance, the industry improved the order cycle time compared to 2006. In the case of best practices, after a decrease from 1,8 days in 2005 to 2,1 days in 2006, they reduced the time to 1,7. 2007 days in 3,7. On the other hand, the performance of the typical industry has improved consistently in recent years, when delivery times increased from 2005 days in 3,5 to 2006 days in 3,1, reaching 2007 days in XNUMX.
As previously observed in the Delivery Time Consistency variable, the improvement in the industry's performance in terms of order cycle time was not enough to reduce the percentage of dissatisfied customers in view of the significant increase in retailers' expectations. While the level of dissatisfaction with best practices had a slight increase, from 5% in 2006 to 6% in 2007, in the case of market practice this increase was more relevant, from 17% in 2006 to 28% in 2007 (see Figures 3 and 4).
The research results analyzed in this section confirm the evidence observed in previous editions, that commerce perceives a clear difference in performance between the distribution service provided by the best practices and that provided by the typical industry, considering the three main variables of its process of shopping decision.
CONCLUSIONS
Current analyses, when compared to previous editions, confirm that the economic environment has a strong influence on trade relations between supermarkets and consumer goods industries. Therefore, it is important for industries to perceive the changes underway to better adapt their competitive strategies, making them more effective and relevant in terms of the market in which they operate.
It is expected that the scenario of increased consumer purchasing power, which in 2007 resulted in better results for the supermarket sector, should be maintained in the period of 2008. The evolution of the economic scenario must always be considered as a critical factor in the process of formulating the competitive strategy of companies inserted in the industrial sector of consumer goods.
In 2007, the physical distribution service regained relative space, after changing to a lower level in the previous year, in its level of importance in the process of acquiring supermarket trade with the consumer goods industry. This increase in importance of the physical distribution service is in line with the higher level of demand observed in two of its main dimensions, the consistency of delivery times and the order cycle time. The population's consumption growth implied demand from the trade for better industry performance to replace products on the shelves, at the lowest inventory level.
According to the results of the research, it is up to the industry to better adapt its marketing strategy, paying special attention to the relative changes between the variables (price, product, physical distribution service and promotion and advertising) that direct the shopping behavior of the trade.
In general, the growth of dissatisfied retailers with regard to the performance of the physical distribution service provided by the industry denotes a formidable opportunity for differentiation against the competition. This observation is consistent with the observed increase in the relative importance of the physical distribution 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.
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.
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.
Cesar Lavalle
Director of International Relations
Institute of Logistics and Supply Chain - ILOS
Tel .: (21) 3445-3000
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 requirement level in question refers to the minimum expectation of service performance below which the customer feels dissatisfied.
General information
The Benchmark – Physical Distribution Service survey, conducted periodically since 1994 by the Center for Studies in Logistics (CEL), 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, Delivery System Flexibility, Failure Remediation System, Support Information System and Physical Delivery Support.
Sponsoring Companies: Belfam; Steel wool; Ceval; Coke; Unilever; J. Macedo; Johnson&Johnson; Kraft; Kibon; Kimberly-Clark; Improvements; Nestlé; Perdigão; Reckitt Benckiser; Healthy; Santher; Santista Foods; Sara Lee; Unity; Johnson waxes.
iSource: Economic Conjuncture, IBGE, RAIS/MTE and ABRAS
iiSource: ABRAS