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SUPPLY CHAIN RETAIL TECHNOLOGY TRANSPORTATION Million-Dollar CompUSA takes control of in-transit

stores from is a profit center and it’s making vendors. How- money on freight. But there are some ever, in terms advantages to the vendor in converting FedEx can provide of dollar vol- to FFC. For instance, it no longer has next-day delivery from ume, it’s just the risks associated with in-transit CompUSA cross-docks to the opposite. inventory and it doesn’t have to man- 93% of its stores. As measured in age freight claims for losses or dam- dollars, about aged goods. Also, before a vendor can 70% of our inventory goes through a be paid under the FFP system, it has to By Connie Robbins Gentry cross-dock and 30% ships direct-to- provide a proof-of-delivery (POD) to ince 1997, CompUSA has op- store. CompUSA, so converting to FFC en- erated a just-in-time supply CSA: At what point do you take ables it to collect sooner. Schain that keeps goods flowing control of the transportation of in- CSA: After converting to FFC, how through its distribution centers and ventory? are you managing the inbound trans- into its stores. Each of CompUSA’s Brown: We have an initiative under portation? 229 superstores receives three to 10 way to convert as many vendors as Brown: For the most part, we’re pallets daily. The merchandise goes possible from freight-free paid (FFP) relying on one of the FedEx compa- straight from the back door to the sell- transportation to freight-free collect nies, either FedEx LTL, ground, ex- ing floor. (FFC) transportation. Historically, press or FTN [FedEx Trade Net- Doug Brown, CompUSA’s senior 85% of our vendors have been FFP, works]. A major initiative for Comp- director of logistics, says that the flow- which means the vendor is responsible USA this year is to reduce our over- through approach and transportation for selecting the carrier and maintains all transportation bill by $3 million. improvements have yielded a competi- the risks of the shipment until it arrives FedEx has come up with approximate- tive advantage in shorter transit times. at our cross-dock or store. On average, ly $1 million of that cost reduction for He talked with Chain Store Age about we feel most vendors mark up the us. Working with a carrier that meets transportation processes and rethink- freight costs by about 20%, so we’ve time-definite deliveries also helps us ing the CompUSA supply chain. been paying more than we should for provide better customer satisfaction Chain Store Age: What is normal- transportation. Also with FFP, we because shoppers can depend on ly called a distribution center, you don’t have visibility of the goods in CompUSA to have product in stock, call a cross-dock center. transit and we have less control over in good condition and at the right Brown: That’s because we don’t our supply chain. By converting our price. warehouse any goods in our cross- vendors to FFC, we can choose our CSA: Define your expectations for docks. Whatever comes in today gets own carriers, leverage discounts with time-definite deliveries. processed today and ships to stores these carriers, gain visibility to in-tran- Brown: Our stores have very limit- tomorrow. This helps maximize inven- sit inventory and better manage our ed dock areas, so it’s important to min- tory turns and keeps goods on the store supply chain. imize the number of carriers attempt- floor. Plus, the longer product sits in a CSA: Are vendors willing to make ing to bump the dock. All store de- warehouse, the more it disappears or the change? liveries have to be made before noon gets damaged. Brown: Some are harder to con- because in the afternoon hours, the CSA: Does CompUSA process all vince than others, and the discussions docks are used for outbound ship- its inventory through a cross-dock have to be handled at the senior-most ments, either transfers of merchandise center? levels of the companies. In some cases, to other stores, product returns to ven- Brown: No, about 30% of the prod- our CEO is meeting with their CEOs. dors or shipments to customers. FedEx uct volume goes through a cross-dock Even then, it’s difficult to convert a handles 75% of the shipments from and about 70% delivers direct to the company when its logistics department our cross-docks to our stores, and it

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Savings inventory and plans to save $3 million in transportation costs

consistently delivers to every store transit time for the imports being Brown: One area in particular got within a two-hour window before moved from our California cross-dock our attention. We work through a third- noon. Knowing when the deliveries to other cross-docks. The program uti- party company that helps us choose will arrive also helps our stores sched- lizes a truckload carrier that has 53-ft. international vendors to purchase ule labor. There isn’t warehouse space trailers with double-decking capacity from. We discovered that although the in the stores so the product has to be so we can double the number of pallets third party conducts quality-control received and immediately taken to the in a trailer. FedEx schedules a team of checks on the product to make certain retail floor. Another advantage is that drivers to deliver these trailers to our the vendors are meeting our quality FedEx can provide next-day delivery other cross-docks, where they break specifications, there were no security from our cross-docks to 93% checks. No one was check- of our stores, which reduces ing the boxes or containers transit time and creates a before they shipped. Al- competitive advantage for though that is not something us. Headquarters: Dallas that we have direct control CSA: Are most of your CEO: Larry Mondry over, we now expect our buy- vendors domestic or inter- Annual sales: $5 billion (estimated) ing agents to put some new national? Type of business: A privately held retailer of technology security procedures in place Brown: Most of our ven- and home entertainment products and services to police those shipments. dors, probably 90%, are lo- Founded: April 1985 We intend to do everything cated in the United States. Number of stores: 229 CompUSA Superstores necessary to be in total and the remaining 10% are Areas of operation: 90 major metropolitan markets in compliance of C-TPAT so in Taiwan and Hong Kong. the United States and Puerto Rico our containers are processed All of our imports are com- through customs without Distribution centers: Five cross-dock centers located in ing through the port in Long delay. California, Texas, Georgia, Illinois and New Jersey Beach, Calif., and are pro- CSA: You’re cutting trans- Inventory: 5,000 SKUs in an average store, plus an cessed at our La Palma, portation costs by $3 mil- Calif., cross-dock. additional 25,000 SKUs available for special order lion, converting vendors CSA: Is the Long Beach Strategic goal: To reduce overall transportation costs by from freight-free paid to port still a bottleneck dur- $3 million in 2005 freight-free collect, re-rout- ing peak season? ing imports and tightening Brown: There were some bottle- down these shipments and pedal run security—any other plans for this necks this past season but nothing them to our stores. year? major like the year before. However, I CSA: Have you felt any impact Brown: Actually, we’re conducting am going to be investigating whether from the new C-TPAT regulations? a study of our total supply chain, par- to bring containers through other ports Brown: We haven’t been impacted ticularly the just-in-time philosophy. to our cross-docks around the country. yet, but C-TPAT is going to impact all The cross-dock centers and just-in- The West Coast longshoreman prob- imports. Before the mandatory compli- time strategy have been a core strength lems aren’t getting fixed anytime soon. ance goes into effect, we wanted to be for our company, but we may need to The other change I’ll be looking into is fully prepared. We asked FTN, which tweak this approach so that our sup- a FedEx program that pre-distributes is already C-TPAT-certified, to do a ply chain serves today’s demand as the freight for stores before it leaves thorough assessment. FTN submitted efficiently as it served yesterday’s de- Asia, so the imports would bypass our an evaluation and recommendations in mand. cross-dock centers. FedEx already in- December. CSA: Can you elaborate on what stituted a truckload, pooled-distribu- CSA: Are there areas that appear those “tweaks” might entail? tion program that has shaved a day off vulnerable? Brown: We think the supply chain

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SUPPLY CHAIN RETAIL TECHNOLOGY ON THE MOVE TRANSPORTATION

of the future is probably some combi- nation of cross-docking and some warehousing of inventory where it Responding to the Unexpected makes sense—but we won’t know until we run all the numbers. Today, he tsunami that struck Indonesia, Thailand, Sri we purchase just enough inventory to TLanka and other South Asian nations last month keep stores in stock. However, if we wrought massive human suffering and devastation. purchased in truckload quantities, we After the humanitarian cost, the major concern among might get the goods below market those in worldwide logistics is whether the damage price. If we could do that and still will affect exports leaving those countries. enhance margins after the cost of Retailers and shippers tell Chain Store Age they warehousing, then it might make sense have not felt any impact from the storm because the to tweak our strategy. In addition to Transportation properties most devastated by the tsunami were resorts looking at how we purchase goods and managers and tourist destinations, not the areas where manufac- how we route the goods through our show grace turing facilities or ports are located. However, as the system, we’ll also consider whether to under pressure battered countries contend with depleted resources and add cross-dock centers and whether the coming years of reconstruction, there likely will be an impact on the exportation of both raw materials and finished goods. Closer to home, California’s rain-ravaged roads and flooding may delay dis- tribution of imports arriving at West Coast ports. When trucks do make it out of California, drivers face record snowfalls in nearby states. Doug Brown, senior director of logistics of CompUSA, reported no major delays due to weather-related issues. “However, we continue to experience delays at the Long Beach port due to the backup of steamships and a shortage of port labor. In some cases, our draymen wait 24 hours at the port before they can pick up containers, and we are experiencing a two-day delay before the freight reaches our cross-dock.” Mark Rourke, VP and general manager of transportation management at Green Bay, Wis.-based Schneider National, said there have been some weather-related delays, but “no massive disruptions. The true impacts [of the rain and snow] are much less than one would believe from news reports. Certainly, there were some challenges in the West, but these were mitigated rather easily with alternative routings of equipment.” CompUSA stores, like this one in Irving, The more critical issue that Rourke frequently encounters is delivering time- Texas, receive three to 10 pallets daily. sensitive, promotional products for retailers’ special events. The normal chal- lenges of transportation and logistics are exacerbated by tightly condensed lead we should consolidate our e-com- times and delivering small quantities to hundreds, sometimes thousands, of merce operations into our cross-dock stores within a designated window of time. centers. Many times, the call to action comes from a manufacturer or consumer-product CSA: How are you handling e- distributor responding to the heightened expectations of its retail clients. In most commerce fulfillment now? cases involving seasonal promotions or special-event merchandise, Rourke said Brown: On-line sales are a very the shipments bypass the retailers’ DCs and go straight to the stores. The “hours small part of our CompUSA busi- of service” regulations that went into effect in January 2004 have compounded ness. Two of our CompUSA stores the challenges, making it extremely difficult to maintain cost efficiencies when have some warehouse space, and the making multiple LTL deliveries from a single truck. e-commerce fulfillment is handled out He suggested that retailers should increase lead times as much as possible and of those stores in Mesquite, Texas, communicate expectations early in the game. After that, step aside and let the and Pittsburgh. CompUSA also owns transportation companies recommend the best plan of execution. Retailers that a small West Coast chain, Good Guys, micromanage or restrict delivery routes often spend more than those relying on which has 71 stores and its own DC in the expertise of national carriers. Hayward, Calif. We’re also evaluating In spite of added transportation expenses, demand continues to increase dra- if combining the Hayward and La matically. Schneider saw a 60% increase in “promotion-related” deliveries Palma DCs would reduce expenses from the beginning of 2004 to 2005, and that was on top of more than a 200% and create additional synergy across increase in the demand for those services from 2003 to 2004. the supply chain. ■ —Connie Robbins Gentry ([email protected]) —[email protected]

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