It's tough for small to medium-sized manufacturers to compete with larger suppliers for limited retail shelf space. Creative strategies are often needed to level the playing field.
Emerson Healthcare, the logistics arm of the Emerson Group, was formed with that very idea in mind. Emerson Group represents numerous smaller suppliers of health, beauty, nutrition and over-the-counter brands to U.S. retailers. Formed 22 years ago with a competency in sales, it has since evolved to include expertise in marketing and logistics as well.
At a time when retailers are attempting to lessen the number of vendors with whom they work, Emerson faced a particular challenge. To keep its clients’ products in stores, the company needed to provide management of the full order-to-delivery cycle, including the physical movement and warehousing of goods.
Lacking any such direct expertise, Emerson Healthcare partnered with Ozburn-Hessey Logistics, which later would be acquired by Geodis. With $9bn in revenue, Geodis has some 165,000 customers and a presence in 120 countries, according to Stephen Downey, vice president of operations.
The partnership has allowed Emerson to grow as well, while helping to develop and promote the brands of more than 75 suppliers selling to some of the nation’s largest retailers, including Wal-Mart Stores Inc., Target Corp., CVS, Walgreen Co. and Dollar General.
On occasion, Emerson has had to struggle to win the favor of those retailing giants. Often they would prefer to buy items of lesser quality and higher cost from larger suppliers. “Again and again we hear that ‘it’s just tough doing business with small manufacturers,’” says Patrick Gibbons, senior vice president of healthcare and consumer electronics with Emerson Healthcare. “That there are hidden costs and risks.
“We got sick and tired of [hearing] that,” continues Gibbons. By representing smaller vendors and convincing them to adopt its logistics model, Emerson could allay retailers’ concerns about working with such entities. Creating a new vendor number, it set out to unify all orders from multiple customers for a given retailer, presenting buyers with a stable and formidable source of product.
A Crucial Partner
Geodis would prove to be a crucial partner in that effort. First, the logistics provider had to identify the best location for Emerson’s national warehouse. Following an extensive analysis of inbound and outbound transportation data, it settled on Plainfield, Ind., as the ideal site.
It was more than a matter of managing individual shipments from Plainfield to retailers’ stores and distribution centers. To cut costs and simplify the shipping process, Geodis launched a consolidation program that combined orders from all Emerson clients. Items were commingled within the warehouse, then shipped together to common destinations. At the same time, Geodis provided visibility to each order and shipment at the individual client level.
The arrangement has helped Emerson’s customers to meet the increasingly tight “must-arrive-by dates” (MABDs) set by retailers. Walmart, for one, has recently announced a narrower window for receiving shipments from suppliers, and others are likely to follow.
Retailers order product through Emerson’s customer service team, often through electronic data interchange (EDI) messaging, which links up with Geodis’s warehouse-management system (WMS). Geodis compares the order to the MABD and carrier schedules, then picks and consolidates orders bound for the same retailer, choosing the appropriate mode based on volumes. Throughout the process, clients are able to view their individual orders and inventories via Geodis’s web portals, WebSynapse and MercuryGate.
Emerson then invoices retailers, collects payment and allocates the funds to each client through a third-party accounting firm. Emerson clients maintain ownership of their inventory at all times. As such, retailers had to accept a new vendor number for a customer that didn’t take ownership of the goods, which had unique implications for their liability insurance policies.
Geodis’s logistics setup, involving just one WMS and one transportation management system (TMS), is designed to allow for the easy addition of new Emerson clients, each of which becomes part of the consolidated business initiative. In the process, they can take advantage of the efficiencies and economies of scale that are built into the model. Retailers, too, enjoy the advantages of interacting with a single vendor, which cuts down on the cost of purchase-order processing and simplifies vendor maintenance.
Another Step Forward
Markets are constantly changing, however, and rising customer expectations called for further innovations in the handling of orders generated by Emerson’s clients. So Geodis launched a new Freight Consolidation Service (FCS), expanding the program to include other customers of the logistics services provider. The combination of Emerson’s brands with those of Geodis’s larger customer base has resulted in additional cost savings and even faster transit times, the partners said.
The creation of FCS has allowed Geodis’s customers to save an average of 20 percent on less-than-truckload (LTL) rates, equating to more than $300,000 a year. As for Emerson, it has realized nearly $2.9m in logistics savings — a reduction of nearly 50 percent — in the second year of the program. The company was 4 percent above its initial projected cost savings for the first quarter of 2016, with further reductions expected.
Over the last five years, Emerson has shipped 137 million pounds of product, and saved $47m in logistics and supply-chain costs, Downey claims. At the same time, he adds, the program has generated $16m in procurement cost savings to the retail community.
Emerson plans to add products and industries to the collaborative model. Having originated with health and beauty products, the program has since expanded into general merchandise, and the company is looking to enhance capabilities for prescription pharmaceuticals and food, among other items.
Emerson and Geodis further plan to expand the program to Mexico, Canada and beyond. The goal, says Gibbons, is to “take this model globally.” Emerson also wants to venture into private-label brands on behalf of retailers.
The consolidation of shipments and processes has made possible savings and efficiencies that couldn’t have been realized by individual suppliers. And the program is ripe for expansion. “Unification,” says Gibbons, “is a sustainable solution.”