I attended a truly outstanding presentation from Paul Trueax, VP of Logistics for the Pepperidge Farm division of Campbell’s on how it had collaborated with Kroger to re-engineer supply chain processes to improve both cost and effectiveness. Trueax’s presentation was fronted by a more general but nonetheless insightful presentation from Campbell’s Bill Pratt on how the food giant is thinking about and executing collaborative strategies overall.

Pepperidge Farm was contacted by a regional division of Kroger, who proposed a new supply chain strategy for Pepperidge Farm’s frozen line of sandwiches, pastries and other food products. It involved a switch from the traditional replenishment network for that segment, in which Pepperidge Farm shipped from plants to 3PLs it managed. Those 3PLs shipped to Kroger DCs, from which Kroger replenished the stores.

In the new model, Pepperidge Farm would ship product to a consolidation 3PL set up by Kroger that would feed the Kroger DCs across many of the retailer’s vendors. Though Pepperidge Farm would still own the inventory and be responsible for inventory levels, Kroger would provide daily replenishment recommendations based on consumption and forecast data. Though this would require Pepperidge Farm to now stock inventory at two points in the region (the original 3PL for other customers, plus the Kroger-controlled 3PL), the promised benefits for the total supply chain were overall lower inventories, lower transportation costs through use of full truckload shipments to the Kroger DCs (versus LTL from the Pepperidge Farm 3PLs to the DCs), reduced out -of-stocks and shorter order-to-delivery cycles.

After six months of data gathering, analysis, and strategy discussion, Pepperidge Farm agreed to the strategy. Results have come very close to plan: total delivered costs shrunk by 21 cents per case; Kroger’s days of inventory dropped from 22 to 12, while Pepperidge Farm’s inventories were basically unchanged despite stocking in two locations; Kroger stores service for Pepperidge Farm products increased by almost 3%, leading to significant sales increases for both the retailer and Pepperidge Farm.

The companies are looking to roll the strategy to other KMA’s (Kroger Market Areas). Total cycle time from data analysis to implementation for the new supply chain design – about 13 months.

In addition, the two companies are now discussing another supply path for promotional or holiday items, using plant direct shipments to the Kroger DCs. Though this would require Kroger to take on extra inventory, and live with longer lead times (perhaps two weeks for both lead time and inventory levels), the total transportation savings of nearly 40 cents per case probably should outweigh the extra costs to Kroger, which would receive an off-invoice allowance as part of the deal.

While clearly driven by Kroger, and perhaps representing an offer that would have been tough for Pepperidge Farm to refuse, this nonetheless was an excellent example of the true idea of collaboration – two companies changing the way they do things in concert to benefit both parties.

What strikes you about the Pepperidge Farm-Kroger story? Do many companies have the opportunity to partner with suppliers or customers, especially in CPG-retail, to drive out transportation costs?