First Thoughts
  By Dan Gilmore - Editor-in-Chief  
  March 23 , 2012  

Supply Chain News: Trip Report - VCF Conference


I attended a sort of boutique conference earlier this week from an organization called VCF (formerly the Vendor Compliance Federation - more on that in a bit), and not only had a good time in Orlando as a speaker and attendee, but got quite a bit out of most of the presentations I heard. That includes some potentially game changing news in terms of use of natural gas in trucks using existing diesel engines - more on that at the end.

The conference is focused on the consumer goods to retail supply chain, mostly outside traditional consumer package goods, with strong participation in apparel/shoes (including department stores and apparel vendors), sporting goods, auto parts and lots more). Don't stop reading quite yet if you aren't in the consumer goods to retail supply chain, as many of the presentations were relevant across supply chain sectors, and high percentage of supply chains have a link to the consumer in the end.

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Boudreau it is not at all uncommon for the combination of lean principles applied to distribution and labor management systems to improve DC productivity by an amazing 67%. Why aren't more companies doing it?

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VCF is the brainchild of founder and president Kim Zablocky, who started what was then called the Vencor Compliance Federation a decade or so ago. From my conversations, the early years to a certain extent served as a forum for vendors, especially in the apparel sector, to get together and complain about real or perceived grievances with chargebacks from retailers for various violations of requirements for labeling, EDI, delivery, and more.

About halfway in, Zablocky got the very smart idea that the organization and its programs needed to be more about dialog and collaboration between vendors and retailers rather than complaints about chargeback programs. Hence the change to just "VCF" as the name, and the soon addition of a significant number of retail members in addition to the base of consumer goods manufacturers.

I am pretty good at having side conversations with attendees in these kind of events, over adult beverages as appropriate, and from a few I had with both vendors and retailers comes the following observation, relative to retailer presence: the retailers that belong to VCF strongly tend to be those that are really interested in using compliance programs to improve total supply chain performance; those that are primarily interested in using compliance rules to generate revenue are not so likely to get involved. I have a lot more respect for the former (Stage Stores comes immediately to mind) than the latter.

Finally, an essential component of the several annual VCF conferences are one-on-one meetings between vendors and retailers, often with the retailer's head of vendor relations or similar title. My conversations indicated that the subject of these meetings can range from just getting back on the same page to discussions as to whether some vendors with large chargebacks could possibly get some relief, but regardless these meetings are clearly a large part of the value for both sides of the value chain.

OK, after all of that, here were some of the VCF presentation session highlights:

I really enjoyed a presentation from Mike Rescigno of Rescigno Logistics Group (and a former Belk's store chain executive) on how all sorts of little things can rapidly cut the profits out of ecommerce fulfillment, whether you are a retailer or any business selling on-line.

The bottom line messages were (1) that you simply have to sweat the details; and (2) that you must look at the cost of the fulfillment operations and the call center together, as decisions made in the fulfillment center can often significantly increase call center costs. The goal has to be to minimize the total cost per order.

As just a few examples of areas that can lead to profit crushing costs, Rescigno noted that often too little attention is paid to a variety of packing and packaging errors, from using more expensive bubble wrap than is needed to gift wrapping multiple items without clearly identifying what package was for who.

Rescigno said that shipment errors or damage in the 5 per thousand orders range was about average. He also noted that things that looked smart to begin with, such as re-using vendor boxes for customer shipments, can cost more than it's worth in the end from workers spending time to look for the right box, or shipping boxes that are too big for the order. He also said if a defective product is discovered, it is critical to get out in front of the issue, proactively calling customers and promising a replacement. If the customer has to call, they will usually either cancel the order or demand a discount. Good stuff.

Bill Hardgrave of Auburn University offered his top 10 of things to consider in rolling out an item-level RFID program, as is something of a rage right now in apparel and other soft goods retail, with the potential to (finally) spread to other areas. Hargrave first noted that while the current roughly 6 cents per RFID "inlay" cost would never work for basic consumer packaged goods, there are many developments afoot working to "print" the circuitry nearly for free and then have metal in the can serve as the antenna.

Among the best of Hardgrave's tips were that store level RFID projects have to start with inventory accuracy. "Nothing else matters if inventory accuracy in store is poor," Hargrave said. He noted that his research has shown that average inventory accuracy at retail stores is in the 50-60% range, with accuracy being defined as the percent of SKUs for which the perpetual inventory system exactly matches the count in stores. He said that it is extremely rare for a retailer to have 80% inventory accuracy under that definition.

It is essential to use similar control stores for any RFID pilots, Hardgrave said, so that real improvements in performance specific to RFID can be measured. He also later told me that the idea of combining electronic article surveillance (EAS) with RFID in a single tag probably really doesn't make sense. "Just use the RFID tag for both," he said.

Jeffrey Boudreau of Ryder offered some ideas for logistics improvement, and said that it is not at all uncommon for the combination of lean principles applied to distribution and labor management systems to improve DC productivity by an amazing 67%. Why aren't more companies doing it? That is the multi-million dollar question. They just don't believe it, I have to conclude.

Chris Petersen from consultancy IMS noted that one major challenge with improving the perennial issues of out-of-stocks at retail is that the industry doesn't even have a common definition. He tends to favor one that defines in-stock as "the percent of active SKUs that have quantity on the shelf." I'll buy that.

Petersen added that the OOS problem can really only be solved in a collaborative effort between manufacturers and retails that involves "joint metrics, processes, and accountability." I couldn't agree more.

Richard Mikes of research firm Transport Capital Partners provided a wealth of data on the state of the transportation market. If you want to know why we are largely in a transportation capacity crunch, consider that the net class 8 trucks registered at the end of 2011 was down 2.1% from year before, while freight volumes rose 5.8%, according to the ATA.

In the peak season for 2012 (largely Q3), Mikes expects truckload costs to be up 10-12%, with half of that being increase fuel surcharges.

Finally, I had a lengthy conversation with someone involved in a new technology that involves aftermarket kits than can enable existing truck engines to use a blend of natural gas fuel and diesel. Though not ready to really go public with this yet, my source said a typical blend would be to use 60% nat gas and 40% diesel. Even after the kit (which involved replacing one of the two diesel tanks with a natural gas one), the truck can work solely on diesel as necessary.

The company claims that they have already received verification from truck manufacturers that this will not void warranties, a huge breakthrough if true. It says a 3PL arm of the company has 25 of these trucks running right now, with 25 more set to go on-line shortly. More on this from us soon.

May well be worth checking on this organization if you are a retailer or consumer goods manufacturer.

Any reaction to our VCF review? Are there clear differences between retailers using compliance to improve supply chain versus those more interested in the revenues? Let us know your thoughts at the Feedback button below.


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