Several shipping volume benchmarks capture the important role that distribution centers play in the food industry today: in 2006, the typical center shipped 28.3 million cases or 611 million pounds of food — enough for nearly half a billion meals.
The top strategic concerns among distribution center executives include the increasing variety of products or stock-keeping units (SKUs) and rising energy costs. Distribution center executives ranked the impact of both on their operations at 7.0 on a 1-to-10 scale with 10 being the highest.
Diverse and changing consumer demands are driving up the SKU count. Stores are changing and expanding their offerings to keep pace with consumers, and niche retailers are marketing more ethnic and specialty foods — all of which distribution centers must supply.
Distribution centers are making more deliveries to stores to minimize out-of-stocks, resupply the fresh and frozen products that consumers increasingly want and to provide the just-in-time service that reduces store inventory space and costs.
All these factors are driving up energy costs and making human resources the top strategic concern as companies need higher-caliber employees to operate today’s fast-paced and sophisticated distribution centers. Executives gave the quality of labor an 8.0 impact rating and the shrinking labor pool 7.7. Companies are responding with increased training and employee recognition programs. Some are realigning working hours and reducing shifts so that most work can be performed during the day.
Controlling Energy Costs
Distribution centers are taking many measures to reduce energy costs. For example, they:
- Consult the Oil Price Information Service to track fuel costs on a daily basis.
- Fully load trailers, packing the cases and pallets in tight cubes; 68 percent of the shipments in 2006 were fully loaded — a sizeable portion that also shows room for improvement.
- Use low-friction tires, aerodynamic trailers and computers that turn off idling engines.
- Improve route planning to minimize the distance traveled.
- Cross-dock deliveries to save the time, energy and space to warehouse products.
One in five inbound deliveries (19 percent) is backhauled by suppliers returning from other locations to ensure that trucks on the road are never empty. This figure is unchanged since FMI last measured it in 2003 despite considerable industry efforts to promote backhauling.
This report was made possible by the support of Manhattan Associates, Inc.
Key Performance Benchmarks
The report measures distribution center performance in extensive detail, breaking the data out by wholesalers and self-distributing retailers, region, center size and other variables.
Median distribution center costs in 2006 were 2.80 percent of dollars shipped at cost. The typical center’s expenses were reported in five categories (the figures do not add up to 100 percent because the medians for each category were calculated separately):
- Warehouse labor/direct expenses — 57.4 percent.
- Administrative and other indirect labor costs — 6.6 percent.
- Operating support (e.g., pallets, travel, repairs, security) — 5.7 percent.
- Fixed costs (e.g., utilities, warehouse equipment) — 18.5 percent.
- Operating expenses (e.g., damage repairs, inventory gain/loss, auditing) — 3.6 percent.
Sales per SKU
This figure and others are often much higher for self-distributing retailers because they tend to generate more sales, operating larger, more high-volume stores.
- All distribution centers — $39,018 per week.
- Wholesalers — $23,946.
- Self-distributing retailers — $55,980.
Cases Shipped (Throughput) and Received per Hour
Self-distributing retailers ship and receive more because they operate larger facilities, generate more sales volume and can better manage case movement with the distribution center serving only the company that owns it. Measured in direct labor hours (employees who handle the cases), cases shipped:
- All distribution centers — 89 per hour.
- Wholesalers — 78.
- Self-distributing retailers — 101.
- Cases received:
- All distribution centers — 467 per hour.
- Wholesalers — 391.
- Self-distributing retailers — 661.
Methodology and Purchasing Information
This report is based on survey responses representing 94 distribution centers operated by 33 companies. To purchase a copy ($95 members, $175 associate members, $250 nonmembers), please visit the FMI Store at www.fmi.org/store/.