Tim Higham's Views

Transportation & Merchandising: The Great Divide!

One of the most frequent issues that comes up in my discussions with growers is how to connect two important parts of the supply chain - transportation and merchandising.

As Vinny Naab mentions in Greenhouse Grower's July issue, more growers are having to merchandise their own products in stores or hand it off to a third party. For growers delivering their own material, this may not be so bad. But when you have to use common carrier trucks and third party merchandisers, it can be a disaster.

Trucks deliver perishable material to your customer, only for it to sit in the parking lot or other "convenient" location, waiting for your merchandiser to show up. Of course growers have zero visibility with this process unless you control both the truck and the merchandiser, which few do. When your plants leave your dock, all you can do is pray they arrive "on time" and the merchandiser gets to them before they are:

a.) stolen
b.) dead
c.) lost (see item "a")

At Interstate, we solve this problem by providing real time truck location updates via the Internet (or any Blackberry or modern cell phone). We have found the problem is not a truck being late delivering (or early). It is conveying that information to the merchandiser who is designated to set the product.

We all know that product in the parking lot won't (can't) sell, and that fresh and health-looking product sells well. So getting it to the store on time and getting it on the shelves quickly makes everyone more money.

Why more growers, logistics companies, merchandisers and retailers do not seem to address this connection amazes me. No other product category I know of has a bigger disconnection between delivery and sale. Ironically, plants are the one product (other than fresh produce) where this connection needs to be the strongest. Even more amazing is that no additional cost is needed to make this happen - just a little technology and simple communication.

As a grower, what steps have you taken to close the loop between delivery and merchandising? Do you use technology-based tools?

Drop us a line at benchrunner@meistermedia.com

posted July 11, 2007

Cross Docking, Distribution and Big Box stores

One of the things being tried by several growers and big box stores is worth noting - cross docking material and delivering one full truck to a store. So rather than five small deliveries, the store gets one delivery - a full truck with a variety of material on it.

This is common with many other products, but has never worked on a wide scale with plant material, and many have tried. The idea, however, seems to make sense. Essentially, plants get shipped to a distribution center near their final destination, and when they are needed (or when a full load of product is needed), the items are shipped on another "local" truck to the store. One delivery, everything then need, sounds like common sense to me!

With plants and trees, however, this just does not work on a large scale. It only works in very specific situations. The reason is simple - the costs of unloading/consolidation/loading/delivering are greater than the actual costs of direct-store delivery. Moreover, damage to the product is high, and it can add days to the delivery schedule, which is not ideal with a perishable product that has a limited shelf life.

In some areas of the country, where premium prices can be charged for the plants, the extra costs of this distribution method can be absorved and margins can remain consistent. But this is arare. Most people will not pay more for a discretionary purchase product, especially in our current economic conditions. Even if consumers are willing to pay more, other serious problems occur with cross docking, and all are well documented from many years of trying. This solution is not new. It would be common practice already if it really worked.

We have found over many years in this business that with wide-scale cross docking, plant material gets lost, bugs and diseases contaminate entire inventories at the cross dock, plant material has very specific watering/care requirements, and everyone manages to point the finger when things go wrong (and they do). Worse still, the economics are not there. A new layer of cost is actually added to the distribution model, not taken away.

A better and more logistical solution is simple. The answer is multiple pickups and single delivery - avoiding the cross dock altogether - and thus the extra costs, delays and damage with it.

At Interstate, we are already the single largest live goods logistics company for Home Depot and the largest dedicated live goods logistics compnay in the United States. In fact, we had to write our own patent-pending technology platform to execute this vision - a vision that has proven itself to reduce costs significantly tens of thousands times over. Costs can be reduced, but through technology, cooperation and by reducing layers of cost, not adding them. By how much? Try a 10 to 20 percent savings in distribution costs, and a better looking product at the store to boost sales.

Now that's real money.

Share your experiences by emailing Greenhouse Grower,
benchrunner@meistermedia.com.

posted June 20, 2007

Gas Pains

The recent rise in gas prices affects everyone, unless you have the luxury of passing your costs onto your customers. However, most of us don't. Over the past few years, narrowing margins and added costs have made the greenhouse and nursery business much harder to compete in, pushing many marginal players out of the market. Higher gas prices don't help. In fact, they hurt in two areas: the increased cost of your supplies and the extra cost to get your product to your customers. The more you ship, the more the pain.

In some areas, gas prices have effectively tripled since 1997. Moreover, government regulations on emissions have actually reduced engine efficiency, not increased it, further heaping on extra costs for us all to absorb. How lucky we all are! Gas prices are not coming down anytime soon. While they will fluctuate, I fully expect them to stay in the $2.50 to $3.50 per gallon range for the foreseeable future.

The impact is huge. For each 1,000 miles a truck drives, it uses approximately 167 gallons of fuel (often less depending on the engine, load and if the driver keeps the engine idling at deliveries). Each dollar per gallon increase in fuel costs has thus reduced your bottom line by at least $167. A grower shipping 400 truck loads (averaging 1,250 miles per truck) each year is therefore paying $83,333 more for fuel, just to ship the product. Add this to your own suppliers' increased costs, and any fuel you use for growing operations, and as you can see, the pain is tangible.

How are you as a grower coping with higher gasoline prices?
Are your suppliers passing on surcharges to you?
Share your experiences by emailing Greenhouse Grower,
benchrunner@meistermedia.com.

posted May 30, 2007