GHQ: Order in the backroom
By William Epmeier
Through a special arrangement, what follows is an excerpt of a current article from Grocery Headquarters magazine, presented here for discussion.
The focus in the backroom is to do more with less, and retailers are looking to logical layouts and space-saving strategies and equipment to help accomplish that goal. In the 1970s backroom storage accounted for about 30 percent of a store’s square footage, but that amount has dwindled to 15 percent or less today, according to industry figures.
One of the key drivers to the shrinking of backrooms is just-in-time inventory management. The idea is to minimize the amount of inventory that is held as back-up stock at all points throughout the supply chain and to increase the frequency of store deliveries. Thanks to more accurate POS data, supermarket operators are able to identify more precisely how many of each supermarket product sell each day, and then to order just enough to hold a store over a one- to three-day cycle.
Moreover, another goal of current supply chain thinking is to transfer as much inventory from the delivery truck directly to the sales floor rather than keep stock in the backroom. This approach is aimed at reducing handling costs, said Keith Swiednicki, senior partner for KOM International.
Today, many retailers are pushing backroom activities back into the distribution center. Merchandise pallets can go directly from the truck to the store’s sales floor, where they are broken down and put on the shelves. The goal is to minimize handling.
The trade-off, of course, is extra warehouse labor costs, but retailers still come out ahead, Mr. Swiednicki said. Studies conducted by KOM indicate that a “store-friendly delivery” strategy increases warehouse labor by 25 percent, but it decreases store labor by 33 percent. In terms of time this trade-off amounts to a savings of 16 seconds per case handled, “a pretty significant improvement,” he added.
While the trend today is to minimize the role of backrooms, some believe this approach may have gone too far. “Management theory says that nothing should be in the backroom; [but] it’s just not proven,” said Frank Dell, president of Dellmart & Co. and a member of the RetailWire BrainTrust. “There’s more savings to be had from using the backroom to level out issues in the supply chain.”
“The backroom should be part of the distribution network, not part of the store network,” he added. In short, Dell counsels retailers to back off overzealous just-in-time deliveries and to hold more fast-moving merchandise back-up stock in the backroom. “You can cut 10 percent to 20 percent of truck deliveries by doing this.” Having a buffer backup stock also improves service levels.
Discussion Questions: What role should the back room fill at retail? Have retailers shrunken the size of back rooms too much? Or do you think distribution centers are the most efficient way to handle in-store fulfillment?