GHQ: Order in the backroom

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Jul 07, 2008
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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?

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9 Comments on "GHQ: Order in the backroom"


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Susan Rider
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Susan Rider
11 years 1 month ago
This is a challenge that has plagued many retailers and not much has been done about it. Back rooms are usually very disorganized, dark and riddled with junk. Why hasn’t the focus been on these super important areas? The back room should be set up as a mini warehouse; a stock locater system with technology. If there is a handle on inventory in the store and the min/max level is hit, the back room replenishment should be triggered so there is never a stock out! Back rooms today are super important because of fuel cost. Many retailers reduced the size of their back rooms and adopted a just-in-time replenishment model from the distribution center. Unfortunately, the cost of fuel is making this less effective for the bottom line. For example, instead of a couple loads a week to the store go to one load, and stock more at the location. Or, go to more Direct-to-Store shipments. Logisticians will have to get more creative in keeping the back room more efficient/effective to reduce the rising cost… Read more »
James Tenser
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11 years 1 month ago
In a store with strong compliance and implementation practices, the back room should be pretty lean. This is mostly hypothetical, of course, since few retailers have their act together on in-store implementation. Loading in safety stock may help retailers mitigate some shelf out-of-stock problems, but at a cost of idle inventory dollars and extra product handling labor. This can roll up to significant numbers when multiplied across many stores in a chain. Just as bad is when the back room becomes a dumping station for unused display materials or slow-turning items in open cases that didn’t fit on the shelf at replenishment time. As the stepchild in the supply chain, the back room gets little respect, and attracts virtually no ingenuity. When was the last time you heard about a retail software company introducing a back-room solution? About a retailer analyzing the ROI of its back-room inventory investment? About innovation in back-room design or implementation processes? It may want for glamor, but the back room is a key point of elasticity between the supply chain… Read more »
Dennis Serbu
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Dennis Serbu
11 years 1 month ago
Unfortunately regardless how this question is answered, the plant designs over the last 15+ years makes any increase in backstock prohibitive. There simply is not any room to store any significant increases in reserve inventory. On the other end of the spectrum, there isn’t a surplus of store labor to work the backstock either. Backroom designs are not conducive to efficient pipeline fill. In the vernacular, you couldn’t find your backside with both hands and a search warrant in most backrooms. Cluttered back rooms are an invitation to shrink. The problem has evolved full circle. We went from a plethora of DSD deliveries to centralized warehouse drops and FDS. Now fuel and labor have cycled and this approach may not be feasible for much longer. It may be back to DSD and putting the onus of costs on distributors and distributor labor. Perhaps it is time to examine extended receiving hours and moving certain lines to outside (consolidated) vendors. For the vendor, DSD can be a cost effective exercise once you move away from the… Read more »
Warren Thayer
Guest
11 years 1 month ago

I agree with Frank’s comments, and would just add that many retailers need to keep better track of what’s “back there.” More store discipline is necessary to keep “six of this, a case of that and a pallet of this” from being put in random places “just for now” and then getting lost in the morass. It may not be so much a case of adding back room space, but making more efficient use of what’s already there. And yes, common sense says that in many instances, more storage for fast-movers would help cut back on out-of-stocks.

Dan Nelson
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Dan Nelson
11 years 1 month ago

Item logistics and velocity are the two critical components to speed product to shelf. Movement levels and data can confirm JIT inventory needs on over 80% of items carried, and there is little to no need for back up safety stock at retail. Seasonal products and high velocity items that are not DSD should be the focus on back room inventories to ensure in-stock on high turn and high margin seasonal goods.

The delivery time from Distribution Center to stores is usually 3 days or less (with some stores getting 24 hour replenishment from the DC, so staying in stock on the majority of items carried is not too difficult with solid tracking and controls in place. Inventory is $$$, so the best of class retailers will continue to enhance JIT inventory practices which means less (not more) back room stock.

Doron Levy
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Doron Levy
11 years 1 month ago

The backroom is probably the biggest logistics complaint I’m hearing from the field. That said, we as retailers must understand that product cannot be sold from the backroom (obviously a given but I have lost track of how many times I’ve seen skus nicely stacked on a dexion with zero representation on the floor!).

You do not want to give a store manager acres of backroom space with no strict plan or layout. There was a saying that one of my clients had that works well: door to the floor in 24.

Optimizing procedures at the distribution center would make the lives of field personnel easier and save labor costs. Things like packing skids by aisle or category, casecounts clearly marked on receiving paperwork and deliveries made during non-peak hours will create a more efficient process for all involved. Remember, the backroom is your friend, not your enemy. Abuse it and it will make you suffer.

Dan Raftery
Guest
11 years 1 month ago

Dell has it right. The backroom should be considered a supply chain asset to be utilized, rather than a liability to be minimized. Corporate control of excessive overstock through ulra small backrooms limits dry delivery times to evenings when the sales floor can be used for staging. Daytime access by fresh departments can be hindered, lowering their efficiency. This backroom down-sizing tactic is simply an attempt to replace lost operating controls at the store.

Mark Lilien
Guest
11 years 1 month ago

Sign of a poorly-run retail chain: store by store inventory values more closely correlated to square footage than sales volume. Often I see large stores and large back rooms simply because the real estate is inexpensive. But the real estate is inexpensive for a good reason: low traffic. So the inventory becomes capital tie-up. For some retailers, it’s better to wall off the extra space than use it.

Ted Hurlbut
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Ted Hurlbut
11 years 1 month ago

My belief is that stores should be asked to focus on the one key thing they exist for and that’s the front end. There’s enough challenges in effectively servicing customers without adding the necessity of additional skill sets. Further, maintaining store level backstocks leads to pooling of inventory, and more inventory throughout the chain, than maintaining lean centralized backstocks.

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