Advanced Pool Distribution: Part Four - Why Pool Distribution Now

Advanced pool distribution is not just about lower cost fulfillment. It can have a transformative impact for retailers struggling to meet today’s store and omnichannel fulfillment requirements.

( This article is excerpted from the complimentary report Advanced Pool Distribution,
available for download here. )

In part three of this series, we discuss the types of value-add services and custom programs available from many pool distribution providers. Here in the fourth and final installment of this series, we look at why pool distribution is becoming so popular now, how it can improve the shopper experience, and how it is one of the key enablers of omnichannel excellence.

When Is Pool Distribution the Best Option?

Pool distribution may be right for your company if any of the following applies to your operations:

E-commerce and omnichannel growing in importance—If you are being challenged to deliver omnichannel performance, with higher service and lower cost, you should consider pool distribution.
Shipping steady large volume of LTL/parcel into a market—You are currently shipping LTL and/or parcel to replenish stores in a market where you have enough store density, volume, and consistency to fill up a line haul trailer at least once a week on a regular basis.
Shipping LTL or parcel over longer distances—The longer the distance being shipped via LTL or parcel, the greater the savings opportunity using TL for linehaul to the PDC.
More frequent deliveries needed—Wherever multiple per week, daily, or even multiple per day deliveries are highly desirable, but volumes to the store only allow once-per-week deliveries using LTL or parcel, PD can help.
Capacity constrained during peaks—You have trouble with DC-to-store capacity during peak demand (seasonal, promo, holidays, events).
Need to free up associates’ time—Where store associates are spending too much time in receiving and replenishment activities, and not enough time with customers.
Cluttered stores—Stores are crowded and cluttered with merchandise waiting to be stocked on the shelves.
Special delivery requirements—Store locations with restricted delivery hours or loading space, or requiring specialized delivery equipment, such as smaller delivery vehicles or lift-gate equipped trailers.
Limited or no back room at stores—Limited back room space at stores with the need for more frequent, ‘on-demand’ delivery.

Why Pool Distribution Now

In this age of omnichannel commerce, retailers need the fastest service and maximum flexibility, at the lowest possible costs for store replenishment and e-commerce order fulfillment. For many retailers and markets, pool distribution is the best option.

Speed + Precision + Lower Cost + Flexibility

For retailers and markets where it makes sense (see When Is Pool Distribution the Best Option?), pool distribution can provide the speed of parcel at the cost of LTL, with the flexibility like having your own in-market DC, and with much better precision, visibility, and control than LTL or parcel. Both LTL and parcel lack the precise delivery windows in standard services and charge much more for precise delivery windows¹ than pooled distribution. Rate audits can also be easier with PD than LTL, the latter having complex rate formulas² that are different for each carrier. PD uses TL rates, which are usually much simpler and more standardized (typically based on just weight and miles). Pool distribution can be two times (or more) faster than LTL, depending on the number of legs in the LTL journey. Furthermore, there is less loading and unloading, reducing damages and claims. Error rates and chargeback rates are lower. PD scans are highly reliable. Some retailers use them to check the accuracy of their own store receiving scans. And, a retailer’s carbon footprint is reduced due to more efficient end-to-end moves.

The savings for PD can be substantial compared with parcel, and in many cases even less than LTL shipments, especially for shippers that are not very high volume, or who have LTL shipments with many legs. A good example of the kinds of savings that can be realized is Stein Mart, who won the 2011 NASSTRAC Shipper of the Year Award. They switched from replenishing stores via parcel shipments to using a combination of dedicated and pool distribution lanes, resulting in $20M of savings. The savings were from both lower shipping costs and from labor savings at stores, due to the more precise and predictable delivery times. That $20M savings was 1.7% of Stein Mart’s revenue³ at the time, representing an enormous contribution to profit.

A Well-Known Fashion Retailer’s Use of Pool Distribution

A well-known and highly respected fashion retailer used to do all store replenishment deliveries via parcel or local courier. Now they use pool distribution for those stores that are in markets with volumes high enough to fill a trailer daily. That represents about a quarter of their store deliveries. The cost savings have been substantial. In addition, damage claims dropped with pool distribution, due to fewer touches in the network. They use Descartes Pool Distribution/BearWare to manage their pool distribution shipments. That has given them a dashboard into day-by-day performance that they were not getting with parcel.

Deliveries from the PDCs are made daily to all stores. The retailer sets carton capacity limits on each store, based mostly on the physical capacity of the stock room. Then the pool carrier manages deliveries according to that capacity. The retailer also finds value in more precise and predictable delivery windows provided by pool distribution. It eliminates guess work, providing store managers the ability to better plan labor hours and manage the cost of payroll.

They have seen a reduction in claims and disputes, due largely to reduced touchpoints. They said pool distribution providers are generally more responsive, quicker in fixing problems that do arise, such as an outbreak in damages.

One indicator of how well pool distribution is working for them: this retailer has explored ways to cost-effectively use pool distribution in some of their other, lower-volume markets, even going as far as discussions with other retailers on the possibility of building consolidated truckloads together to get enough volumes for pool distribution.

Pool Distribution is a Mature, Reliable, Low Risk Service

Pool distribution services have been around for over 30 years. During that period, PD service providers have continually learned, refined, and improved their approach. Many high-performance retailers have been using pool distribution for years and they keep doing it because of the results they achieve. In an established network, like the one powered by Descartes Pool Distribution/BearWare, the providers are proven and the risks are very low.

Improving the Shopper’s Experience

Beyond savings, moving to a pool distribution model can impact the shopper’s experience in a number of ways. The store is less cluttered, with fewer or no cases of merchandise lying around waiting to go on the shelves — shelf restocking can be done before opening, after closing, and/or rapidly in a very short time period during store hours. More importantly a lot of logistical and replenishment work is taken off the store associates’ shoulders, so they can give more attention to selling and serving the needs of customers. The timeliness and flexibility of delivery can materially improve on-shelf availability, a key driver of shopper satisfaction. Always having what the shopper wants on the shelf whenever they come is becoming increasingly important in today’s omnichannel world with so many alternatives and instant gratification expectations. The value of this improved customer experience goes far beyond the value of mere logistical efficiency.

Enabling Omnichannel Transformation

Traditional bricks and mortar retail is under attack as never before from the likes of Amazon and others. Excellence in omnichannel has become critical for survival for most retailers. Achieving higher service at lower cost is required for both profitability and for customer satisfaction and competitiveness. This is a key reason for retailers to seriously consider adopting pool distribution now.

Pool distribution, with offsite inventory management, allows retailers to have inventory in each market, without relying on the most expensive space they own (their stores) to carry that inventory and fulfill orders. Compared with shipping from a central DC, pool distribution is much more responsive and cost effective for all delivery windows: same day, next day, 2-day, or ground. Compared with shipping from stores, PD does a better job of pooling inventory and concentrating fulfillment resources at the market level, rather than pushing it all the way out to the stores. It allows a retailer to gain the best of both worlds (centralized pooling and distributed market-level responsiveness). Pool distribution is a key enabler of this fundamental shift in business models. It is a critical part of the transformation of retailers striving to become truly great omnichannel businesses.

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¹ Many LTL carriers don’t even offer precise delivery windows as an option. — Return to article text above

² LTL rate formulas may take into account the number of pallets, weight, dimensions, origin and destination, and other factors. — Return to article text above
³ Stein Mart had $1.2B in revenue for FY 2010. — Return to article text above

To view other articles from this issue of the brief, click here.