Wednesday, March 2, 2011

Cross-Docking Business Opportunities

In the 1990s, cross-dock facilities proliferated in larger centres, as wholesalers sought cost-effective distribution outlets that would reduce payroll and shipping costs to the small retailers dotting the retail world.
As larger retailers either swallowed smaller mom-and-pops or overwhelmed them into closing their doors, the need for cross-docking appeared to diminish.
In the Canadian food services industry, any one region of the country is dominated by, at best, three large distributors.  In smaller regions, such as the Manitoba/Saskatchewan/Northern Ontario market, those distributors also manage more than 88% of the retail grocery trade.  In that same market, two primary distributors dominate the restaurant sector, with two others sharing about one third of the market of the larger two. In that mix, dozens of small suppliers and distributors attempt to compete.  This scenario is replicated across other parts of the country.
Several independent cross-dock outlets have closed their doors in the past dozen years, as the suppliers and the dominant distributors turned their attention from retailers to independent distributors.  Caught in that war has been the trucking industry.
Two years ago, Walmart refocused their distribution mechanism toward in-house shipping, as opposed to their long-standing practice of using independent trucking firms to haul goods across the nation.  The ultimate effect will be to squeeze the independent truckers out of the picture, even though the consumer possibly will see a reduction in prices.
The confluence of this series of recent events seems to be leading to an inevitable result: the elimination of local warehousing and shipping opportunities.  That, in fact, is not either inevitable or even probable.
While cross docking traditionally has been focused on urban locations, a major opportunity has opened for rural facilities.
Many suppliers to rural grocers and restaurants currently charge a levy, or delivery charge that runs from a base of $35 within a 50 kilometre radius to $100 or more, per delivery.  That fee is significant to a small town retailer, and often stimulates that retailer to take one day each week to journey to the nearby city to purchase supplies.  But that, in turn, require that the merchant arrange for employees to work in his or her stead for that day.  Thus, the $35 saving may be lost, unless the owner is able to offset that loss by finding competitive prices that result in savings.  This conundrum has led to most rural buyers turning to major wholesalers or distributors for their entire supply, which, consequently results in higher inventory costs.
The higher inventory costs force higher prices onto the consumer, who often responds by redirecting his buying dollars into the larger city.  The local retailer is now in an even poorer position to be competitive.  Local restaurants, though, tend to emerge from the increased food cost problem unscathed, as locals remain loyal to local restaurants.
In order to compensate for the increased costs, rural food merchants need to be able to capitalize on competitive pricing.  This is only possible if the distribution network offers the full range of competing products.  Therefore, the optimum arrangement would be to establish cross-dock locations at the margins of the base-rate radius provided by the supplier.  Typically, that is 50 kilometres. 
By setting up a depot at the perimeter of the distribution line, that depot can order a significant quantity of goods, thus sharing the one-time delivery fee over a much larger quantity of goods.  Instead of a $35 charge on a $1,000 purchase, for instance, the depot may be able to purchase $20,000, with the delivery fee spread over that amount.
By purchasing bulk quantities, the cross-dock depot also is able to capitalize on bulk buying deals, further reducing the costs.  Now, the depot can operate profitably, while offering lower costs to the remote rural retailers.
A second business opportunity opens itself through this cross-dock system: the ability to provide bulk-buy deals directly to the consumer.  This concept was tested in the Whiteshell resort region of Manitoba a few years ago, and proved to be very successful.
By providing a low-cost (3% of gross) delivery service (along with a share of the bulk-buy savings) directly to resort restaurants, the single-truck operator was able to generate net (not gross) revenues of $350 per day.  Later in that summer, he added direct-to-consumer deliveries, as well.  Individuals and families would attend at one location in each community at a specified time, to pick up the orders that they had placed.  This expanded his net revenues to $475 per day, by using two trucks. 
While the cross-docking concept requires some warehouse and cooler/freezer space, the start-up costs are very modest, and the cash flow immediate.
If you would like further details (at no charge) on setting up a cross-dock business in your region, contact us through our blog site listed in the resource box below.

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