Benefits of the self-distribution model
Nevertheless, there are benefits to a self-distribution model, Griswold said.
One of the benefits is that it gives companies definite control over when and how they deliver products to their stores and it gives them control over the inventory, he said.
“If you’re working with a third party and they’re doing distribution for you and for three other retailers, and they have a scarcity of inventory, depending on where you are in the relationship, you may or may not have first preference to that inventory,” Griswold said. “And often customers have to pay for higher service levels. But in a self-distribution system, you take control [over all that].”
Recently, Ahold Delhaize’s first distribution center, Freetown Grocery in Freetown, Mass., transitioned procurement from a third-party vendor to the self-managed network, providing direct control of inventory and replenishment at this facility. The company announced plans to move to a self-distribution model in December 2019.
The company’s brands are Food Lion; Giant Food; The Giant Company; Hannaford and Stop Shop; Retail Business Services, a U.S. support services company the provides services to the brands; and Peapod Digital Labs, its digital and e-commerce engine.
Ahold Delhaize is also planning to transition five other distribution centers into the self-managed network in 2021: a fresh facility in Freetown, Mass., a distribution center in Jessup, Md., and a distribution center in Carlisle, Pa. In addition, ADUSA Distribution will open new facilities in Mauldin, S.C., and Manchester, Conn.
Before Ahold and Delhaize merged in 2016, Delhaize owned all its distribution centers and had its own buyers, Lewis said. However, Ahold had partnered with distributor CS Wholesale Grocers for its supply chain services.
The move to a self-distribution model will enable the company’s businesses in the U.S. to reduce costs, get products to store shelves faster, enhance vendor relationships and improve product availability and freshness for customers, Lewis said.
An integrated self-distribution model will give Ahold Delhaize greater flexibility, including the ability to move product around the network and send it to the distribution centers and stores that need it most, he said.
“By leveraging the right technology and data upfront and doing [fewer] handoffs throughout the supply chain, we can get products to physical and digital shelves faster, decreasing [the number of] days products spend in distribution centers and on trucks and giving customers fresher products with more days of life once they get them home,” Lewis said.
And as Ahold Delhaize adds new facilities to the network, including new fully automated frozen warehouses planned for Pennsylvania and Connecticut, the company will place facilities in locations close to the local brand retail stores they service, Lewis said. The locations of the two new fully automated frozen facilities, for example, should reduce miles traveled “Ahold Delhaize is certainly at the size and scale where running this themselves probably makes a lot more sense,” Griswold said.
That’s especially true when considering the size and scale of the stores, the number of stores, how they’re spread across the country, and the desire to have more control over the service they can provide their own stores, Griswold said.