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This blog has been created by: Ajay Chaudhary (Wipro Ltd.), Gaurav Tiwari (Wipro Ltd.), Aviral Gupta (Wipro Ltd.), Matthias Kahnt (SAP AG), and Ramin Shariatmadari (SAP Deutschland AG & Co. KG).

 

Direct store delivery (DSD) is a key method of selling and distributing products for a large variety of industries, like food, beverage, home personal care products, and like wholesale and distribution, oil & gas, service industries to name industries beyond consumer products (Otto / Shariatmadari 2008; GMA Forum 2006; Kaipa / Tanskanen 2003). Due to the increased relevance of the process, various blogs & publications refer to the important topic of DSD (Otto / Shariatmadari 2008, Otto / Schoppengerd / Shariatmadari 2008, Direct Store Delivery (DSD) – Against all odds?; GMA Forum 2006; GMA 2002). Hereby, there is a common understanding that the process of DSD varies on regional and segmental level (Please find a detailed description of the different DSD process variations on Otto / Shariatmadari 2008). One example of such a region-specific process is the DSD in the Asian-Pacific and Japanese (APJ) region.

Figure 1:      DSD Process in APJ Regions.

 

Key Differences between Distributors and Wholesalers in APJ DSD. 

 

As illustrated in the above model (please see figure 1), the APJ region is characterized by a typical DSD setup where in case of organized retail, most of the times the manufacturer, does not supply directly to the retail point of sales. Resulting in a lower penetration of DSD through manufacturers, this has been caused by various factors: a) organized retail is still under development phase in these countries and rules of the game are yet to be set up, b) unattractive volume per outlet (VPO) for most of these organized retail outlets when compared to the immense delivery hassles due to inefficient practices leads a manufacturer, and c) the demand for merchandising is typically lower as many non-merchandized categories still exists.

The APJ markets are very fragmented with very large number of stand alone Mom & Pop stores having very low VPO for a manufacturer. Thus in this kind of a setup, the manufacturer has to take the help of a third party logistics provider or a distributor. Still, this is a DSD process as the distributor represents a company in the area allocated to him and is completely different in operations than a wholesaler who (more often than not) is acting only for his interests. The key differences between a distributor and a wholesaler in DSD are depicted in the table below:

 

Table 1:      Key Differences between Distributors and Wholesalers in APJ DSD.

 

 

No

Distributor

Wholesaler

1

Distributors deliver goods to various ‘Mom and Pop’ stores as well as to the warehouse of organized retail stores hub in Metro / Non Metros through a 3-Tier DSD model.

No delivery to stores. ‘Mom and Pop’ stores from small towns and areas where these distributors can not approach wholesalers to purchase goods.

2

The manufacturer along with the distributor also takes the responsibility of Visual merchandising, inventory availability and quality of the product at the store level.

Wholesaler does not take care of Visual merchandising, inventory availability and quality of the product at the store he is selling goods to.

3

A distributor carries the entire range offered by the manufacturer. Thus he is a vital link for pushing slow moving or non moving products as well.

A Wholesaler typically stocks what sells fast.

4

Distributors are not allowed to distribute the competitor brand/product/category that the manufacturer operates into.

Wholesaler stocks all kinds of goods and there is no restriction on him on stocking competitor brands.

5

Usually the Distributor works on margins fixed by the manufacturer.

Wholesalers work primarily on high volumes and low margins, the margins are not fixed.

6

Distributors have specific areas that they cater to and supplying to areas outside their allocated area might lead to losing the distributorship from the manufacturer.

Wholesalers do not restrict their sales to any specific area.

7

Distributors take care of damages and returns from retailers as per manufacturers guidelines.

Wholesalers do not take care of any returns or damages at retailer ends.

 

This region-specific variant of the DSD process results in region-specific requirements as well as inefficiencies today. The following exhibit provides an overview on generally known deficiencies in the DSD process as well as region-specific issues (please see figure 2). For a detailed discussion about general issues and obstacles of the DSD process please refer to Schoppengerd 2008, Otto / Shariatmadari 2008 or GMA 2002. This blog focuses on the region-specific aspects.

 

Figure 2:      Issues and Obstacles that need to be overcome have been shown cleary

image 

 

Integration (end 2 end & SOA)

One of the most important measures to overcome typical DSD issues and obstacles is to run the process based on an integrated end-to-end IT solution. Already, this approach leads to multiple integration points when facing a typical system landscape containing e.g. a call-center solution for order entry, a legacy system for logistics execution and finance, an additional route optimization system, and last but not least a mobile solution for employees on-site at the customer. Such a landscape is already a challenge when all this is run and integrated within one company, i.e. by the manufacturer. Looking at the prior described APJ specifics, the situation gets even more challenging as the number of used systems has to be summed up across all involved parties (manufacturer + distributors), leading to a more heterogeneous landscape of various systems covering sub-processes to different extents. Process integration needs to be ensured across company boarders of the manufacturer and his multiple distributors (as shown in figure 3). 

 

Figure 3:  Targeting end-to-end IT support for the DSD process leads to multiple system integration points  

image

 

The only option to set-up, run and continuously improve such a landscape with an acceptable TCO is to avoid direct system to system interfaces (each of them being very specific by introducing well defined and standardized interfaces leveraging most common web technology to publish reliable functionality to all potential consumers). In other words APJ-specific DSD can be considered a paradigm for the need of an enterprise services oriented architecture.  

 

Mobility

Above all, wireless and mobile technologies (here summarized under the term Mobility) have changed the way of doing business profoundly. In DSD, mobile technologies are well accepted and employed to an increasing extent. While eliminating time consuming paper work in the process, suppliers also incur benefits in other areas of DSD, such as an increase in accuracy, speed, and flexibility. In fact, today, the role of mobile devices in DSD experiences a success-critical importance in the industry. Or as a business expert puts it:“There are two things you want to do in a direct store delivery system. You want a good in-store order and then leverage the in-store presence to drive an even better order. […] Our ability to communicate via the handheld device to our salespeople is a critical way to interact with them. It’s very powerful and very necessary as a DSD company.”Source: Beverage Industry 2005 

  

RFID

One other technology invention to be named here is one of the most discussed topics in consumer products distribution in the recent years: the method of Radio-Frequency Identification (RFID). Its potential usage as well as the value delivered has been discussed often (e.g. Forrester Research 2005, GMA 2004), anyhow some special touch points between RFID and DSD are relevant in this context.

 According to the GMA, one of the greatest opportunities for RFID in DSD is case-level tagging of DSD shipments from the CP manufacturer’s warehouse. Although facing higher initial costs due to more shipping points compared to DC counterparts, the accuracy of DSD shipments can be improved and consumer demand better met. By the improved picking and loading procedures, and as illustrated by the following exhibit, a major cause for out-of-stock situations in DSD can be addressed. In fact, several recent studies proofed RFID’s positive impact on out of stock situations.

 

Figure 4:     DSD Out of Stock Root Cause Analysis.

image

Source: GMA 2004, p. 34.

 

Conclusion

To stay competitive and efficient in APJ, directly delivering companies have to adapt the general DSD approach to region-specific practices. It has been outlined that the main differentiator between efficient and inefficient DSD practices is the capabilities of underlying IT-support. Especially this is valid for APJ where due to more complex and distributed processes IT support requirements are even more challenging.

By considering an end-to-end and fully integrated process support, the usage of mobile devices during the physical tour as well as the employment of RFID technology within the DSD process, significant improvements can be realized based on authors’ experience.

 

 

 

References: 

Beverage Industry 2005
Distributor of the Year: The Pepsi Bottling Group Inc.: driven to succeed, Jan 2005.

Forrester Research 2005
Forrester Research: Supply Chain Collaboration Checkup, Cambridge 2005.

GMA 2002
Grocery Manufacturers Association (GMA): E-Commerce Opportunities in Direct Store Delivery, Washington DC 2002.

GMA 2004
Grocery Manufacturers Association: A balanced perspective: EPC / RFID Implementation in the CPG Industry, Washington 2004.

GMA Forum 2006
Grocery Manufacturers Association (GMA) Forum: Direct Store Delivery – Time for Retailers and Suppliers to Unleash the Power, 2006.

Kaipa / Tanskanen 2003
Kaipia, R.; Tanskanen, K.: Vendor Managed Category Management – an Outsourcing Solution in Retailing, in: Journal of Purchasing & Supply Chain Management, (Vol. 9) 2003, pp. 165 – 175.

Otto / Shariatmadari 2008
http://www.direct-store-delivery.com/

Otto / Schoppengerd / Shariatmadari 2008 
http://www.amazon.com/Direct-Store-Delivery-Andreas-Otto/dp/354077212X/ref=pd_bbs_sr_1?ie=UTF8&s=books&qid=1204268532&sr=8-1  

Shariatmadari 2007
Direct Store Delivery (DSD) – Against all odds?

Schoppengerd 2008
http://www.amazon.com/Direct-Store-Delivery-Andreas-Otto/dp/354077212X/ref=pd_bbs_sr_1?ie=UTF8&s=books&qid=1204268532&sr=8-1

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3 Comments

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  1. Siddhartha Ampolu
    Hi Ramin Shariatmadari
    It is very informative and  giving a complete  idea of DSD,  business benifits and mobile app advantages ….
    Thank you for  blogging this
    regards
    siddhartha
    (0) 

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