Unwieldy Direct Store Delivery (DSD) Approach in the World of Supply Chain Advancements

The COVID-19 pandemic strong-armed businesses into discovering ingenuous strategies as part of their business continuity plan. It served as a stark wake up call to either overhaul their supply chain systems or face the consequences. Customers are now exercising caution, on what they buy, when they buy and from whom them choose to buy. The heightened interest in maintaining utmost standards of hygiene, inventory management in the wake of global pandemic, refurbishing distribution channels are some of the issues which have come to the forefront. In such uncertain times, some traditional supply chain methodologies have been brought under the microscope, especially the Direct to Store Delivery (DSD) approach. Questions are being raised whether DSD is efficacious in such adverse situation and whether it can stand the test of time. So, let us do just that, and delve into the nitty gritties.

Randy Fields, the CEO of the Park City Group, aptly said, “When retailers allow a supplier to do direct store deliveries to their stores, they have made a deal with the Devil.” It is quite refreshing to find someone talking so candidly about the supply chain dilemma plaguing the brick and mortar retail. Direct to Store Delivery is synonymous, and its advent is intertwined in the history of retail. The system has been commercially implemented since the early 1990s, which involved the suppliers making available a service whereby they cater to the tasks related to store centric inventory prediction, products’ assembly, merchandising, shelf organization, pricing,placement and positioning of the products, which in turn proved quite lucrative. Initially the retailers, found it quite beneficial as they were glad to renounce the responsibility of providing certain store centric operations to the suppliers, while avoiding the need to account for excess inventory for each product.

Consumers’ interest and choices is quite fickle and is in constant evolution. Retailers tend to tow in line with the customers’ demands which in turn is influenced by various attributes including social attributes, whether product is organic or not, so on and so forth. Taking into account all the attributes might push the Stock Keeping Units (SKUs) haywire. At the shelf level, as the SKU count gets inflated, out of stocks will also proportionately go up. If in a retail setup, SKUs keeps increasing there will be less shelf life to meet the variation in needs of the customer. This in turn adversely impacts the shelf holding power of each Stock Keeping Unit. Inevitably, the retailer has the train of thought that if something is not in stock then it is a loss in sales, but infact, as the studies show it is a loss of the customer instead (refer to article: ‘Direct Store Delivery Is A Deal With The Devil’ by Steve Banker for Forbes magazine).

The above-mentioned diagram has been taken from Global Analysis Direct Store Delivery (DSD) by Ramin Shariatmadari as part of SAP. The left diagram represents distribution of companies across continent using Direct to Store Delivery whereas as the right-hand infographic represents the distribution of services being used by the polled companies for Direct Store Delivery Approach.

There is currently a lot of disruption in the supply chain industry be it through automation, capacity crunch, distributed inventory, so on and so forth. Similarly, the retail sector has also witnessed major overhauling of the system over the years. While the conventional centralized warehousing approach has undergone major upgradations, the DSD supply chain has more-a-less remained stagnant. DSD appears lacking in major current parameters, which is further heightened by the fact that if you consider that, retailers could manage sales performance through advanced analytics, manage the distribution of promotional quantities to stores by leveraging historical sales and inventory performance data.

In the current scenario, where the retailers warrant an omni-channel presence, once again DSD approach is found lacking. It is also alarming to note that certain national retailers are not even putting DSD products for online sale as they are unable to keep stock of their local inventory. Since the DSD model is generally considered to be too large and complex, involving multiple supplier each with their unique platform, it is imperative that they use technology to tame such complications.

It is also widely accepted that for certain DSD product categories the writing is on the wall. In May of 2019, it was reported that Nestle was ending the DSD program for many of its products. It was instead planned that Nestle will ship goods to the retailer’s distribution centres from where it would eventually move to individual stores. It is estimated that nearly 4000 jobs would be lost as a result of this strategic change. Nestle said that on May 7,2019 it was putting an end to its direct to store delivery network for myriad products such including DiGiorno and Skinny Cow, from the start of the third quarter of 2019. This implied the shutting down of an organizational setup that included 230 facilities, 1,400 trucks and 2,000 different delivery routes (refer to Supply Chain Digest as reported by their editorial staff).

Consultants at MWPVL International noted that,” The unspoken truth is that the DSD channel is a very expensive supply chain for moving many food products to market”. With all the points articulated in this writeup, its not difficult to comprehend why Direct to Store Delivery may be lacking in major areas. The need of the hour is to leverage technology at different stages of the DSD model to make it more efficacious. Since we are in the midst of the Fourth Industrial Revolution, it is natural to experience disruptions in the marketplace. But it is also essential that we keep evolving our traditional approaches and methodologies to meet our challenges head-on.