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Thread: Factory Gate Pricing/Primary Freight

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    Bronze Member Loggie's Avatar
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    Default Factory Gate Pricing/Primary Freight

    Hear in Oz the major grocery retailers are really pushing FGP and PF. Based on the Walmart and Tesco models. They really seem to be steam rollering their suppliers, who are racing around trying to work out their transport costs, or just caving in.

    Anyone have experience of the UK or US and how it was rolled out there. Similar big stick approach, or more collaborative :-)

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    From talking to a lot of people it's pretty much the same all over. You will need to watch out Aussie - there's a lot more to come as the retailers go after the magins in manufacturing. The way to survive is to know your costs and what the effect on them will be and get your negotiation strategy right, then go your hardest. Good luck!

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    Default Re: Factory Gate Pricing/Primary Freight

    Is there somewhere I can read an explanation of FGP?

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    Default Re: Factory Gate Pricing/Primary Freight


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    Default Re: Factory Gate Pricing/Primary Freight

    Quote Originally Posted by Amy
    Is there somewhere I can read an explanation of FGP?
    I came across this recently.

    Issues for the Supplier!

    The Factory Gate Pricing concept can be summarised as follows.

    The major change to a retail supplier is that the retailer will now manage, and pay for, the transport from the supplier to the retail DC.
    The FGP strategy has a number of advantages for the retailer such as:

    1. Increased management control of the load arrival and pickup times, leading to better dock management and work flow.

    2. Improved vehicle time and capacity utilisation, leading to reduced numbers of vehicles at DCs.

    3. Reduced inbound transport costs.

    4. Reduced inventory at DCs, due to better control of inbound delivery size and timing.

    The process of implementing FGP by the retailer generally involves the retailer estimating the supplierís existing transport costs for delivery of products to the retail DC, and then requesting this cost be discounted off the product price. In effect the product price moves from FIS (free into store) to ex works.

    Unless the retail supplier has a thorough knowledge and understanding of their distribution costs, it will be at a disadvantage in the implementation phase of FGP.

    The issues and challenges that the supplier faces include the following:

    a. Most ERP and financial IT systems will not provide a sufficient level of detail to accurately assess existing transport costs to specific customers, for specific products.

    b. Without this level of detail, the supplier finds it almost impossible to counter the retailerís estimate of the supplierís existing transport costs.

    c. The supplier will therefore be pressured to give away additional margin on its products in the form of the transport rebate.

    d. The supplier will be left in a weak negotiating position, with its transport carriers, in negotiating rates for delivery to non-FGP customers, due to much lower volumes.

    e. The supplier may suffer from increased costs in the DC due to changes in order profile from the retailer. i.e. in an attempt to further increase efficiencies and lower inventories, orders may be smaller and more frequent and/or at different times of the day.

    f. Or conversely, the supplier might incur additional infrastructure costs as the retailer moves to the use of much larger pick up vehicles such, which may require additional yard or dock space at DCs.
    Supply Chain what?

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    Default Re: Factory Gate Pricing/Primary Freight

    Nice summary Loggie. All I hear from the retailers is how it will make suppliers life so much easier and reduce their costs!

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    Default Re: Factory Gate Pricing/Primary Freight

    As I understand it, all the Factory Gate Pricing hype was started by Walmart and Tesco. What have been the results for these companies and their Suppliers?

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    Default Re: Factory Gate Pricing/Primary Freight

    The impression I get from most major suppliers, is that it is no big deal, but it is the smaller guys that can land up in trouble.

    Firstly they can end up with a very different demand profile which can screw up their labour requirements and shift patterns, let alone the types of vehicles they might need to load. More larger ones etc. The big suppliers can just absorb these changes quite easily.

    Secondly, it is the impact on their non factory gate deliveries. If the major grocery retailers are a large % of ther total business, then the remaining non factory gate business can be impacted by higher freight costs due to the lower volume being handled. I have heard figures of 10% increases in freight costs!

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    Default Re: Factory Gate Pricing/Primary Freight

    Quote Originally Posted by OZZIE View Post
    As I understand it, all the Factory Gate Pricing hype was started by Walmart and Tesco. What have been the results for these companies and their Suppliers?
    As far as I know their suppliers reconfigured their offers to adhere to their clients' needs.
    ___________________________________________
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