Sysco Pledges to Capture Even More Sales By Michael McCarthy
Sep 28, 2007

No. 1 Distributor to Improve Food Transport and Lower Procurement Costs
NEW YORK – Sysco Corp., the country’s No.1 distributor based in Houston, intends to increase sales and stay ahead of the competition by being the best at moving multi-temperature food products from any point in the globe to any other and being the lowest total procurement cost distributor for its customers, company officials disclosed.

Richard J. Schnieders, chairman and ceo, Kenneth F. Spitler, president and coo, Larry G. Pulliam, executive vice president, global sourcing and supply chain, and William B. Day, senior vice president, supply chain, discussed these points when presenting the distributor’s latest strategic plans at a financial analysts’ day, Friday, Sept. 21, in Boston, that was simultaneously webcast.

Sysco hopes to achieve a 7-9% annual sales growth, coupled with double-digit margin increases as a result of implementing this strategy, the executive said. Responding to a question regarding the achievability of these numbers, Schnieders said he believes there is some saturation on the chain side, but he still sees room for good independent operators. He noted opportunities to increase penetration with existing customers. However, it will not be easy. “Is it a slam dunk? No. It will take hard work.” Schnieders said.

“This equation is focused on helping our customers succeed, and we will succeed as well. – Ken Spitler”
Sysco leaders talked around a common theme: the key to implementation is identifying costs that can be removed from the system, taking the necessary steps to remove them, and passing the savings to customers. Leveraging Sysco’s unique size and national scope to achieve supply-chain efficiencies and taking over activities formerly managed by suppliers are two tactics being used to achieve this. Fragmentation by individual operating company is over. Activities will be moved to a regional and national level when possible, bringing efficiencies and cost savings not available at the individual operating company level. The implementation model is based on a “triangle” with operational excellence at that top but also including product leadership and customer intimacy. Spitler stated: “This equation is focused on helping our customers succeed, and we will succeed as well.”

Operations are in two parts, the “buy side” and the “sell side.” The buy side includes everything in the supply chain. The sell side includes everything in sales and operations.

Spitler described the “buy side” as two distinct cycles: “Each supports the other to create a system that will lower total costs across the industry, provide information, and give Sysco a sustained, difficult to duplicate, competitive advantage.”

Cycle one, demand management, drives product sourcing, “We use this to determine how much inventory we need at the redistribution center (RDC) and the operating company and also how much truck capacity we need to move that inventory,” observed Day.

Customer demand is aggregated across the organization, allowing Sysco to calculate the lowest possible cost flow for products. Supplier’s product charges are unbundled, providing truer product costs and “apple-to-apples” comparisons for choosing the best supply chain. “We discovered that our suppliers are very good at product development and manufacturing but not so good at supply-chain activities. Once they discover the benefits of this type of modeling, they do not want to go back” said Day, stressing that taking over what they can do better than their suppliers leads to cost savings, which they pass onto customers, echoing that common theme.

Cycle two, inbound freight includes transportation management and redistribution centers. As of June 2007, all inbound freight is managed regionally and out of Houston, the first operations piece to be regionalized or centralized. In fiscal 2007, the Northeast freight was bid out, reducing costs, improving service, and reducing the number of carriers by 30%. Total RDCs will go from a planned seven to five because operating companies can purchase from multiple centers. Advances in RDC operations are expected to improve efficiencies as well.

Spitler said that few people consider warehousing and delivery a sell function, but getting customers what they want, when they want it is very important. He stressed that continuous improvement of operations is a leadership responsibility for Sysco. He mentioned a new routing initiative, designed to improve customer service levels and cut costs.

In product leadership, Sysco is seeking opportunities to leverage its size by focusing on products used throughout the entire enterprise, capitalizing on huge regional volumes, while attempting to provide meaningful product data for customers.

“We will not abandon the Sysco brand, it is still a key part of our strategy,” Schnieders said, although there are about 8,000 fewer SKUs. He noted initiatives to improve take-out options for restaurant customers adding “as time goes on, we will have to a better job in the take-out business.”

“We will not abandon the Sysco brand, it is still a key part of our strategy,” – Richard Schnieders”
Designed to create trust and build business, business reviews are the pillar of the customer intimacy side of the triangle. Ken Spitler put it bluntly: “The top three customers have embraced the review process, not just because they like us, but because it helps them sell more food.” Schnieders noted significantly less lost business with customers involved in the review process. The process is now easier. Where all reviews were once three-hours, Sysco now works with customers to determine their needs. Some reviews last an hour; some five; some have automated parts.

One aspect of Sysco’s philosophy is benefits to all trading partners. “The underlying pillar of the supply chain is that everyone wins,” said Spitler. Suppliers gain better production planning and leverage with raw material suppliers, reducing demand variability by as much as 50%. There are fewer shipping points. Top-line growth for suppliers has improved. “Participating suppliers find themselves growing faster than non-participating ones,” said Bill Day.

Along with lower costs and the ability to sell more food, Sysco customers can expect improved service, more lead time, and more help improving their business.

Spitler stated: “This system helps Sysco people make very good decisions,” leading to lower safety stocks, more cost effective freight, and more negotiating leverage.

Sysco reported sales of $35 billion for its fiscal year 2007 that ended July 1, 2007, up from $32.6 billion in the previous fiscal year. The company operates 172 distribution facilities, serving approximately 390,000 customers.


<< back to all stories