The ROI Impact of a Cloud-based DSD Receiving Solution

Streamline Backdoor Operations to Drive Profitability

When considering the flow of goods or how products make their way into stores, there are essentially two primary methods of entry. The first method involves suppliers delivering products to a retailer’s warehouse or distribution center, where it becomes the retailer’s responsibility to further distribute the products to individual stores, also known as the hub and spoke model of distribution. The second method is when suppliers deliver items directly to the store, known as Direct Store Delivery (DSD). The determining factor for products to be sent directly to stores is typically high throughput or significant sales volume. This direct delivery approach streamlines the process and ensures that products reach the shelves efficiently and on time to meet consumer demand, given a ton of the store revenue is riding on these SKUs.  

And indeed, it’s a logical approach, isn’t it? When delving deeper into the various categories housed in your center store and refrigerated sections that significantly impact revenue generation, you’d likely pinpoint chips, soda, and dairy. Now, imagine using a hub-and-spoke model to ship these products from the distribution center to the store. It would likely result in dispatching full truckloads comprising solely one category of items to the store. A more efficient approach would be Direct Store Deliveries (DSD).  

Streamlining receiving with DSD requires addressing the most critical component: Receiving methods. Essentially this means you’d have to capture the line items of the invoice and the quantities of those products, making sure unauthorized items don’t enter the store and that the quantities that are being delivered match the ones on the invoice. 

There are a few different ways to do this. First, let’s talk about the benefits of using a cloud-based DSD Receiving solution. In our conversations with numerous retailers who are looking to streamline their backdoor operations, we realize there are legacy solutions that are not just on-prem but are outdated and aren’t supported by maintenance updates. Worst of all, the fear that these solutions may be sunset looms over operators. The benefits of automating the DSD receiving process far outweigh the cost when you compare it to a pen-and-paper method:

The contrast is even more stark when we compare Upshop DSD Receiving to legacy tech. In our conversations with top retailers from across the country, the one thing that stood out sorely with all the legacy technology that they were using to streamline backdoor operations, was the lack of maintenance dollars or any upgrade to the system in eons. These solutions have not received any engineering resources to elevate how they solve user problems. Even worse, the fear of pulling the plug on the bare minimum support looms large over their head.  

At Upshop, we’re constantly listening to customer needs and innovating with product features that make users’ lives easier. What you get with Upshop’s modern DSD Receiving solution is unparalleled: 

Each of these advantages stems from the use cases and workflows in which store users apply them. Each one significantly influences the ROI and store profits. To delve deeper into this, we need to highlight the 4 major use cases in which DSD Receiving plays a crucial role. 

Use Case#1: Out of Stocks (OOS) Caused by Lower-than-Anticipated Receipt Quantity

It’s common practice for DSD Drivers to fill up their trucks and map out stores along the route they are servicing on a particular day. Sometimes they would not fill in enough to be able to service every store on their route, thereby not fulfilling the demand of stores that are present at the tail end of the route. The invoice quantities they present at the back door will be higher than the actual number of units they service the store with. Without the right DSD Receiving solution, this goes undetected until a full cycle count is performed and by then it would have triggered OOS (Out-Of-Stocks) on the shelf.

Consider the below scenario: Typical grocery stores have an annual revenue of $26M (weekly revenue of $500,000 * 62 weeks) [Source: FMI] and DSD contributes on average 35% of store revenues. If we assume just 1% of invoices have a short-supply quantity of 10% or $175 per week. This leads to an OOS of $9100 per year per store from just invoices with lower-than-anticipated order quantities. And if you were a 200-store chain that would mean a whopping 1.82Million dollars of lost revenue due to a lack of a DSD Receiving solution.

Upshop Solve: Upshop DSD Receiving solution reconciles invoices right at the backdoor highlighting any quantity discrepancy right away. When this is combined with DSD Ordering, the store associate can generate the order for the differential quantity when serviced with short quantities and can set the dates for replenishment based on days on hand, making sure the shelves never run out of items. 

Use Case #2: Missing out on vendor allowances

While BOGO or Buy One Get One Free is a common consumer-facing promo, the retailer-facing equivalent of it could be Buy a Case and Get One 3 Units. These promos are provided to retailers in the form of what’s otherwise called Vendor Allowances. These are incentive programs that enable the CPG partners to push promotional quantities into stores.

These allowances, granted at the corporate level, flow into store invoices or backdoor receipts through a well-structured DSD Receiving solution. When stores don’t have a DSD Receiving solution, chances are associates who accept stocks at the backdoor don’t even apply these vendor allowances leading to loss in revenue.

If we were to put a number to this:  We’ve established previously that stores have a weekly revenue of $500,000 [Source: FMI]. DSD contributes on average 35% of store revenues, and so would contribute to an annual revenue of $9.1 M [$175K * 52 weeks]. Let’s assume that 1% of DSD invoices missed vendor allowances, which offer the store a 5% promotional discount. 1% of the DSD Invoice would equal to 1% of $9.1 M or $91,000, where we missed the 5% discount. Had stores applied vendor allowances, they would have only paid $86,450 instead of $91,000. This is a loss of revenue from missed vendor allowances. This amounts to $4550 per store annually, and if you were a 200-store chain this would add up to $910,000 annually.

Upshop Solve:  Upshop DSD’s Lowest Item Cost feature ensures that invoices are accepted at the lower of the two costs, between the vendor’s indicated cost price and the invoice cost price with the retailer’s cost. This eliminates any chance of missing vendor allowances and reduces the need for reconciliation at the back door.  

Use Case #3: Check-In of unauthorized items 

Another common scenario is the receipt of unauthorized items which could be delisted SKUs, inactive SKUs, or SKUs that simply don’t sell through. Without a DSD Receiving solution that can detect the presence of these SKUs right at the backdoor, stores would end up receiving them and providing precious shelf space that could have otherwise been allocated to best-sellers. This in turn impacts stock turns and locks working capital in dead-end inventory.  

If we were to put a number on this:  DSD Receiving contributes $26M to store revenue annually or about 2.3 million units per year. We’ve considered an average retail price of $3.9 [$2.3M / $3.9 = 2.3M units]. If we consider a discrepancy with unauthorized items being present in 1% of the invoices, it will translate to 2,333 units of delisted or inactive items entering the store. And if we multiply this by $3.9 per unit, that means $9,100 of revenue is stuck with inactive SKUs waiting for them to be returned or expire and blocking precious shelf space until they do. If you were a 200-store chain, this $9100 per year per store would amount to $1.82M per year across your chain.

Upshop Solve:  With Upshop DSD, Store Associates can set up item level flags that will trigger notifications when unauthorized, delisted, or items not on the price list are on the invoice and they can prevent them from entering the store right at the backdoor.  

Use Case #4: Time spent in reconciling invoices with vendors 

At the heart of all of the receiving and reconciliation efforts that go on either at the backdoor or over extended periods of time over email or the phone are handled by store associates and account executives who spend numerous hours sending invoices, reports, and reference documents back and forth. With every error on the invoice, we not only increase the number of hours they spend doing grunt work like reconciling invoices, but we’re also taking them away from their core responsibilities of staying present on the shop floor answering customer queries and we’re also burdening them and causing frustration which might ultimately impact retention.  

If we were to put a number to this:  Stores receive 18,200 invoices at the backdoor per year from just DSD categories. If 1% of these invoices need to be reconciled, that would mean 182 invoices. Now let’s say, a backdoor associate spends 15 mins on just identifying invoices with discrepancies, and an account executive spends 25 mins with all the back-and-forth involved in resolution. That’s a good 40 mins spent per invoice. If we were to consider a blended hourly labor wage of $22.5 this would mean, 182 invoices that need to be reconciled * 40 mins per invoice * $22.5 per hour which costs a store $2730 annually. And if you were a 200-store chain that would be $546,000 spent just on labor costs owing to poor DSD Receiving solutions  

Upshop Solve:  Upshop DSD Receiving enables store associates to reconcile invoices right on receipt, where they can set up rules for allowable discrepancies and set up check-in methods based on the level of trust with vendors. This saves all of the labor hours that would have been spent debating at the back door and the hours that would have been spent on the back-and-forth between the store operations and the accounting teams.  

See how it works…