What Is Direct Store Delivery?
Direct Store Delivery (DSD) is a supply chain term that explains how a supplier’s product is shipped to a retailer. Sometimes referred to as Direct Store Distribution, DSD items are transported from the supplier directly to the retail store as opposed to a warehouse or distribution center.
Common DSD Products
The typical DSD products are those that are in high customer demand. They are usually consumable products that turn quickly in the store. Items such as soft drinks, dairy, beer, snacks, bread, baked goods, pharmaceuticals, and tobacco are often shipped to retailers via DSD.
Suppliers using DSD are usually larger companies like Coca-Cola and Frito-Lay with resources to control shipping and replenishment. Smaller suppliers will sometimes opt to use DSD by enlisting a third-party logistics firm.
DSD Supplier Services
The advantage of a supplier using DSD is more than verifying when product arrives at a store. The supplier also has a representative to control what happens to the product after it is received. DSD suppliers sometimes have their own direct store distribution teams to:
- Stock the merchandise on the shelf.
- Ensure pricing is correct.
- Set promotions and feature displays.
- Control ordering and forecasting.
- Confirm merchandising and shelf inventory management.
Having a supplier representative over these tasks takes some responsibility off the store employee. This reduces the chance for error as fewer hands are involved in the delivery to shelf process.
Retailers That Benefit From DSD
Receiving product via DSD has advantages for large and small retailers alike. Whether operating 4,000 big box stores across the county or 40 small shops across three states, DSD brings savings to both operations.
For the big box stores, the huge plus to DSD is payroll savings. In most cases, store employees do not have to stock DSD product on the shelf or build promotional displays.
For smaller retailers, DSD means saving storage space. Smaller retailers usually do not have room for excess inventory. Receiving DSD a few days a week reduces the need for extra stock on-site.
DSD Disadvantages at the Store Level
While DSD is a cost-saver for most retailers, lost sales can occur when the supplier and retailer are not aligned on sell-through. Unlike a retailer’s warehouse truck, a supplier’s DSD truck is delivering to the retailer and the retailer’s local competitors. The supplier may only be interested in getting all the product off the truck, while the retailer wants enough product to be in-stock for all its customers. This is where consumer loyalty can present a problem.
Consumers are more loyal to supplier brands than retail brands. Simply put, a Walmart customer who wants a specific peanut butter will shop elsewhere when it’s out of stock at the Walmart shelf. They are less likely to buy another brand of peanut butter in Walmart.
DSD suppliers can prioritize their own sell-through and delivery, so the relationship and communication with the retailer is critical.
The Future of DSD
In recent years, many suppliers have taken a second look at DSD to determine if the cost is necessary for their business. DSD costs continue to grow due to many factors: rising labor costs, new regulations and restrictions, retailer penalties, and truck driver capacity just to name a few. For reasons like this, larger suppliers have eliminated their DSD operations in select categories. Nestle and Kellogg went from DSD to shipping product to retailer distribution centers and other suppliers are set to follow suit.
DSD will always be essential when the value of the product is reliant on its freshness. Bread, dairy, and baked goods have a narrower window to sell than candy or soft drinks. Fresh products can not risk extended time in a warehouse or distribution center and chance spoiling at the shelf.
As Walmart and other retailers work to keep costs down, more focus is being placed on the supply chain. DSD efficiency (and in some cases necessity) continues to be looked at by retailers and suppliers as the demands of brick-and-mortar customers evolve.
If you have questions about DSD and how to improve your supply chain, contact a Walmart expert at 8th & Walton this week.