March 2011 | Case Studies | Casebook

PETCO’s Pet Project

Tags: Retail, Transportation Management

PETCO retail storefront

For pet supply retailer PETCO, honoring its commitment to superior customer service meant finding a loyal logistics partner.

Humans are finicky about pet care— perhaps even more so than their cute and cuddly dependents. So when it comes to buying what’s best for Bella the Bulldog or Calico Charlie, brand loyalty, quality, and customer service are at a premium.

As one of the leading pet supply retailers in the United States, PETCO knows this well. It operates nearly 1,100 stores in all 50 states, and caters to all animals from bearded dragons to hermetic crabs and countless other critters. Customer service isn’t just a benchmark— it’s part of the brand.

The San Diego-headquartered company has always been committed to continuous improvement in customer service. As part of that commitment, in 2007, after a series of changes and realignments within its logistics organization, the company brought Cookeville, Tenn.-based transportation and logistics service provider Averitt Express on board as a partner.

“It was a brand new relationship,” says Jeff Brady, PETCO manager, outbound transportation. “But, after careful review, we felt it was a good fit for us based on Averitt’s service-focused reputation, its understanding of the retail sector, and a footprint that mirrored some of our immediate and long-term growth needs. We knew we were laying a foundation for future growth.”

“Customer service was and is a key component in our operating strategy,” says Mark Hilborn, vice president of logistics for PETCO. “We recognized Averitt’s core competency in truckload (TL), less-than-truckload (LTL), and dedicated solutions, and its ability to provide high-quality and consistent customer service.”

Three years later, the partnership remains solid. Averitt provides TL services for outbound freight movement to retail stores from four distribution centers (DCs) in Illinois, Texas, New Jersey, and Georgia; return-to-vendor sweeps; and vendor-inbound deliveries.

PETCO also partners with Averitt for a dedicated fleet at its 525,000-square-foot DC in Braselton, Ga. This facility is the focal point of the company’s southern region operations and supports two smaller regional warehouses. The retailer uses Averitt for LTL services in the Southeast as a primary trucking partner, augmenting a national program it operates with another carrier.

The PETCO and Averitt partnership has grown each year since 2007. But it all began with a problem and a simple fix.

Birds of a Feather

When PETCO began barking up Averitt’s tree, it was having issues with store deliveries, including quality and timeliness. “We didn’t ask too many questions,” recalls Tony Allison, regional vice president at Averitt Express. “We threw assets at the problem.”

Averitt’s approach with PETCO is typical of other partnerships it has engaged— a customer needs help, Averitt responds with a functional solution, then eventually jumps into a supply chain role.

“Our niche is designing a total solution around a need, with a basket of value-added services,” says Allison. “We have all the warehousing, distribution, dedicated, TL, and LTL assets.”

PETCO’s customer service concerns were largely a consequence of transportation inefficiencies that had accrued over time. It had too many carrier partners, too little pricing leverage, and too much money tied up in operating a private fleet. All these factors impacted delivery quality.

“With a large carrier base, you sometimes wind up with too many brokers and one-off carriers, which leaves little leverage and opportunity for volume discounts,” says Brady. “For five carriers, that volume means a lot, whereas for 30 carriers, it does not. I firmly believe that transportation is not a procured commodity. Partnerships and relationships still matter.”

With so many carriers in the stable, quality and service suffered because there was less control. Beyond that, broken schedules were often catastrophic because there were multiple deliveries on dedicated routes— and stores often had limited personnel tasked with receiving shipments. Any late or missed delivery had a direct impact on store inventory and consumer confidence.

Quality was a discriminating consideration, so PETCO found a transportation provider that could bundle both service and quality.

“We provide a price-plus service model; it’s not just about cost. When you provide a good service, everything grows from that,” says Allison. “Customer service is the one piece of the pie that is more costly than all the pieces put together.”

Inbound and Down

The key for PETCO was finding a carrier partner that could align inbound and outbound flows between its DCs and retail stores.

“Averitt has helped us drive many efficiencies, specifically with the cross-utilization of Averitt Supply Chain Services’ dedicated fleet and its truckload fleets for continuous moves to support vendor inbound; return to vendor sweeps of retail stores; outbound deliveries to stores; and DC transfers that support retail store deliveries and reverse logistics,” says Brady.

PETCO has gained further efficiencies by partnering with Averitt on effective lane matching and management— moving dedicated and TL freight in lanes that are mutually beneficial. This arrangement drives effective rate management and cost structure while executing on service and driver utility.

On the dedicated side, in the past, PETCO operated several private fleets. The company decided to move away from that model for several reasons.

“One concern in this process was the safety and lack of internal resources to manage increasing legislation and regulation,” says Brady. “Averitt is known as an extremely safe and efficient carrier partner. Its focus on safety in both our dedicated fleet and in our TL operations brings us a sense of confidence and lets us focus on our core competency of distribution to support pet owners.”

driving efficiencies

Beyond these gains, Averitt is helping PETCO achieve year-to-year improvements in its cost-to-service model for both retail store service and inbound flow. It’s helping to drive efficiencies by modeling solutions that meet both companies’ mutual profitability goals.

“Understanding our inbound flow, and as part of our freight terms conversion with our vendors, Averitt has been instrumental in realizing efficiencies between its dedicated and TL divisions in a flexible manner, as we work to merge our outbound and inbound volumes where we can,” Brady explains.

The pet supply industry is unique because customer service really is a premium. Customers will spend money and buy quality products, and they have affinity to specific brands.

When PETCO transformed its logistics team in 2007, it was also differentiating itself from the competition through various key initiatives. Ensuring on-time deliveries was the critical first step in that evolution.

“We began seeing demand for more organic and natural food assortments,” says Brady. “Pet food consumption trends are generally about three years behind humans, and we wanted to capitalize on this trend.”

Pet food consumers— humans and animals alike— are loyal to their brands, so ensuring items are in stock is a critical differentiator. Once Averitt cleared the customer service hurdle, it began talking more strategy with PETCO.

“PETCO has an image to maintain. Transportation is a big part of that effort,” says Allison. “It’s especially critical with more just-in-time shipments. As PETCO ships smaller quantities, keeping inventories down, our job is even more important, in terms of meeting on-time demand.”

To date, PETCO has streamlined its core carrier network from 30 companies to about one dozen, preferring true partnerships with service providers such as Averitt. In terms of retail store service where Averitt has come in to replace incumbent carriers, improvements have been marked.

“Service in these areas has improved by as much as five to 10 percent,” says Brady. “It has helped us meet our on-time metric of 98.5 percent for store deliveries, which is an ‘all-in’ number. Averitt, overall, exceeds metrics on all the outbound lanes it services.

“When we’ve had challenges, we worked together to drive improvements collaboratively and to ensure we were setting ourselves up for success,” he continues. “Additionally, we have partnered to hold rate increases, in some cases, until service was corrected and stabilized.”

This type of partnership bodes well for future growth opportunities, as well as resolution of future challenges. The two companies share a mutual understanding of each other’s priorities and needs.

A solution can often be as simple as finding the right carrier that can throw assets and quality at a problem— then let it grow from there. The trickle-down impact within a distribution center network, when product is always available in the stores to consumers, and in the warehouse to retailers, is invaluable.

“The crux of what we do is serving customer needs and their customer needs,” says Allison. “Sophisticated customers want sophisticated solutions.”

For PETCO shoppers, and their special friends, this type of customer service is priceless.