Customer demands for quicker service are hiking logistics costs for grocery suppliers, finds a study by the Grocery Manufacturers of America. Leading retailers are responding by pushing more responsibility down the supply chain to manufacturers with an expectation for shorter order-to-delivery cycles. The results of the study show that logistics costs have increased by 12 percent, from 6.6 percent of net sales in 1999 to 7.4 percent in 2002. The study suggests several reasons for the increase, including:

• A more dynamic supply chain, with decreased response time to retailers' required delivery appointments.

• Higher service level expectations from retailers for on-time delivery and order completeness.

• Conflicting incentives and insufficient and inaccurate information between trading partners, resulting in a number of operational inefficiencies.

• An increased array of customized supply chain services offered by manufacturers.

Suppliers are adjusting to the market forces by making greater use of outsourcing for warehousing and other functions and performing more direct-from-plant shipping to help reduce warehousing costs. They are also shipping larger-sized shipments with larger trucks and four-way pallets that make it easier to move product on light cubed-out loads. On a positive note, the study reports that inventory levels are coming down, from a high of 46 days in 1999 to 45 days in 2002. The industry target is 27 days.