Direct Store Delivery (DSD) offers a powerful distribution strategy for businesses aiming to enhance their supply chain efficiency and improve consumer satisfaction. Best-in-class DSD models carry a triple win – benefiting the food manufacturer, its retailers, and its consumers. According to the Food Marketing Institute’s 2024 report, consumers prioritize freshness when selecting grocery items, underscoring the importance of how efficient distribution models, like DSD, evolve to meet consumer demand. In this article, we explore DSD best practices in the food industry for companies to consider as they look to maximize the benefits of DSD. 

DSD Best Practices in the Food Industry 

Ensure DSD is the Right Strategy  

Due to DSD’s asset-heavy cost and higher execution complexity, food manufacturers must plan their DSD portfolio strategically. Food products that rely on freshness, such as certain snacks, beverages, bakery items, and dairy products, and those that are highly promoted or highly competitive are prime for DSD. One of the primary benefits of DSD is the speed at which products reach store shelves; manufacturers can ensure fresher products by eliminating the need for centralized warehouses, particularly for food products with shorter shelf life.  

The choice between DSD and centralized distribution hinges on a business’s specific needs. Product type, delivery frequency, and store density must be considered. For companies in the food industry looking to prioritize freshness, rapid delivery, and better control over shelf stock, DSD often proves to be the superior model. 

Define and Measure the Success Criteria for the Manufacturer, Retailer, and Consumer 

A DSD model offers food manufacturers more control than its equivalent warehouse model by ensuring optimal product placement, the opportunity to monitor competitor promotional activity, and the ability to directly manage store-level inventory. Manufacturers, however, should monitor and analyze KPIs to ensure these core benefits continue to be met.  

Moreover, DSD allows manufacturers to maintain direct oversight of their products until they reach the retail environment. This oversight enables rapid responses to changes in consumer demand, effectively mitigating the risks of overstocking and stockouts. When a product unexpectedly gains popularity, the agility afforded by DSD ensures prompt restocking, allowing retailers to capitalize on real-time trends. For example, PepsiCo reported that implementing DSD for certain beverage lines has resulted in a 15% increase in sales due to faster response times to market demand. 

Retailers benefit from more frequent restocking, less responsibility for managing inventory, and better product availability. As such, strong partnerships with retailers are essential for successful DSD. Regular communication and collaboration between suppliers, 3PLs, and store managers ensure that all parties are aligned on inventory needs, product promotions, and shelf space management. Most importantly, consumers enjoy fresher products, more consistent availability, and better in-store product displays, leading to an improved shopping experience. 

Assess and Implement the Right DSD Model Based on Organization’s Maturity 

When considering the best setup for DSD operations, food manufacturers can choose between a 1-mode, 2-mode, or 3-mode approach, each offering distinct advantages and challenges. In a 1-mode setup, a single individual handles delivery, sales, and merchandising – requiring a unique and usually expensive skill set. This simplifies operations and lowers headcount but can lead to inefficiencies due to a lack of role specialization, higher workloads, and limiting asset utilization.  A 2-mode setup, typically dividing delivery and merchandising from sales, allows for a greater focus on specific tasks, leading to better performance in both areas. However, it comes with higher labor costs, requires coordination between the roles, and limits asset utilization. The 3-mode setup, with dedicated drivers, sales reps, and merchandisers, offers the highest level of specialization and is ideal for large, complex markets. It is the most expensive option, however, requiring more personnel and precise coordination to ensure alignment across functions. Each setup offers trade-offs, and companies must evaluate their market size, operational complexity, and cost structure to determine the best fit. 

For manufacturers that outsource their DSD route operations to 3PLs, building a robust and transparent relationship with the 3PL partner is essential for success. Clear communication of expectations, delivery schedules, and performance standards should be established from the outset and included in contractual terms. To ensure reliability, businesses should define specific Service Level Agreements (SLAs) covering on-time deliveries, product handling, and communication protocols. Regularly reviewing the 3PL’s performance against these standards can help identify areas for improvement and maintain alignment on long-term goals.  

Build Core DSD Capabilities & Deploy DSD Technology to Enable Growth 

Once the DSD model is defined – whether it be a 1-mode, 2-mode, or 3-mode approach – ensure that each role is appropriately trained in the DSD processes and enabling technologies.  

Further, given the critical role drivers play in DSD operations, develop and implement comprehensive training programs that cover not only driving skills but also customer service, inventory management, and the use of delivery software. Companies should invest in employee development, offer competitive compensation, and ensure drivers feel valued. While you may not be responsible for directly training or retaining drivers when using a 3PL, ensuring your 3PL partners are equipped with solid training programs is essential. Engage in discussions with 3PLs about driver retention strategies as well, as high driver turnover can impact delivery consistency and service quality. 

Incorporating advanced technology into a DSD model is crucial for addressing the complexities of modern supply chains. Advanced route planning software and mobile devices, real-time inventory management tools, telematics, and Artificial Intelligence (AI) can significantly impact DSD operations by optimizing deliveries and maintaining accurate stock levels. By leveraging these technologies, manufacturers can improve visibility, reduce costs, and strengthen relationships with retail partners.  

Embed Continuous Improvement to Optimize Your DSD Journey 

Flexibility and scalability in a DSD model depend heavily on optimizing your logistics network. As you gain new customers/retailers, your product portfolio changes, and acquisitions transform your business. A well-optimized network design creates a solid foundation for efficient deliveries, cost control, and meeting service-level expectations. When optimizing your network, consider key factors such as product freshness, volume density, and geographic coverage. Decisions about entering or expanding in specific regions should be based on a detailed demand analysis within zip codes or territories. High-density areas with concentrated store locations can justify more frequent deliveries and dedicated fleets. In contrast, lower-density areas might require a more consolidated approach, using DCs or mini-storage as intermediate points to balance cost and efficiency. Regularly reassess the network configuration as your business grows to maintain flexibility, ensuring that your delivery infrastructure adapts to short-term market fluctuations and long-term expansion goals. By continuously monitoring and fine-tuning your network design, you can maintain a delivery infrastructure that adapts seamlessly to short-term fluctuations and long-term growth. 

Next Steps 

As consumer expectations for quick product access continue to rise, the pressure to optimize DSD operations has never been greater. With these best practices in mind, businesses can better navigate the intricacies of DSD and maximize their return on investment.

If you’re looking to set up a new DSD operation or explore optimizing your existing DSD model, our direct store delivery consultants are here to help. Contact us today to learn about how we can support your DSD journey.