Industrial Logistic systems
RETAILERS - DRIVING VALUE FROM
THE SUPPLY CHAIN
Where are we and where are we heading?
Gary Benatar
Managing Director
Barclays Select Series 2015: Consumer Conference
Retailing
• Last stage in a channel of distribution from producer to
consumer
• Derived from the French word “retailler”, which means
“to cut up”.
Retailing is “exposing product to the sin of a customer purchase”
Customer Focus - Availability
• Traditional methods
– DC or vendor to store service level: 98%
– Store out of stock ‘walks’: 97%
– Systemised lost sales calculation: 96.5%
• New Methods
– Online shop: 92%
– ‘Could you buy everything you wanted?’: 75%
Customer Focus - Range
• Old Method
– Store Size
– Managers Discretion
• New Method
– Store Size & Location
– Loyalty Card Data
– Customer Insight
Aligning suppliers to the customer
• Centralisation has meant that suppliers have been
disconnected from the consumer
Putting the customer at the centre of
everything
• For the supplier, need to align – Production, Purchasing, Replenishment, Sales
• For the retailer, need to align – Buying, Supply Chain, Store operations
• Traditional KPI’s can no longer be viewed in isolation e.g. – Production efficiency
– Transportation efficiency
– Sales
Consumer
More demanding
• FRESH
• HEALTH
• HYGIENE
• GREEN
Rights
• Right to safety
• Right to be informed
• Right to choose
• Right to be heard
• Right to redress
• Right to service
REAL NEEDS More demanding customers More educated and informed customers Higher expectations Ability to instantly price check More choices Other retail channels (e-Commerce) Move to convenience shopping More proliferation New product profile (e.g. cell) Pressure on margins Faster reaction – changes and expectations Better quality More fashion – less basics
Change
• Traditional focus of savings in Supply chain
• Supplier – DC – to Store – Technology
– Labour
– Transport
• Not customer focussed
• Don’t help with availability in store
Key focus should be to get product to customer
• We look at how we can improve on shelf availability and
service to the customer by being clever at the DC and supply end of the supply chain
• Differentiating the retailer from supplier to shelf
Retailer Focus
1. Margin
2. Buying power
3. Range control
4. Availability
5. Cost control
6. Find and eliminate
hidden inefficiencies
7. Store formats
8. Multiskilling
9. Entertainment
10. Consumer value
11. Market saturation and
stagnation
12. Competition
Supermarket Perspective
Ingredients Packaged Goods
FOOD Long Life Fresh (Food types)
(Food forms) Ambient Multiple Temp.
(Temperatures)
Health and Beauty Specialist Packaged
Regulated De-Regulated (Health Care)
Fashion Basic
Variety and
High quality DIY Finished Goods Materials
Specialist Comprehensive Services
Activity and Cost Drivers
1. Consumer
2. Product Supply
3. Technology
4. Regulations
5. Competition / Internationalisation
6. Promotions
7. Others
Technology
Computing
• Information
• More market research
• Collaboration
• Ownership of stock
• Service levels
• Traceability
• Simplification
• Click and Mortar
GM Food
• Wider range
• Confusion
Supplier Relationships
• Who owns the customer ?
• Collaboration
• Co-ordinated promotions
• Retailer brand dominant
• Contractual relationships
Service level agreements
LOGISTICS CHALLENGES
Complex
Environments
Risk and Security
SKU Explosion
Quality
Emphasis
Green Issues
Energy Issues
Strategic Alliances
Outsourcing Selective
Automation
Technology
New Technologies
(ERP, WMS, LES,
RFID, voice)
Global
Competition
Global standards
Shrinking Labour Supply
Productivity
Quality
Flow Thru strategies
Lean Distribution
Cross Dock
People Management Innovation
Labour Relations
Logistics
Regulatory Issues
(EU, HAZMAT, HACCP)
INNOVATION IN DC DESIGN, LOGISTICS AND SUPPLY CHAIN
STRATEGIES –
RESULTING IN GREATER IN-STORE EFFICIENCY AND COST
SAVINGS
BETTER SERVICE TO CUSTOMERS
RETAIL IS PROBABLY THE MOST DIFFICULT
SUPPLY CHAIN AND LOGISTICS PROCESS:
– Low margin business – inefficiency evident on bottom line
and price to customer
– Highly competitive
– Frequency of demand and replenishment
– Total variability – customer demand is unpredictable –
difficult to plan
– Seasonality - peak to average (especially in southern
hemisphere – Christmas, summer holiday, back to
school & end of yr bonus)
– Promotions
History direct store delivery by suppliers vs centralisation
SUPPLY CHAIN OF FUTURE
• Efficiency
• Speed
• Responsiveness
• Cost effective
• Quality operations
• Customer service
Does not change!!!! • More focussed
• More visible
• More measured
TYPICAL COSTS THROUGH
THE SUPPLY CHAIN
MANUFACTURE DISTRIBUTION RETAILER CUSTOMER
PROCESS
RAW
MATERIALS
Total Supply Chain Cost – 12.2%
TESCO SUPPLY
CHAIN COST - 1996
Deliver to Store
Assemble Order
Supplier Production
& Packaging
?
Process Orders
Deliver to Depot 46%
Replenish
Shelves
Management
&
Development
Gather Data
Manage Store
Orders
Manage Supplier Orders
9% 19% 18%
5%
1%
1%
0.5%
0.5%
8%
Reference: B Knichel
Merchandise Units (MU’s) –Fast movers:
• Flow through at DC • Direct to shelf presented to customer as is • No pallets allowed in stores
Background To On Shelf Availability
• The success of the supply chain
is seen at the shelf. The interface
to the customer:
– Product availability
– Range
– Quality
– Cost of supply chain
• On Shelf Availability
– 1% out of stock = 4% lost sales (international studies)
– 33% chance of lost customer for an
out of stock (international studies)
Reducing Waste
• Errors
• Overproduction
• Waiting for People, Equipment or Materials
• Unnecessary Transport of goods
• Unnecessary movement of people
• Excess stock
• Poor process design
• Inappropriate Range
EVERYONE’S TALKING ABOUT GREEN
BUILDING
Less water
Smaller carbon footprints
More sunlight
Less waste
Less electricity
Environmentally friendly materials
What about inside the building?
• Current thinking and research into environmentally friendly and green buildings focuses on the building shell
• Warehouses and Distribution Centres – normal to design for:
– Functional / Operational life – 5 to 10 years
– Infrastructure life – 10 to 20 years
• A once-off benefit in the building process
• The inside of the building – the operational and systems processes present a number of possibilities to be greener and more sustainable
THIS STILL DOESN’T MAKE GREEN BUILDING A BAD IDEA
Inside the building – a few components
Materials handling equipment
Batteries and chargers
Vehicles
Control systems Transport Building management
Unit handling Pallets Crates Rolltainers
Warehouse management system
Waste handling
OPERATIONAL PRODUCTIVITY
• Impact of technology choice on building requirement
• Choice is based on APPLICATION – appropriate
technology
0
1
2
3
4
5
6
7
0
10
20
30
40
50
Hand Pallet Jack Forklift Reach Truck Turret Truck Crane
Materials Handling Equipment
Building footprint
Building height
Batteries and Chargers
• Number of choices available for batteries and chargers
• Batteries
– Conventional flooded
– Low water use
– Sealed batteries
• Chargers
– Thyristor
– High Frequency
– High speed
Batteries and Chargers
• Battery management systems
– Battery rotation
– Fault finding
– Longer life
– Overall smaller fleet needed
– Controlled power use – peak demand
• Random rotation of batteries can achieve between 10
and 30% energy saving
Warehouse management systems
• The common beliefs...
– An ERP is a WMS
– An inventory management system can be a WMS
– A WMS is expensive and costly to maintain
• These beliefs remove all the functionality of a WMS that
directly improves productivity and therefore is more green
– RF technology – picking, putaway, replenishment (real-
time)
– Labour management
– Interleaving, etc., etc., etc.
Warehouse management systems
• A few examples of WMS functionality that drives
productivity up, throughput up and costs down
• Product slotting
– Logically layout of products in facility to maximise pick
productivity
– Pickers not driving all around the facility – shortest routes
Warehouse management systems
• A few examples of WMS functionality that drives
productivity up, throughput up and costs down
• Interleaving
– Reach Trucks operating put-away and let-downs
simultaneously
– 50% increase in Reach Truck productivity
• Voice picking
– Paperless picking
• RF loading
– Paperless invoicing and dispatching
Optimising supply chain processes
• HOW DC process can influence store
– Delivering store friendly replenishment
• Warehouse is laid out in same sequence as store
• Cage/Pallet is picked in reverse sequence to how
shelves will be filled
• Like products are all delivered together
• Minimises travel time on shop floor for both people and
product
What to measure?
• Service to customer
• Cost
• Service from supplier
• Quality, integrity
• Value
• Sustainability
How do you measure?
• Total supply chain
• Components of the chain
• Benchmark
• Balanced scorecard
• Cost / efficiency
• Ability to support business
Example – Cellphone company VS Retailer
Update on retail challenges
• Trends and benchmarks
• Local challenges
• Local status, trends and challenges
– Centralisation
– Last 50 m
– International players - Globalisation
– Consumer Protection
– Carbon Footprint – sustainability
– Transport, congestion and legislation
– Fuel costs
Social networks and new media challenges
• Who uses MSN or Instant messenger for
communication
• Who uses Skype, Viber
• VOIP
• Who is on
– My Space
– MXIT
– Mig33?
WHAT DOES THIS MEAN?
• The rules are changing
• The way people communicate
CHANGES EXPECTAIONS
– Speed
– Response
– Instant expectation
• Customers are different
• Deal in different ways
• Can we communicate?
THE END
Real Customer Focus begins at the top. It can only happen with visible, passionate, relentless, commitment by all
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