No longer simply a necessary evil, warehouse operations are an essential way of adding value to a multichannel business.
James Knowles Features & special reports editor, Drapers
With the continued dominance of multichannel, retailers and brands need to be able to receive and fulfil orders as seamlessly as possible. Failure to do so not only means unhappy customers, but ultimately that they could lose out to the competition.
So it is little surprise that as orders come in from all angles while stores still need to be replenished, businesses’ warehousing capabilities are under immense pressure. Product must be received quickly and efficiently, accurately recorded into their systems and easily locatable for picking. Then, an equally fast service is required to dispatch for store replenishment or direct to customers, which could involve packaging. And with consumers expecting round-the-clock deliveries with later cut-off times, work patterns of existing employees may need to be adjusted or new recruits drafted in to pick, pack and dispatch orders to meet demand.
All this before even mentioning the not insignificant issue of returns, which need to be recorded, checked for faults and then reprocessed - which could involve steaming, pressing or minor repairs - back into stock.
No easy feat, and these are just some of the challenges the industry faces. Factor in that many UK businesses are increasingly international, often delivering from their UK warehouse to countries around the world, and the true complexity of the task becomes clear.
But many are prepared for the challenge. Just look at the work Marks & Spencer, for example, has done around its supply chain and warehousing. Having once operated 110 warehouses, it is now focusing on fewer, ‘super’ warehouses, culminating in the launch of its 900,000 sq ft ecommerce distribution in Castle Donington, Leicestershire, last year. At 82ft high, the warehouse has automated storage and retrieval systems as well as top-line sophisticated management systems to ensure accuracy.
Similarly, John Lewis has invested around £100m in its 820,000 sq ft Magna Park distribution centre in Milton Keynes, which opened in 2009. Its investment programme is continuing, with a second site at Magna Park under construction as it aims to streamline its processes further.
It’s an interesting time for fashion retail, and as we are all learning very quickly, infrastructure is everything.
Mark Moody Business development manager, Core Management Logistics in Lutterworth, Leicestershire
Effective automation can help save costs in the warehouse. In the right circumstances automation delivers process consistency and increases process speed and accuracy, which all contribute to lower inventory, improved availability and faster through-put times.
These processes make sure a product is available to the customer quicker, more accurately and with a low cost. A great way for multichannel retailers to drive efficiency in the warehouse is to use automation in processes where there is the greatest amount of manual handling, such as inbound, picking and dispatch. This allows for increased speed of your processes and improved accuracy, and therefore all but eliminates unproductive time associated with bottlenecks and human error.
Furthermore, using scanning systems creates a consistent process for each workflow type. By creating workflow processes that are virtually managed by warehouse management systems, it is possible to reduce labour costs and minimise manual errors. Also, the information that will be collected through using these systems can become invaluable in further focusing your efforts to improve warehouse processes and cut costs.
Mike Heald Fulfilment director at Shop Direct, which includes Very and Littlewoods
As a retailer with over 80 years’ experience of remote selling and more than 2 million sq ft of warehousing facilities across the UK, we at Shop Direct have substantial experience of driving efficiency in fulfilment.
Of course, even with all that experience, the move towards online has driven significant change. We’re now in a retail environment where people want to be able to shop at any time of day or night. The convenience that offers customers is fantastic, but it does put pressure on systems and labour patterns.
We offer a 9pm cut-off for next-day delivery across our digital department stores, and around 60% of customer orders are placed on that basis. That’s meant our peak order time has shifted to early evening, when customers get home from work. We’ve had to adapt our shift patterns and order systems to facilitate that and ensure we keep our delivery promises. That’s no mean feat when, at our busiest, we’re dispatching more than 1.2 million items per week.
The flip side of fulfilment is, of course, returns and, with our heritage, we have a real USP in this area. Central to our strategy to capitalise on returns is getting goods back on sale quickly. We succeed in reselling more than 96% of returned fashion items.
Every return is examined and immediately credited back to the customer’s account. After initial inspection, we then have a variety of options. These include various steam-cleaning mechanisms, spot cleaning, reboxing or rebagging and minor repairs.
The speed and quality of this work is crucial in minimising wastage and getting items back on the shelves quickly. Our average turnaround time, from receiving an item into our returns centre to shuttling it back to one of our fulfilment centres to be resold, is around six hours.
For a retailer of any size, getting that right is key to long-term success.
Melanie Cross Operations manager at footwear retailer Cloggs
With multichannel, stock integration is critical to us because we are selling across Amazon, eBay Play, our own websites and we fulfil for one retail store. From a stock point of view, this means we need to have spot-on stock management so we don’t overpromise items and disappoint customers. This puts a lot of strain on us, but we need to be more flexible to meet the demands of the multichannel consumer.
At the moment, we have to pull information from lots of systems to produce a single Excel report. We needed to become more streamlined and efficient, and not just recruit more people to cope with demand.
There was an obvious need for a new stock management system, which was nonexistent, so there was a business case there for that. We could cope at a certain amount of turnover, but beyond that it is not possible without technology.
Things such as late order cut-off are part of the requirement we need to be able to fulfil to meet customer demand. We need to make sure we have the right people in at the right hours, to fill orders and meet the courier collection times that enable us to meet all our daily deadlines.
The challenge has been understanding every process in the business and making sure we are implementing a system to streamline and create efficiencies to save money, to enable the system to pay for itself.
We put together a business plan on what was required and presented it to the board, and our new system will launch on June 11.
From a cost point of view it is a significant investment, but a necessary one for the future - we expect to see huge savings. It will develop and grow.
It’s not just a warehouse management system, it’s more than that - it manages everything from product import and purchase orders, all the way through to customer relationship management and dispatching across our multiple channels.
The orders from all platforms come to one central hub, which houses all our stock and dispatches it. Systems are updated
in real-time so we don’t oversell an item. Previously Amazon would supply us with manual reports, but that could mean we had already sold that item on the Cloggs website.
The new system will mean we have more happy customers and a greater dispatch rate.
It also gives us a better view of the stock we’re bringing into the business as well as letting us forecast for and decide what we need to buy for each channel, so it’s providing us with much better management and customer information. In regards to warehousing trends, I think robot automation - machines that wrap things - still require human intervention. So I’m not sure you would see savings unless the scale was huge, with a 1,000-man warehouse - and we are talking 10 people in our warehouse.
Certainly minor automation in areas such as packaging is important and we like to be ahead of the game in terms of customer experience, and that means the parcel leaving in a really nice condition. So automation to produce the filling for the boxes would be good.
We are not moving to scan picking as yet because we are not quite big enough, but we are doing an element of scanning on dispatch to ensure accuracy. I think that’s vital. No item should leave a warehouse without being scanned out to ensure you have stock accuracy.
As we continue to roll out our store openings, we have to make sure our warehouse is flexible and we are able to ring-fence stock for different scenarios, make buying decisions and purchases for specific stores. To us, it is all about customer requirements.
Alison Lippiatt Trading director at womenswear chain East
The warehouse has a key part to play in delivering great customer service and a critical supporting role in helping us make our stock work as hard as it can. For East, offering convenient shopping choices for customers is a key part of multichannel. These options allow the customer to decide between home delivery, store collection or delivery to a different specified location. It also allows choices between speed of delivery, all of which the warehouse has to easily recognise and process efficiently. As the proportion of ecommerce grows within the business, so do the returns. Reprocessing these returns in the warehouse, within cost and effectively, is an issue.
To meet the demands of multichannel retail we reprocess returns as efficiently as possible. Initially, we ring-fence stock for ecommerce to secure maximum availability. Once the sales and return trends have been established, we adjust the online stock levels and send the perfect ecommerce returns out to stores as part of the normal replenishment, retail ready.
This means we are keeping our reprocessing costs down to a manageable level, while giving customers in all our channels maximum availability.
However, our biggest challenge is just around the corner. For us the focus is now omnichannel, and we have developed our version of what this means for East. When it comes to the warehouse the biggest change will be the implementation of ‘stock pooling’. This will give our customer (and stores) one view of the total business stock. Via ecommerce, the customer - whether on the move, at home or in stores - can have access and order down to the last piece of stock in the business. Each location that holds stock, including stores, will have the capability of dispatching it directly to the customer’s chosen location.
So the future for warehouses will change, certainly when it comes to fulfilling ecommerce orders. They will always take the lead in being the centre of excellence for dispatch in terms of speed, standards, efficiency and cost effectiveness, but will no longer need to hold all the stock. The natural consequence of this is deciding the size of the warehouse needed, with customers able to access stock held in other locations. The warehouse will remain important in the traditional replenishment of stock to stores. Here, they will continue to set the tone and standards for stock accuracy, which is all important in this omnichannel world.
Dino Rocos Operations director, John Lewis
Around 2008, we made a number of decisions about the shape of the supply chain. What we see today is some organisations continuing to invest in the model they know, love and have always operated to. And then others are moving to a new model.
The issue is that moving to a new model is not easy and is expensive. So it’s fair to say some retailers have yet to have their light-bulb moment, and some are understanding more clearly what the future requires. That is the exercise we went through around seven years ago. We had a very small online business at that stage, and we had to look forward to see if it would become more significant.
We decided online was likely to grow, and the second thing we said is that rather than having two supply chains -one to support our bricks-and-mortar branches and a separate one to support the online business - we needed to operate a single supply chain that supported sales wherever they were realised. It was against that understanding that we formed all of our investment plans and implemented the changes.
It is that exercise we see a number of retailers have yet to go through, and we are seeing investment in the development to supply chains that we think in the long term doesn’t make sense.
The first decision we took was to move the supply chain from being a necessary evil to something that added business advantage, and beyond that something that drove differentiation. That meant a lot more investment, which manifested itself in our first semi-automated national distribution centre at Magna Park in Milton Keynes, a £97m investment. That was about automation to allow the supply chain to operate very efficiently by reducing headcount and increasing speed.
At the start of that journey, lead times would be anything up to a week from a sale on a selling floor to it being replenished, whereas now it is 24 hours. In doing this we have taken inventory out of the business, so working capital has improved as a result. As your online business grows, so do your costs - but because of the investment we made in automation, we have been able to optimise our cost to sales ratio [the cost of the supply chain versus sales] despite an increase in the volume of deliveries direct to the customer.
So we invested in Magna Park, which processes binnable [non-hanging] items. We have product held in a number of different ways.
We’ve got hanging garments in one category, we have binnable products, you then have store products such as microwaves, and then the fourth category includes washing machines and furniture.
We’re now building a second Magna Park site 96m away, connected by a bridge, which is bigger than the first and is going to do for our hanging garments what the first has done for our binnable garments - allow us to deliver those operational efficiencies.
Automation will be a big trend. But it is pricey, you need volume to do it. One of the issues most retailers will face is the ability to invest appropriately to deliver those efficiencies. So you will see increasing investment in automation to deliver speed, but you will also see an emergence of supply chain fulfilment companies, third parties who will invest in this automation and will then support manufacturers. Not that I’m seeing any investment in that space at the moment.
Once the goods are picked, packed and wrapped, it is about how you get it to the customer. We have our own
fleet, which makes 3 million customer deliveries a year, and also work with third parties on a total of 14 million orders a year. There is increasing investment in this, too. Five years ago we used to have an am and pm delivery option for customers, whereas if you look at the choices today we have more than 75 different options.