Keeping logistics costs to a minimum is vital in a recession. Though supply chains have become more sophisticated, there is still an opportunity to enhance efficiency, according to those in the know
Making sure that returns are handled efficiently is sometimes a neglected area of the logistics equation.
- The cost of handling returns can be two to three times more than the original distribution, according to Mark Hewitt, chief executive of e-fulfilment firm iForce. Retailers need to quickly make stock available for sale again, return it to the supplier or dispose of it through outlet stores or other means. “In this instance, the old adage ‘time is money’ really is true,” he says.
- The warehouse layout needs to take full account of returns, which must be dealt with close to the main stock-holding area, says Clair Muir, business development manager at logistics provider Amethyst. “The reverse logistics flow needs to be as slick as the fulfilment,” she says.
Where to do it
- House of Fraser recently took back its e-fulfilment from a specialist company into its main distribution centre, cutting down on transport and handling. “Around two-thirds of the process has now been eliminated, creating significant cost savings,” says House of Fraser supply chain director Mark Holland.
Getting more out of the distribution fleet could cut overall transport costs by a fifth, says Judy Blackburn, head of logistics at retail consultancy Kurt Salmon Associates.
- DHL Supply Chain’s Project Fusion initiative - in which Debenhams, House of Fraser and TK Maxx share vehicles on certain journeys - is likely to be widened to other retailers and sectors. “The transport constraints faced by retailers means it makes sound economic sense to share the burden,” says House of Fraser supply chain director Mark Holland.
- The Aurora Fashions group, formerly Mosaic Fashions, intends to offer its spare transport capacity created by the closure of its Principles chain to other retailers, says Aurora’s group distribution director David Roberts. However, he adds: “That only works if you are already visiting the same high streets and malls.” The group already delivers stock for footwear chain Dune.
- Better vehicle loading can save 10% of transport costs, according to Tony Hourigan, development director at supply chain solutions firm Wincanton. Single-digit savings can be gained via driver training and the monitoring of driver and vehicle performance.
- Routing and scheduling IT packages can cut transport costs by up to 20%, according to logistical planning company Paragon Software Systems. Delivery routes can be planned on a fixed basis or daily according to volumes.
- DHL is introducing electric vehicles to serve major conurbations for
- TK Maxx and has already introduced aerodynamic ‘deflectors’, which produce fuel economies of 3.5%.
- Teardrop-shaped trailers, used by a number of firms including Marks & Spencer, produce average fuel savings of more than 11%, according to manufacturer Don-Bur.
The management of distribution centres has come on in leaps and bounds in recent years, but experts say there is often still room for improvement.
- Labour makes up more than half of warehouse costs, according to Judy Blackburn at Kurt Salmon Associates. Better monitoring of staff performance and effective coaching can result in a 20% improvement in productivity without financial incentives and a 40% to 50% rise with them, she says.
- The layout of a warehouse can have a huge effect, with products arranged so those that are needed the most are easily available. “It’s a question of minimising travel inside the warehouse,” says Mark Mearns, head of e-fulfilment at supply chain solutions firm Unipart.
- Warehouse management software from firms such as Manhattan Associates can reduce picking costs by 20% to 25% and labour costs by 40%. Users of the software include European retailer Tally Weijl, which achieved a 20% leap in picking productivity.
Use of space
- Kurt Salmon’s Blackburn says that by reassessing the number of warehouses they need, companies can sometimes halve the cost of rent, labour, storage space and transport.
- Wincanton’s development director Tony Hourigan believes that retailers could consider moving from warehouses capable of coping with peak volumes to smaller facilities that handle average product flows. They can then take on temporary warehousing for short periods at eak times.
- Extra revenue could be gained from letting out excess capacity. Logistics firm Variation Consulting runs a database to connect those looking for space with those letting it out.
If companies outsource their logistics, they still need to decide how to work with their third-party provider (3PL) to maximise any benefits.
Type of contract
- Closed-book contracts are based on a fixed-rate per case that the retailer can negotiate. Open-book contracts involve the retailer paying for all costs and a management fee but incentivise the 3PL to create efficiencies. “Retailers need to look at long-term rather than short-term gains when choosing which is appropriate,” says Nick Weetman, director of consultancy firm Davies & Robson.
- Tony Mannix, managing director of Clipper Logistics, says many retailers can benefit from multi-user services, whereby contracts from several firms operate under the same roof. “Retailers ‘share’ the overhead costs but get dedicated management for their accounts,” he explains.
- DHL Supply Chain has a team analysing more than 80 different processes. Average savings are about 5%, says Jonathan Pilbro, business director, fashion division.
- Understanding what allowances retailers can claim with customs duties can also help save money, according to TNT Fashion Group development director Philip Bracken. “We have never been unable to help a client in this area,” he says.
- Ben Sherman has worked with DHL to cut costs by changing shift patterns at its warehouse in Radlett, Hertfordshire, and slightly reducing delivery frequency to its stores. “There is a shared enthusiasm to look at different ideas,” says group logistics director Alan Higgins.