Sunday 4th Dec 2016 - Logistics Manager

Shopping: I want it now

Overwhelming demand may be an enviable problem, but retail spikes must be handled with care to avoid alienating customers and automation may be the answer, says Johanna Parsons.

This article was published in the October 2015 issue of Logistics Manager.

This article was published in the October 2015 issue of Logistics Manager.

Online shoppers spent an unprecedented £810 million in just one day last year. But that notorious Black Friday spike in sales caused chaos for retailers’ logistics processes, with unfulfilled orders and late deliveries leaving an unquantifiable legacy of customer dissatisfaction. So this year there is considerable pressure to handle the problems better.

Sadly, retailers are unlikely to hold back on their marketing just to help their logistics flows. Black Friday was the biggest ever day for e-retail in the UK, and 2014 was the first year where online sales tipped over the £100 billion mark at £104bn, that’s year-on-year growth of some 14 per cent, according to statistics from the IMRG Capgemini e-Retail Sales Index.

However, the figures show that sales in December were up by just five per cent – the lowest ever growth recorded for this period, presumably because discounting for Black Friday drew huge volumes of sales to that final week of November. So effectively it was not just an order spike, but a squeeze on the fulfilment window.

“As a practical exercise, it runs counter to how many logistics operations are set up, which operate smoother when orders are spread over several days,” says Brian Whale, senior logistics consultant at Swisslog.

Dave Bull, sales manager at Dematic Northern Europe, agrees that such a severe spike in orders created new challenges for retailers. “Traditionally, retailers have been used to a fairly predictable and steady rise to a peak in demand leading into the Christmas period, but the sheer size of the spike that occurs for a single-day event like Black Friday is so large that ‘super flexibility’ can be the only response.”

And that’s where automation comes in. Craig Rollason, managing director of Knapp UK cites the firm’s client John Lewis, for whom Black Friday caused the biggest sales week in the company’s 150 years of trading, with online sales up 19 per cent and johnlewis.com representing 36 per cent of total sales in the period.

“The fact that John Lewis’ distribution operations coped with the demands of Black Friday is testament to the forward planning of its logistics team and also the flexible capacity of the automated handling systems supplied by Knapp at the retailer’s national distribution centre in Milton Keynes,” he says.

“The site features automated storage systems – including Knapp’s OSR Shuttle – and pick-to-light systems for both store replenishment and direct-to-customer orders,” says Rollason.

And Andy Street, managing director of John Lewis, has made no bones about the significance of its automation, saying, “The investments we have made and the new capabilities we have built in recent years in Distribution and IT have been fundamental in ensuring we successfully navigate this changing shape of trade.”

Not every retailer has the capital that John Lewis had when investing in its multi-warehouse setup, but that doesn’t mean automation is out of reach.

“Retail automation is increasingly important to a streamlined logistics solution, and consequently, helps to ensure an excellent customer experience,” says Rebecca Kilduff, head of IT, systems and solutions at Clipper.

“Clipper uses shared expertise, and in many cases, shared user sites to spread the cost of infrastructure and technology across clients. In this way, smaller retailers can take advantage of automatic systems, which would ordinarily only be available to retailers with much bigger budgets. It’s often about working smarter, rather than spending more,” she says.

And Bull points to Dematic’s MonaLisa pouch sortation system as an economical, scalable buffer system. “The critical benefit of a pouch sorter is that it enables e-commerce retailers to perform a batch pick, and because in a batch picking process density of picking is greatly increased – as it reduces the distances travelled by pickers – much higher pick rates are achieved, often presenting a 200 – 300 per cent improvement on traditional methods,” he says.

“But in addition, you can easily vary the batch sizes, which creates flexibility. It allows you to smooth out and manage your order picking process in the distribution centre. Coupled with this you have the capability within the buffer system for holding returns or fast movers,” says Bull.

Returns are indeed a pain to deal with at the best of times, but the nature of marketing drives like Black Friday create a vicious circle whereby resources are already stretched just when the percentages of items being returned hits new highs.

“The low prices and proposition associated with Black Friday and Cyber Monday undoubtedly increases the number of snap purchases made,” says Jason Shorrock at JDA software.

“Retailers must expect to deal with a significant number of returns during the period, as consumers return unwanted items to free up budget for more considered purchases.”

He believes that the measures of success during such spikes are demand stimulation, customer satisfaction, cost of reductions and cost of returns processing. “Those retailers that get this balance right and successfully deliver fulfilment and returns excellence with an eye on the profitability, will be the ultimate future winners,” says Shorrock.

Whale says that automated systems can be an effective means of achieving that balance. “Correctly specified automation provides an order fulfilment engine which can efficiently cope with high order demands.”

Whale continues, “Predictive modelling of demand by product, enables the operator to correctly slot product within the fulfilment engine to help cope with the types of peak experienced on days such as Black Friday.”

E-commerce has brought with it a new level of customer service expectations. As well as increased volumes of returns, online shoppers expect more different types of fulfilment. The challenges for retailers now also includes processing international orders, factoring in fluctuating exchange rates and dealing with foreign carriers. Again, there are automated processes to help.

David Stocker, director of supply chain business at DAI says: “Many of our existing customers have achieved the bulk of their growth internationally rather than in the UK over the past five years. This is particularly true for non-food e-commerce, for example, fashion and sports. Automation has assisted international shipment in particular through the use of automated despatch sortation, and the use of delivery management software to select optimum parcel carriers, print labels and provide access to tracking data.”

And when customers’ only physical interaction with a retailer is receipt of their parcel, the pressure on carriers is immense.

“We all remember the infamous TV coverage of frantic shoppers grappling over TVs in supermarkets,” says Mark Pettit, of Hermes. “Those headlines were then quickly replaced with those reporting that deliveries might not be fulfilled ahead of Christmas itself.”

Pettit says that Hermes handled the demand without a hitch, processing 24.4 million parcels in total, representing a year-on-year rise of 15 per cent over the 2013 peak period. But that was no accident, as in May 2014 Hermes opened a fully automated hub in Warrington, which can process up to 550,000 parcels a day. And it plans to increase capacity further.

Likewise Royal Mail has put its money into automation, signing a deal worth some £20.5 million with Datalogic earlier this year, to implement new parcel sorting systems at 20 sites across the country, as well as a £130 million investment with Zebra Technologies to supply 76,000 hand-held devices over the next five years.

However great care must be taken to select the appropriate technologies. In a statement accompanying a recent profits warning, UK Mail admitted that its recent move to an automated parcel hub was not paying off. It said: “A greater than anticipated proportion of current parcels volumes is incompatible with UK Mail’s new automated sortation equipment, resulting in additional operating costs and therefore a delay to the full benefits expected from automation.”

An excellent carrier relationship can help to smooth outbound flows, but even the best carrier network cannot be expected to solve the problems of such a mega-spike in demand as was seen last November. The consensus is that the burden for ensuring seamless delivery cannot be outsourced.

“As an industry we quickly identified that carriers do not possess the capacity to soak up all of the activity, as an end-to-end process, in one single day,” says iForce chief executive Brian Gaunt.

And Gaunt goes on to say that other traditional methods of mitigating peak pressures simply don’t apply to these extraordinary mega-spikes. “For our client John Lewis, for example, this included training and deploying 800 additional agency staff. The steady build up to Christmas allows the business to commit to agency workers for a period of time that makes the training of this workforce viable and gives the agency workers a commitment of several weeks of continuous work. However, with a peak lasting four days this is completely uneconomical to train the workforce required for the peak or for agency workers to commit to such a short period of employment,” says Gaunt.

Which brings us back to that thorny issue of the sheer pressure of the new November peak. Most agree that the biggest challenge is the promise of next day delivery. While some see it as essential, many believe that if offering next day delivery means there’s a chance of failing to meet the promise, it’s simply not worth it.

“The customer’s main objective for shopping on Black Friday or Cyber Monday is to obtain goods at discounted prices. In most cases it shouldn’t matter if that customer receives their items the following day or later that week,” says iForce’s Gaunt.

“Retailers need to communicate with their customers to identify where their priorities lie. The majority of time, I suspect they are just pleased with the bargain. This allows you to manage customer expectations and operate more effectively during the peak season,” says Gaunt.

Swisslog’s Whale has similar ideas “There is an argument that says ‘let’s present the customer with a two or three day express delivery service, rather than trying to deliver everything next day’. Doing this over several days (a ‘grey week’ perhaps) would allow additional time for consolidation and a more cost effective and less risky solution for the retailer.

“However, in a competitive market, the temptation to go for the attention-grabbing promotion will possibly always outweigh the practical approach,” says Whale.

Andy Robson, supply chain solutions manager at GS1 UK reckons the key will be to stem the demand for premium services by charging more realistically. “Consumer service offerings (i.e. introduction of scale-charges) need to reflect the stress placed on the fulfilment system at peak times. So, yes, paid-for next-day (or more likely same-day) delivery will become the norm. Free next-day delivery is unlikely to persist in absolute peak-periods,” says Robson.

But as Whale pointed out, some retailers will always want to offer the world. So there is still real demand for automated systems to deliver ever faster and cheaper order processing.

Knapp’s Rollason says “Developments in robotic picking are opening up new possibilities for the future of order fulfilment. This has been made possible by the power of vision technology, enabling robots to identify the optimum article to pick among multiple items within a tote.”

One of Knapp’s newest contracts is with vent-privee, a French retailer that specialises in what it calls flash sales where the product range is constantly changing, and Rollason gives the example of an automated solution the firm recently provided for Dutch e-tailer wehkamp.nl that will ensure that consignments are ready for shipment within just 30 minutes of order placement.

The problems of last year’s Black Friday are not going away, in fact retailers are doing everything in their power to make sure we see more such condensed spikes in sales. There are many angles from which to address the challenge, but whether retailers focus on the fulfilment within the warehouse or to concentrate on their delivery partners, many of the solutions lie in automation.

 

 

Case study: 30 minute turnaround for Dutch e-retail giant

 

E-commerce specialist, wehkamp.nl, hast taken an automated handling system from Knapp at its brand-new DC in Zwolle.

One of the leading e-retailers in the Netherlands, wehkamp.nl sells a huge range of goods including fashion, homewares, computing & electronics, toys, electrical appliances, media and beauty products.

With over 180,000 SKUs and some 1.7 million personal accounts the Dutch e-commerce giant has enjoyed 15-20 per cent annual growth, allowing it to invest in the high-performance, 53,000 sq m facility.

Apart from enormous volumes being shipped and a constantly changing product range, the main concern for wehkamp.nl is to ensure high levels of customer service despite offering next-day and even same-day deliveries.

Knapp’s automated solution includes its OSR Shuttle technology, and will allow packages to be ready for shipment within 30 minutes of order placement.

The OSR Shuttle system will feature half a million storage locations and process 98 per cent of the entire order volume.

Ergonomically designed Pick-it-Easy workstations will be used for goods-to-person picking in an intuitive workflow that minimises errors.

Dispatch tasks such as sorting and finishing, including document insertion and closing of dispatch cartons or bags will be carried out automatically and the KiSoft warehouse logistics software will guarantee efficient processing and permanent control of all operations.

This will enable wehkamp.nl to offer delivery of orders to any location in the Netherlands, on the very same day as they are ordered.