Retail is changing with consumers increasingly taking up online options for home delivery and click and collect. Johanna Parsons finds that retailers are increasingly looking to automation to pave the way to serving these different channels.
Retail sales just keep increasing. Overall sales values were up in August compared to last year, and in particular, online sales of non-food products in the UK grew 15 per cent. What makes this soaring demand so exceptional is the shaky economies in which it is occurring.
Budgets are under pressure, but the ever present burden to offer the right products at the right time and the right price is only getting higher.
With investments such as John Lewis’s automation project at Magna Park approaching £100 million, it is clear that retailers are taking the new demands being foisted on them by e-commerce very seriously, and that automation is the route to all kinds of efficiency. The question is how difficult is it to embark on that path?
“The market for large scale fully automated projects has been slow to recover,” says Steve Richmond, director, Jungheinrich UK’s systems and projects division.
“After the global economic collapse, companies became nervous about any kind of high level capital expenditure and that uncertainty is still with us to an extent.
“The trend is towards mid-level projects which can demonstrate a rapid return on investment,” he says, explaining that many users are now choosing to employ partial automation – hybrid systems that are part-automated and part-manual.” He gives the example of adapting standard VNA trucks with automation controls, sensors, wire guidance and transponder technology.
“This approach makes automation scalable,” he says. But not all retailers are so cautious.
Gordon Smith, chief executive of SDI Group disagrees with Richmond, and reckons that the economic survivors have emerged from the recession with a bolder attitude to investment. He says SDI has seen increased activity from retailers for the last five years, with sales now exceeding pre-crisis levels.
“Retailers who made it through the global financial crisis of 2007-2008 are getting more volume – both through bricks and mortar and e-commerce channels.
“This has resulted in a healthy appetite for automating and improving productivity within both existing and new e-commerce operations,” he says. And he points to the UK’s position as an early adopter of e-commerce as making it an exciting place to look for trends, specifically the shift to international retailing via online channels.
Dino Rocos, operations director at John Lewis speaks of the firm’s decision to more than double its warehousing on Gazeley’s Magna Park, which by 2020 will represent an investment of some £97 million.
He makes the point that the ownership structure of the John Lewis partnership itself is an asset, so they can design and build the optimum system to reach their end goal without constant recourse to share prices.
Therefore they have taken the plunge, and the new DC will be fully automated including an extensive hanging garment system, to issue stock cost effectively little and often, based on demand. It will also allow John Lewis to fulfil more items direct to customers from its central DCs.
And DC1 at Magna Park is getting a further MHE fit out to the tune of some £15 million this year, and another £12 million next year from incumbent supplier KNAPP, just to keep up with growth. Rocos expects the site to process 200,000 orders each day during its 2013 peak.
“This is part of a broad series of investments aimed at achieving a true omni-channel solution,” said Rocos.
He says the aim is for a truly seamless approach, so that to the customer at least, the channel is irrelevant. “The distinction between channels is actually a retailer based distinction. Customers don’t really care about the differences,” says Rocos.
“Maybe they’ll make an order online, and at the last minute opt for click and collect, and then buy something else when they’re in store collecting. Why should they care about the different processes? And why should they expect different levels of service? I think there shouldn’t have to be a distinction.”
Levels of distinction
And perhaps it’s this dedication to offering a consistent service across all channels that influenced the decision to build its second major distribution centre in the last five years right next door to the last one, literally connected by a bridge.
The 675,000 sq ft build to suit DC will be linked to the retailer’s adjacent 650,000 sq ft shed by a 98 metre bridge, allowing the two buildings to act as a cohesive facility serving stores, online orders and click and collect fulfilment.
The pressure couldn’t be higher. As the firm doesn’t replicate its stock anywhere, it is vitally important that these systems are as efficient as possible, and run with no hitches.
“If the site went down, 80,000 SKUs would go offline.”
But with this in mind the planning and testing has been as thorough as humanly possible, and Rocos is not worried. “That has not happened, and it will not happen, because we’re all over it and we’re planning strategically.”
But for all retailers, maintaining standards for new and distinct channels will involve new challenges.
Currently, the online channel accounts for about a third of John Lewis’ sales volumes, but its forecasts indicate that this will be more like 40 per cent by 2020. A startling statistic, that emphasises the very real need to adapt or die.
SDI’s Smith notes that e-commerce has created a raft of new trading peaks which puts pressure on suppliers to offer rapid installation times. But it has also created huge demands for fulfilment services which offer ever later cut-offs and shorter and shorter lead times.
“The quicker an order can be processed in a DC the quicker it can reach the end customer, so there is a real desire to reduce this processing time to the lowest possible, but still retaining the accuracy to ensure excellent customer service,” says Brian Jones of Crisplant.
Mike Alibone of SSI Schaefer agrees, and explains how automation is gaining traction as customer service demands require replenishment of store stock as quickly as possible. “So returns, for example, must be turned around quickly and made available ahead of, and more easily than, standard stock.
“Automation systems which expedite goods-in checking and put-away, shortening the time between goods receipt and stock availability for picking are essential in this respect.”
Rocos says John Lewis expects its premium fulfilment propositions to be key to its growth. It is ramping up its service offerings with additional customer delivery hubs, and at the store in Birmingham New Street it is trialling a click and collect service that allows shoppers to place orders as late as 10 am and then collect by 5 pm, just in time for the commute home after work.
John Lewis’s massive investment is proof positive of just how inevitable multi-channel retailing is, and how meeting the demands is inspiring new ways of thinking about fulfilment.
Indeed, retailer QVC has just taken on Conveyor Networks to provide an automated despatch solution, including the firm’s “Interface Manager” to streamline its operational distribution centre in Knowsley, near Liverpool, and make it more responsive for optimal customer service.
And Morrison’s chief executive Dalton Philips made waves recently by admitting how out-dated the supermarket’s processes were amid its announcement for a £300 million programme to revolutionise its systems.
He explained that the absence of versatile picking and packing operations was demonstrably holding them back, not only from developing new multi-channel streams, but even from basic retailing tactics.
“Our antiquated systems even limit the promotions we can run. They don’t easily allow us to offer promotions involving a mix of different products or a buy three and get one free deal.”
Morrison’s scheme will put visibility, efficiency and versatility at its core, underpinned by integrated IT. Tony Stephenson, IT operations manager, says working with partner Automic, this will ensure end-to-end visibility of work flows, “allowing the IT department clear status of the supply chain”.
“Automation is a crucial cog in Morrisons’ success,” he says.
It is projects like this being adopted by the bigger retailers that demonstrate the demand, and the business case for catering to the spiralling whims of the new breed of omni-channel shoppers. The challenges and costs will be huge, but with the sales volumes to back it up, all roads lead to automation.
Case study: Tenfold throughput improvement for Vodafone and UTL
Vodafone and Unipart Technology Logistics took on Axiom GB to design and install an automation system for 80 per cent of the volume of single item orders mobile phones and tablet devices.
At the start of the twin level automated process, UTL’s warehouse control system allocates a job to the line and its serial number and product code is scanned.
Items are then conveyed past three hoppers which feed out a SIM card if required. This is validated by camera and incorrect cards are rejected and corrected. The SIM is then put onto the lower conveyor directly underneath the product.
Printers match the dispatch note to each order, paperwork is scanned and documents are fed from the printers on top of the SIM card on the lower conveyor under the relevant phone on the top level.
Products and documentation then converge onto a single line and the variable speed conveyor controls input to the automated bagging machine.
As the product is fed into the bagging machine it is checked for length to determine the size of bag required. A printer inside the machine produces an address label and sticks it to the outside of the bag.
James Hodgetts, programme manager working on behalf of UTL, said: “Investing in automation has given UTL a number of major benefits. Their client’s service has improved – Vodafone customers can now place an order as late as 7pm for a next day delivery.
“In addition, they have the economic advantage of an automated line which delivers an impressive tenfold increase in capacity and a reduced footprint in the warehouse.”
Case study: SSI Schaefer speeds storage
Discount retailer TJ Morris, trading as Home Bargains was close to reaching a “critical mass” when it recruited SSI Schaefer to help to increase the bulk storage capacity and picking at its distribution centre.
The project involved building a 26-metre, triple deep high-bay extension to the pallet storage, providing storage capacity for more than 46,000 pallets.
These pallets are automatically brought down by cranes to replenish pallet live storage picking tunnel locations at ground level within the high-bay, from which operators case-pick using a voice directed picking system.
Both pallet crane and Miniload storage areas are served by pallet and tote conveyor systems including belt, strap, and roller conveyors to an overall length of 100m.
There are also sorters, scales, a repacking table, a conical roller curve, a belt diverter, a chain diverter, a lifting station with the roller conveyor, stacking and de-stacking machines, and automated strapping and tote ID printing.
High-bay cranes also replenish pallets and feed them to the double deep Miniload storage system, where smaller, slower moving products are decanted into totes at some 24,500 storage locations, for single item-picking.
The four aisle cranes work on the same principle as those in the high-bay, replenishing the carton-live storage picking locations along the sides of the four aisle Miniload storage system.
The firms reckon that automatic replenishment by the cranes has delivered an enormous saving in manpower and enables TJ Morris to achieve improved product throughput, at around 200 double cycles per hour, and much improved store delivery times.
Joe Morris, operations director, said: “Without the expertise and systems technology provided by SSI Schaefer our operation would have struggled to meet the demands placed upon the business by the increased sales of a rapidly expanding store base throughout the UK.”
Case study: TGW automates for Swiss Co-op
The Co-op Group is one of the leading grocery retailers in Switzerland, with an annual revenue of some 27.8 billion Swiss Francs. Its retail stock comprises about 70,000 items across many categories.
The retailer recently awarded automated warehouse solution provider TGW with an extensive materials handling project at its new national distribution centre.
The new centre in Schafisheim, in the North of the country, will consolidate Co-op’s regional distribution centres in Zurich and North West Switzerland and assist the company in its commitment to reduce its carbon footprint.
TGW has been hired to implement an extensive materials handling system that will increase the efficiency of its logistics processes and span four areas at the Schafisheim site.
The first of the four zones is a four-aisle high bay warehouse for pallets and picking which will be used for the storage and semi-automated picking of dry goods.
The second zone is the chilled area, for storage, automatic picking and repackaging, all to be stored in a buffer.
A third zone will contain frozen products that will also use TGW’s stingray shuttle system as a buffer.
The fourth zone is for an “empty packs centre” which will enable the cleaning and sorting of empty containers and the replenishment of all picking workstations.
The installations will be commissioned and is due to be implemented between 2014 and mid 2016.
Case study: Shuttle launches multi SKUs
Tuko Logistics, a grocery storage, assortment, purchasing and logistics service provider in Finland, ordered Cimcorp 3D Shuttle to increase the efficiency of its logistics operation.
At Tuko, about 7,000 products are handled with the Cimcorp 3D Shuttle, raising the efficiency of order picking process and logistics to a new level.
“The process challenge for Tuko is the relatively wide SKU portfolio in relation to volumes and thus the high level of logistics costs,” says Petteri Pelkonen, chief executive of Tuko Logistics.
Markku Vesa, chief executive of Cimcorp, says: “The products to be picked are brought automatically to the order picker rather than the order picker having to go to the product.
“This enhances order picking effectiveness many times over and also improves order picking ergonomics.”