How John Lewis changed its business model

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Embracing omni-channel has enabled the retailer to drive dramatic growth. Operations director Dino Rocos explains the strategy to Johanna Parsons.

If you’ve been along the M1 recently you will probably have seen another of Gazeley’s giant sheds growing up next to John Lewis’ DC at Magna Park near Milton Keynes.

For this second John Lewis site, ground was broken at the end of July, and within two months the structure has risen, the distinctive cladding covering vast walls, which impress the scale of this expansion, part of a £70 million investment, on the casual viewer.

But this is just the cherry on the cake of John Lewis’ business transformation. It was one of the first retailers to take e-commerce seriously and give it the level of investment that now puts it at the cutting edge of the omni-channel revolution.

And key to that strategic shift, was operations director Dino Rocos. Having been at the partnership some 37 years, it is his last 12 years in the supply chain function that he reckons have been the most exciting of his career.

He took on responsibility for the broader supply chain in 2002 following a significant problem with distribution centre flows in the run up to Christmas 2001 which he put right within six months.

“Having achieved that, it was clear that we had an opportunity to fundamentally change the business model,” he says.

Previously, a supplier would deliver to a DC. Stock would be stored and eventually transported to a service building near to a selling branch. This would be picked and sent to a store’s perimeter stock room from which it would be sent to the shop floor as requested. By contrast, the new model was to replenish sales from the previous day direct to stores.

This meant totally rebalancing the supply chain, taking costs out and adding value. But it would require a level of investment previously unheard of in the business, and at a time when John Lewis had publicly declared it would open ten new department stores in ten years, which considering it had only 25 stores, was quite a stretch.

Its online platform too was burgeoning, and e-commerce is an example of just how steeply volumes have escalated. In its first year, 2006 it took £1million and the role it would play in the future was uncertain. The initial projection was for £100m by 2017. This was upgraded to £300m, but in fact by 2012, annual online sales accounted for £1 billion, with £2.4 billion now expected in 2020.

Rocos’ plans for centralised fulfilment took account of the shifting market, and a modular approach was favoured with plenty of space for future expansion in whatever direction that might be.
“We deliberately built the infrastructure to allow us to make different decisions when we move to expand capacity.”

The primary site at Magna Park has already been expanded with mezzanine floors to the point that it now covers some 850,000 sq ft, and the footprint at the new site is 675,000 sq ft which will take it over a million sq ft with its mezzanines. Kitted out by KNAPP, the first site has had £15m worth of mechanised handling systems installed this year and another £12m outlay for next year will support its expected peak volumes.

All inbound stock from some 3,500 suppliers is unpacked and stored in bins. There are 30 aisles of double deep ASRS, and four OSRs storing goods, of which two were fitted retrospectively with more set to be installed in January.

Picking too is going to get a boost, with robotic systems planned for 2014. Currently order cut off is at 8:30pm for delivery from the facility at 10pm, and the site processes some 150,000 orders per day.

But this is not steady, and Rocos says that peak volumes can be nine times as high as at low demand times. The 320 John Lewis partners that work in the warehouse year round are supplemented by some 6-700 agency workers in the build up to Christmas.

During that peak KNAPP’s pick to light system is supplemented by some manual picking to keep up with capacity, but at other times an element of manual picking allows some machinery to be switched off, to save on overheads.

“The most difficult part is defining the parameters and setting the speeds and levels,” says Rocos. An enviable difficulty to have.  And with sales volumes up 14 per cent, and vehicle movements down by two per cent through 2012, and with the second site set to go live in little over a year, the rate of progress is staggering.  But as Rocos points out, the pressure is too. “All we’ve got to do is deliver the same experience with that site as we have this one.”

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