The success story of retailing over the past few years has been the massive growth of online sales, and the omni-channel revolution which has risen to shape the way those orders are fulfilled. But meeting a new level of demand often requires a serious re-think about established warehousing practices, and there are distinct areas where the pressures of increased volumes are causing increasing problems.
Taking orders direct from the end user of course means adding home delivery to the equation, and complications of the delivery process, such as returns and international custom are key areas where the costs constitute a serious burden to any retailer’s operating model, which is putting automated systems centre stage. It may be easy to blame the courier, but smart retailers are looking further into the warehouse to make sure each order is as efficient as possible, to avoid costly mistakes.
The overall cost to UK retailers of online delivery failure is expected to be £473 million this year, according to the Interactive Media in Retail Group’s Valuing Home Delivery Review 2014. If Marketplace deliveries are added then this forecast rises to £771 million.
That’s quite a sobering statistic. Andrew Starkey, head of e-logistics at IMRG, says: “Failed deliveries resulting from orders placed with retailers and marketplace traders each year create in excess of £750 million of avoidable costs – we cannot afford to allow the pace of innovation to slow.”
And Nigel Doust, chief of Blackbay, which supported the review, says: “Over the past two years we have seen significant improvements in the performance of home delivery. However, this report highlights that there still remains considerable cause for frustration with an inability for carriers and retailers to provide certainty for every delivery.
“Consumers are demanding that carriers and retailers do better, hopefully retailers and carriers can continue to challenge each other through technology improvements to close the gap between home delivery performance and consumer expectation,” says Doust.
Mike Oliver of Total Logistics agrees that customer demand for better delivery is influencing much wider warehouse design, specifically as they turn to omni-channel operations.
“DCs must be configured to support a number of delivery routes, rather than being specific to one channel. For products at the tail end of the range it is less viable to split stockholding across a number of DCs, so the DC operation has to support fulfilment across all channels.
“Due to international freight charges, some companies have been looking at automating the final packaging process to optimise the cubic volume of parcels,” says Oliver.
International growth is indeed top of the agenda for many retailers, but the shift to international trade means far more than just stepping up volumes. Widening your customer base in this way can smooth many of the peaks that create bottle-necks, for example Oliver points out that it will diminish the impact of seasonality. “Southern hemisphere international customers can impact on the seasonality and result in a wider active range (removing seasonality from certain ranges).”
But as well as spreading the load, every nation has its own habits and preferences that gives every expansion into new territory a unique blend of demands.
A case in point is UK department store Debenhams, which has seen rapid growth in online sales to Ireland. Debenhams reckon that the country’s shoppers accounted for €3.8 billion of online sales in 2012 – up 25 per cent on the year before.
Delivery is a particular issue in this territory, as couriers are typically given just a name and a town, and are expected to know or ask their way to the correct house.
Head of logistics Anthony Leach says that “strong, consistent” service had been critical in underpinning further expected growth, and that flexibility to support developing fulfilment models will be essential for e-consumers, such as it’s had from partners like its carrier Nightline which he says crucially “has the capability to help us refine and expand our offering to shoppers in the future.”
But retailers can’t afford to just lay the blame and burden on the carriers. Supporting the final customer experience means reassessing the entire warehousing model and many anticipate an escalating shift towards larger scale automation, even for store orders, particularly because of the shift towards leaner inventory profiles.
Most recently Asda awarded a multi-million pound contract to SDI Group to expand capacity at its George at Asda RDC at Brackmills in Northampton. This will include installing a four-level mezzanine structure – increasing garment-on-hangers capacity, providing an SDI LS900 carton sortation system and equipping a new packing operation with conveyors and benches.
SDI will also update the site’s carton storage capacity, with two extra mini-load cranes within the existing automated carton store. This contract follows the upgrade of George at Asda’s Lymedale RDC last year where SDI Group installed almost identical systems.
Ocado, the online food retailer has been using Knapp’s OSR Shuttle technology for the storage and automated supply of foods to the goods-to-person picking stations since the end of 2012. Because of strong growth and new partnerships, Ocado commissioned Knapp to expand the existing picking system in mid-2013. The system was expanded within a year from 18 to 30 rack lines. Knapp says that in terms of shuttles, Ocado now operates the largest shuttle warehouse worldwide, with a total of 870 shuttles. When operating at peak workload, over 30,000 customer orders with more than two million items picked leave the distribution centre every day.
And Sainsbury’s awarded SSI Schaefer a contract to provide automation systems for its NDC in Crick, which will stock the retailer’s entire general merchandise range and will have capacity to store 220,000 pallets. The system will be able to deliver some 2.4 million units per week, and the site will service over 550 stores nationally every day.
Phil Steeds, of TGW Northern Europe, says that in many cases, retail organisations have downsized their store sizes, and stores are ordering less, which means just in time orders need to be filled more frequently. All these factors add to the complexity of segregated inventories, and add to the case for omni-channel fulfilment.
“As with any major strategic move, the merging of inventories has both upsides and downsides. While shared inventory and combined space is an obvious upside, the downsides could be a requirement for more active picking locations, an increased facility footprint due to the SKU increase and the potential for decreased productivity.”
To overcome these operational hurdles, he advocates goods-to-person picking. “With a goods-to-person picking solution such as an AS/RS, the operation can accommodate the same SKU selection across multiple orders, irrespective of the channel,” says Steeds.
Another example of the increased focus that international trade is putting on automation in particular, is the recent contract awarded to Swisslog by Scandinavian fashion retailer Varner Group, to automate its massive new DC handling consolidated fulfilment for its European wide trade. Such an investment, with such an assured approach, is perhaps a reflection of the maturity of the omni-channel concept, and a confidence in automated systems.
The significance of consolidated, and increasingly automated warehousing, has been reflected in the strategies of the biggest retailers around, for store orders and nationwide distribution networks as well as online customer orders.
And the drive for e-commerce and multi-channel provisions is a major factor in many of the biggest automation contracts of the last few years. Waitrose’s giant new NDC at Milton Keynes is expected to be automated to some degree, and will process 25,000 different lines of ambient goods. This is next door to one of the biggest developments in recent years, John Lewis’ 1.3 million sq ft fully automated facility, which is dedicated to the fulfilment of its omni-channel retail business for general and fashion merchandise, and has been fully fitted out by Knapp and its subsidiary Dürkopp Fördertechnik.
Brian Whale, Swisslog’s senior logistics consultant agrees that traditional order-picking is struggling to keep up, and that the demand of greater volume and variety from e-commerce is compounding the pressure, prompting further moves towards, high performance goods to person stations.
“The impact for the retailer has been a slow eradication of the effectiveness of traditional picking models. Typical pick to store processes in most distribution centres need to be more flexible to suit the pick of individual, smaller order sizes. Reach truck, order picking, and pallet truck manufacturers are likely to see a downturn in business.
“With omni-channel, the main idea is a fully integrated and highly transparent supply chain, where all sales channels are simultaneously usable and refer to one centralised source, which holds detailed product information. This approach brings the warehouse closer to the end user, reducing the number of standard palletised deliveries and making the economies and flexibility of automation equipment even more app-ealing. But it is price-driven, and it has to be said that not all business sectors find omni-channel capability essential,” says Whale.
To that end he says that Swisslog has focused much of its recent activities on the challenges of e-commerce, including short delivery times, cost pressures, smaller orders and return logistics.
“As part of this work, we have introduced a simple solution for the intra-logistics online business called CarryPick. CarryPick is a fleet of robotic vehicles delivering mobile racks to pick stations for piece picking. The advantages for our customers include unlimited flexibility and scalability – adapting to buildings of any size and shape, quick reaction times on changes to storage volume and movements and adjustable racks and workstations to fit various sizes of articles. ”
The focus of each business will always dictate the direction its fulfilment operations must take. Increasing rates of online sales means more focus on deliveries and returns, and international sales and leaner store assortments too have all caused retailers to re-think the way their warehouses run. But across the board, it seems that the level of sophistication and speed demanded by the end user is putting efficiencies offered by the latest automation systems in the frame.