Tuesday 12th Dec 2017 - Logistics Manager

Meeting the e-tail challenge

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The growth of online shopping is causing a rethink of logistics strategies in the retail sector. And our panel of leading retailers and logistics providers had some very clear views on what needs to happen in our round table sponsored by SEGRO.

 

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The growth of online shopping is driving significant change across the supply chain as retailers move to respond. “This is a really interesting time in terms of supply chain, warehousing and the provision of warehousing,” said Andy Gulliford, chief operating officer at warehouse developer SEGRO opening our round table.

The company is currently experiencing signs that the e-commerce side of e-tailing is leading to additional and new demand, with an increase in large scale fulfilment centres opening as a result.

But Gulliford pointed out that with so much change it is a difficult time to be definitive about where the industry stands.

“We’re very much seeing an increase in urban logistics – close to the customer, local stores, and smaller facilities,” he said. We’ve recently developed quite a few parcel delivery centres, which are clear property types coming out of the rise of e-commerce. We are also seeing a significant increase in the dark store, or dot-com store, which is really interesting to urban logistics.”

He highlighted the last mile challenge and the importance of developing suitable facilities.

Referring to eBay’s recent purchase of delivery specialist Shutl, Harry Cole, vice president business development at DHL, said: “It’s quite interesting actually, this deal is going to link up all of these last mile challenges, and final mile couriers.

“Within an hour of ordering in a 15 mile radius a parcel can supposedly be delivered to your house from that store – this is another dynamic that we really need to think about.”

For Phil Shaw, managing director of Norbert Dentressangle, the last mile is less of an issue than warehouse configuration, which is where his company is heavily involved in e-commerce.

He said: “From an e-commerce point of view warehouses tend to be quite high, but do they actually need to be that high?

“If you were to invest heavily in automation then you could use that height, but in a market where you are constantly thinking about growth and change, are you really going to commit into that investment, when you don’t necessarily know what the future is?”

Agreeing with Shaw, Mark Catley, head of e-commerce development at Dentressangle, said: “Because the market of e-commerce is for convenience as well, the market is changing so rapidly and different players within the market are going into different areas.

“We are having to react to how the consumers are growing and how they want their products delivered to them, which at some point in the supply chain, comes down to which buildings you are using and how you end up supplying. But because it’s moving so quickly, those requirements can change within a month/three months – a much smaller time frame than a logistics supply chain.”

Gulliford highlights the fact that clothes retailers are taking advantage of the convenience of e-commerce. “Next, for example, has now moved into e-commerce, after having lived with their catalogue business for a long time, keeping their main distribution supply chain the same and using Hermes as their last mile outsource,” he said.

But the customer has to remain the focus, said Emile Naus, head of logistics strategy at Marks & Spencer. “Whether you buy from mobile, tablet, or in store, it is a customer requirement and you have to fulfil it.

“Some customers will value and be prepared to spend money on e-commerce, and some won’t, so you have to have that flexibility.”

And Fortnum & Mason’s director of retail and operations, Atty Hussein, highlighted the fact that its customers who want a same-day service will pay a substantial premium for it. But having worked on the service for about a year, with a number of service providers, she said it was hard to crack, especially in London.

“Customers in central London in particular want products delivered to their offices now, because it’s more convenient for them.

“There is the added complexity of different temperature regimes on the fresh food side, when we’re dealing with fresh food such as salmon. Although it’s up to our customers to store it once it gets to their office, we have to get it there.

Hampers

“Due to the range of the hampers we offer, we also have to look at how we’re going to store them, and how much space they get in the van.”

“We are also getting a lot of customers using click and collect, but this has prompted high returns, so there’s a bad side to it, which the DC has to deal with, and is an added cost to us.”

Naus pointed out that multi-channel has a high return rate anyway, with customers now taking charge of their own supply; what he called a “feature of online”.

“The ideal solution is that if you process the return, you assess it for quality very quickly, so you can get it back in stock,” he added.

“If you can do it in the same building there’s a huge benefit, but it’s not about where you do it, it’s about how quickly you do it.”

Returns is a big issue in e-commerce. DHL has been developing a system of “pack stations” in Germany.

“In Germany, we [DHL] have now got about 2,500 pack stations all around the country, built at petrol stations, forecourts, and even public buildings like libraries,” said Cole.

“Customers there can literally point to the nearest one and either take their returns back, or collect the products in the first place.”

Pointing out that there is a different consumer base in the UK, head of business development logistics at Europa Worldwide Logistics, Mark Wallace, said: “The issue is that we have great parcel delivery here, so people don’t want to pay added value.

“If customers can shop online, and choose a next day service without paying any extra costs, why wouldn’t they?”

But Naus said the problem with home delivery is that you have to have someone at home to pick it up. He believes a service which allows a customer to pick up a parcel on their way home is a lot more convenient.

“In Germany it’s like a “drive-thru” model,” said Gulliford.

“You just drive along the countryside, past the petrol station, and pick up your order. We’re currently working with a company, to look at putting lockers into railway stations, which perhaps is something that would work better in the UK- pick it up as you go home.”

Hussein said Fortnum & Mason has looked into such services for events, such as its summer service, Butler In The Park, where it delivers to any of the royal parks.

“We’ve looked into it for outdoor events where we might not find the customer; could we deliver to a locker and the customer picks it up straight away?” she said.

“The problem is it would have to be a chilled and branded locker, which is an additional cost and considering it would only be seasonal, it’s something we’d have to think hard about.”

Commenting on the rise in click and collect, Catley posed the question; why is the growth of online actually continuing at such a pace? “Customers order online because they don’t want to get in a car and drive to a store, yet they still get in a car to collect their click and collect items.

“It’s no doubt the certainty of knowing you’ve purchased the product and that when you go to get it, it’s already yours.”

However, Naus said that click and collect benefits Marks & Spencer, because not all stores stock every range. “It allows us to open up the whole catalogue to customers, it is the certainty.”

And Supply Chain Standard editor Malory Davies highlighted the fact that click and collect brings people into the store, creating the potential for additional purchases.

Speaking of past experience, Hussein said: “When I was a store manager, at Christmas time I’d have about 300 people at my door waiting to collect their order. While our branch was number 74 in the business, at Christmas time it was in the top ten, because it was a home county store and brought all the customers in.

“We only introduced click and collect at Fortnum & Mason this year. We spend a lot of time in the DC, boxing it up and making it look pretty, but customers tend to just decant it from the box because they don’t want to carry the box on the tube.”

SEGRO believes click and collect growth is currently faster than home delivery growth, “so clearly you need warehouses whichever way you go, but it’s an interesting debate as to where that will end up,” said Gulliford.

“But it’s that fluctuation in the business that becomes a major challenge on site,” said Wallace.

“We may have 100 members of staff all year, but then have to double or triple it at Christmas, so simple things like car parking space become problems.

Physical location

“We’re finding that putting a facility close to our service provider’s hubs makes the process easier – that physical location, for us is vital, because it has to be around the hubs.”

Shaw points out that labour itself can be a challenge. He said: “The availability of people themselves is a huge dynamic to think about; you need to find them to be able to cope with spikes, such as Christmas, whether it’s automation, part-automation, manual, you do always need people.

“It is all about availability, where are your parcel hubs in proximity to your staff? They have to be near an area where people are available.”

Marks & Spencer now employs some 1,000 people at its automated Castle Donington distribution centre, in Leicestershire.

Naus said the company finds the small things are what you have to think about most when it comes to that number of staff. “The car park, an efficient round-about system, etc, when you employ so many people it really is about the small things.”

The group addressed the issue of today’s stereotypical views on warehouses, notably with local authorities.

Naus believes local authorities have an image in mind of how a warehouse looks, but that they haven’t seen the transition from a warehouse 20 years ago, to a warehouse five years ago, to a warehouse now, “and there is a huge difference,” he said.

But, having worked with councils around the UK, Gulliford said: “We find their concept varies depending on the economic position of a specific council, the economic development within that local authority will determine how well they plan and understand a warehouse.”

Catley argued that the UK is currently experiencing a “labour v property v carrier dynamic”, where everyone is fighting for the same sort of space, without necessarily having the labour resources available to do it.

But are these themes, in terms of location and specification, international themes, asked Gulliford: “Is it going to be the same in France, Germany, further afield?”

Shaw has dealt with international markets, and used Poland and Dubai as examples. In these countries going shopping is actually a hobby, so e-commerce is unlikely to grow at as fast a pace as elsewhere, and even the idea of home delivery isn’t strong there, he said.

Cole brought up the problem that some other countries aren’t as technologically advanced as the UK: “You’ll find people in some countries will have difficulties actually paying by credit card online, so they will order a product, but actually have to go into the store to collect it.

“Not as a click & collect service, but to actually pay.”

Walmart is currently trialling a new delivery scheme in the US, where customers will get asked for their postcode in store. If the postcode matches with an online delivery, the customer will be offered a discount shop, if they deliver the online order on their way home.

This is thinking outside the box, said Naus. And Cole said: “With the development of smartphone devices, and all the available apps, you effectively have a system that is available to everyone- you no longer need these machines that say ‘sign here’.

“But with all this technology being introduced, couriers need to start thinking about minimising costs. Even if you know a service, such as the one being launched by Walmart, won’t make you money, you have to stay in the game.

“Services like these do cut down a lot of congestion, and the number of delivery vehicles going into shopping areas, but cities are quite slow to adopt it.

“At DHL, we’re using social media a lot more now, the things it could do for us as an organisation could be huge. For example the 26 million users on Facebook, could be 26 million couriers for us – taking parcels with them on their way to work, school, even football matches, etc.”

Social media should be used more, not just as a promotion, but as an example, said Naus: “Customers don’t quite understand what our industry is offering or the value of its offering.”

But this is one of the wonderful things about the industry, according to Wallace: “people have no idea about what we actually do.”

However, customers do know about one thing; certainty. Outside of distress products, like fresh foods, why is there now a need for shoppers to have a certain product on that same day? “It comes back to the question of certainty- if I get the product today, I know I’ve got it and if there’s something wrong with that product, I’ve given myself time to return it,” said Catley.

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About SEGRO

SEGRO is a leading owner, asset manager and developer of modern warehousing, light industrial and data centre properties with £4.7 billion of assets.

In the UK, the portfolio is principally concentrated in London’s Western Corridor, including the Thames Valley. SEGRO has a leading market position in Heathrow in some of the most sought after airside and off-airport locations and a significant portfolio in Park Royal and Greenford, which has become a primary focus for businesses seeking urban logistics space to service Central London.  In Continental Europe, SEGRO’s portfolio predominantly comprises logistics warehousing and light industrial assets concentrated in key conurbations in France, Germany and Poland.

With an attractive portfolio of existing facilities and an extensive land bank in key locations, SEGRO is able to deliver exceptional product in key markets across Europe and is uniquely positioned to fulfill supply chain requirements from national logistics to last mile delivery.