Supply chain directors need an innovative mindset to meet the challenges posed by the multichannel retail landscape. Gina Lovett reports on how they are responding.

In multichannel retail, where consumer expectation demands increasing choice of delivery and service options, a reactive supply chain that can turn customer promises into reality is critical for retailers. 

The growth of multichannel means retailers are assessing every aspect of the supply chain – stock and inventory management, inbound logistics, shipping, containing, warehousing, distribution, picking, packing, right through to delivery – based on variable customer demand at a granular level, as well as traditional scheduled promotions.

“In the past, the format of sales was to bring product in for launches, stack them up and sell through, but now customers are ordering anywhere and at any time,” explains Paul Miller, director of inbound logistics at Shop Direct. “We don’t move containers from Hong Kong or China. We move customer orders, we relay these customer orders and bring that information back down the supply chain and to the distribution centre long before the product has landed.”

According to Martin Brickell, project manager at supply chain consultancy Total Logistics, now that retailers are multichannel, they need to adapt and innovate in the supply chain to offer the service level required.

“When you add in cross-border and returns, there is complexity in the multichannel supply chain that needs strategic recognition. Supply chain solutions are as unique as each business,” Brickell adds.

While pure-plays may be in a stronger position in that they do not have to juggle the disparate supply chain requirements of bricks as well as clicks, a growing number of multichannel retailers including Marks & Spencer and Boots are investing in dedicated ecommerce service centres that can deal with the supply chain processing that online retail requires.

The future is automation

Propelled by the growth of Boots.com, Alliance Boots refurbished and re-opened a £50m automated service centre in Burton-upon-Trent this February to process orders for the retailer’s 25,000 ecommerce product lines, Christmas gift ranges and international distribution.

The new facility introduced both very narrow aisle racking systems that can increase storage capacity by up to 50% and shuttle systems, so that units can be moved more flexibly in the Warehouse and up to 900,000 singles a day processed. The scheme also included about 100,000 sq ft of mezzanine space to house a fully automated materials handling equipment system by Knapp. The automated service has increased time efficiency by 65% and improved order traceability through track and trace technology.

M&S is also in the throes of warehouse consolidation and automation. The retailer, which had 110 warehouses, is now focusing on a smaller number of ‘super warehouses’. Its first in Bradford opened in 2010, run by logistics firm Wincanton, while its second, a fully automated site at 1 million sq ft in Castle Donington, Derbyshire for general merchandise and ecommerce, is due to open early next year. It will, according to an M&S spokesperson, be “the engine room for ecommerce”.

Brickell, who works with clients including Walmart, TK Maxx, Argos and Tesco, explains that retailers are increasingly assessing stock-keeping unit range, volume and sales per SKU to implement the right warehousing and automation infrastructures.

“You need to be going into that level of detail to build automation solutions that are future-proof,” says Brickell.  

Real-time data

According to Miller, what makes a multichannel supply chain truly efficient and effective is not faster ships or better utilisation, but visibility and accurate, real-time data. He explains that in a retail environment, where teams are working week to week, month to month and season to season, and the inbound supply chain has to leverage economies of scale to avoid costs, there has to be flexibility and priority around shifting products, not containers.

Shop Direct, working with supply chain management firm Damco, has created a supply chain portal showing stock movement and availability that can be accessed by all stakeholders – booking agents, shipping lines, forwarders, the distribution centre, trading and finance.

“We’ve always had visibility but what it meant was that the trading team had to go into a bespoke system to view the information. Under this portal, it’s all in one place, fed by the forwarder. It’s live, real-time, and brings other benefits such as reporting on how good a job people are doing in the supply chain. It allows you to pick out areas for improvement,” says Miller.

As a result of increased visibility and communication, Miller claims not to have paid demurrage on any containers in the last 15 months. “Because we’ve got our visibility spot on, and we’re working with the trading and the merch-planning teams, we make sure that we’re all talking to each other. When we make a decision we make it together,” he says.

Waitrose, meanwhile, introduced a custom-built scheduling package by logistics firm Gist last year. The system automates the complex decisions traditionally made by planners to create schedules in live time from huge numbers of combinations of vehicle, capacity and timeline constraints each day.

Collaborating for efficiency

But while such technology can streamline some of the most complex logistical issues for retailers, perhaps one of the biggest breakthroughs in the supply chain in recent months is a coming together of retailers to share resources, infrastructure, warehousing and transport.

According to Wincanton information services director Simon Deane, Amazon has set the bar in supply chain and fulfilment so, for retailers to compete in the online arena, joining forces is a logical step. “Storage, warehousing and transport can be massively inefficient and costly, but you can make it work economically by sharing the cost or renting it out.”

Shop Direct is in the early stages of collaboration with a number of UK retailers, working on two projects relating to the European and Far East supply chains. According to Miller, the opportunities are “way down the supply chain to share costs, infrastructure, resources and warehousing, making things more efficient”.

According to value fashion retailer M&Co head of IT and logistics Bryce Howie, the collaborative approach is appealing for M&Co on store deliveries. It offers efficiency and cost saving when volumes are combined for delivery – especially in the more far-flung parts of the country.

“This is especially true for a retailer such as ourselves with store locations in diverse locations. We also need to keep concentrating on making the extended supply chain, from order all the way to store or online sale, as efficient and time sensitive as possible,” he says.

While retailers are coy about details – where synergies are, working out service level agreements and who gets priority on deliveries – there’s little doubt that it is a good option to work together behind the scenes to meet customer expectations.

What’s your Holy Grail supply chain solution?

Alistair Hill, head of primary transport (food), Marks & Spencer: “My holy grail solution would be to have an articulated vehicle that can properly run on an alternative green fuel. We’re doing a diesel gas trial but the vehicles are not the cleanest in the world. With cars you can run them on hydrogen or electricity, but articulated vehicles aren’t there yet. It would be great to have a fuel where all that comes out of the articulated vehicle is water.”

Bryce Howie, IT and logistics manager, M&Co: “I don’t think there is a holy grail supply chain solution. The supply chain is built from many elements, many parties and is dynamically changing based on circumstance and opportunity. Shortening the supply chain is always the goal, but that is not always possible, and in those circumstances getting the fall back scenario right becomes the most important element. It is the challenge that makes logistics interesting.”

Paul Miller, director of inbound logistics at Shop Direct Group: “Mine would be a stable shipping market. The erratic nature of the container shipping market on East-West trade lanes provides an unwelcome degree of instability for many supply chains with space constraints, rollercoaster rates and a multitude of onerous and baffling rate adjustment acronyms. At Shop Direct Group, we already run very lean but opportunities exist for all parties to remove unnecessary costs on such things as free time built into the rates and equipment use. More could also be done to support trading teams with their sourcing strategies through longer term realistic rate structures.”