The successful merger of the Co-operative with Somerfield will hinge, in part, on achieving an efficient supply chain. Charlotte Hardie meets the man tasked with the challenge
When the Co-operative’s chief executive insisted last summer that Somerfield’s integration into the business would be “straightforward”, supply chain director Trevor Ashworth could be forgiven for feeling more than a little nervous.
After all, the£1.57 bn acquisition, revealed last July, is the biggest since Morrisons bought Safeway in 2004. And that didn’t quite go according to plan. Essentially, Morrisons found it had bitten off more than it could chew, and didn’t have the resources to manage the integration effectively.
And as Ashworth points out: “If the supply chain doesn’t work, you’ve got no business, have you?”
He also had extensive experience of mergers at the Co-op before.
“The last five years at the Co-op has been one of constant integration, acquisition and mergers.”
This includes the integration of All Days, GT Smith, Balfour and the United Co-operative in September 2007, which involved 600 stores. It has also just merged with the Lothian and Borders Co-operative society. Even those integrations that have been within the Co-op world had their own in-house managed supply chain and distribution networks.
Ashworth says: “We’ve done nothing other than integrate over the last six years. If you compare that with Morrisons they did one, and from my observation they were a very different organisation. It’s an excellent retailer, but it had standard sized stores and at that time very few systems within the business. Safeway had stores of various different sizes and shapes, and it was at the opposite side of the spectrum in terms of technology.”
He adds: “We’ve got the experience behind us. We have a very tried and tested methodology for doing this. It slots into place.”
In short, this methodology involves the creation of a central integration team, with people from both sides of the business reporting into it. A database is used to mark all the documentation in a precise method that follows precise standards.
Ashworth admits: “I make it sound easy, it’s not. It’s extremely hard work. Whilst you try and apply a very strong methodological approach to this and follow the principles of sound project management, invariably you come across things you’ve got to react to.” In fact, he likens it to the Rumsfeld effect: “You’ve got your known knowns, things you know that are there that you don’t know about, and so on,” he laughs.
He is also tight-lipped about any challenges that they have encountered with supply chain integration in the past – largely because “if anyone else comes up against that kind of thing they’ll have to find their own way through it”.
But there is little doubt that the challenges have been numerous – not just during times of integration, but during his complete overhaul of the business’ supply chain since joining X years ago. “What I inherited wasn’t in any way shape or form fit for purpose,” he says.
In particular, the logistics and distribution infrastructure had never had any coherent strategy applied to it, and had evolved organically over time simply by way of societies merging into one another. Essentially, the network had haphazardly arrived.
Before Ashworth’s arrival, it was also run as a profit centre – in effect a separate, third party logistics provider, which sold its services into the Co-operative Group and externally to other societies. As he points out: “From my point of view, this is inimical to what a food retailer wants from a supply chain.”
The first task was to set about making it a function within the food division. But first he had to collaborate with colleagues throughout the business, such as those in marketing and store operations, to determine what it was they wanted from the business’ supply chain in order to inform the new design. “That was so important,” says Ashworth. “We had to ask them everything – how wide their range was, their promotional strategy, whether they were shifting the mix from ambient to chill products, and their anticipated sales growth so we could factor that into the equation.”
He adds that it involved copious amounts of consultation because he didn’t want to optimise costs in one function at the expense of another. “I could run [product] to stores very cheaply, but it would impose a cost burden on the stores in terms of stock holding and so on. You’ve got to design a system that meets all the requirements of the business and not try and impose a superficial logistics system.”
Consideration of suppliers was another major focus when Ashworth’s team set about redesigning the network. Taking into account what it costs for suppliers to serve the Co-op was essential, he says. “If you’re expensive for suppliers to serve, that affects the commercial terms, and tends to put you further down their list when there is scarcity of supply.”
One example of how it has improved life for its suppliers is the creation of its national distribution centre for slow moving goods in Coventry, which opened in 2005. Around 40 per cent of the Co-op’s deliveries are in-bound, and before the DC was built, 600 suppliers were delivering to 18 distribution points. “We had more than 1,000 deliveries each week for one pallet or less. Since Coventry, 520 of those suppliers now deliver to a single location.”
So how efficient is the retailer’s supply chain now? “We’re getting there,” says Ashworth. “We won’t finish this process until 2011, but we’re seeing real gains.”
Achievements to date include shaving around 6 million miles per year off its transport bill – which saves around£2 per mile. It has also increased warehouse productivity and invested heavily in upgrading its systems – in its warehouse management systems in particular.
“Really it’s about the efficiencies that we’ve gained from having installations that are more fit for purpose,” he says, “and we’re also seeing significant commercial benefits in that we’ve made ourselves more efficient for suppliers to serve”. Because the DC has reduced the number of orders per annum by 100,000, suppliers contend with less administration and it has given them better visibility.
There have, of course, been more than a few hurdles to overcome. One has been the closure of DCs. With each integration, each business came with its own sites, so the Co-op has had to dispose of some along the way in order to streamline the business.
But the Co-op’s previous track record of dealing with such tasks is impressive. “It’s all be done in partnership with the unions,” says Ashworth. “We’ve not lost a day’s production, and we’ve had full acceptance from our membership because we work so hard at engaging our people, making them aware and bringing them along with us.”
He adds: “You don’t close five or six sites, make 1,000 people redundant or change their location of work and not have one single industrial tribunal unless you know what you’re doing, and you’re doing it in a way that people can understand.”
Over the last five years or so, the Co-op’s retail logistics team have continued to reduce costs while at the same time, says Ashworth, improving levels of service and availability. But, he warns: “There’s saving money and there’s saving cost. You can take cost out and not save money. You can reduce the logistics bill but in a lot of instances it will be at the expense of store ops or availability in-store, and then you start to lose customer loyalty, sales and margin.”
The fact that last year the Co-op won the IGD Ian MacLaurin Award for Supply Chain Excellence should stand it in good stead for the Somerfield integration. Ashworth appears confident, but as any supply chain director will testify, the general nature of the role means that there is always something to keep them on edge. In fact, he seems more concerned with the ubiquitous problem of traffic wardens.
“There are so many times constrictions, you can’t deliver after such at time, you can’t deliver before such time. Some stores are impossible to get into and there’s no other way we can deliver than park on double yellow lines and the traffic wardens are waiting for us.” He says the company pays out around£50,000 per year in parking fines.
Another cause for concern was a power cut in Manchester the week before the interview when a JCB severed a huge cable. “Thirty five units lost power completely. Your data centre goes down, you lose connections with your DC, your systems shut down, but these things happen so rarely and on that occasion we did remarkably well, the generators kicked in and we had a minor blip.”
The big picture is, of course, always on his mind. However, he laughs: “It’s never exactly been easy for supply chain professionals.”