Driving logistics efficiency

How can retailers make their logistics operations more cost-efficient? Minimising the fuel bill has always been an issue for supply chain directors.

The price of diesel increased by 7p per litre in 2011, adding £3,284 to the annual operating cost of a typical 44-tonne articulated vehicle, according to the Freight Transport Association, so retailers are seeking ways to cut out journey legs or load-share with others.

International shipping and air freight prices are high too, so sourcing closer to home is a consideration for many. Improving efficiency requires up-front investment or adopting radical new ways of operating. Here are six options for retailers:

Drop shipping

“To drop ship for online sales is a hot topic just now,” says MetaPack chief executive Patrick Wall. And it’s not surprising, because it affords opportunities to extend retailers’ product offer while reducing working capital.

Retailers have held billions of pounds in stock in warehouses in order to meet customer demand, but now increasing numbers ship direct to the consumer, thus minimising stock investment. Halfords multichannel development manager Jon Asbury says the retailer wanted to extend its range of products, “so while the store buyers would edit their choice of what to stock, we made the whole range available online through direct ship”. 

Halfords worked with MetaPack to set up a fulfilment process to meet the needs of suppliers, stores and customers. “The system has allowed us to allocate our time more productively, while  reducing and managing costs,” says Asbury. “It has given a greater level of visibility which enables us to provide a consistently-high level of customer service.”

Load consolidation

Consolidating loads means fuller containers and lorries and fewer fuel miles. “Retailers sourcing from the Far East are finding great commercial benefit in more consolidation in the country of origin, such as Sri Lanka or Bangladesh,” says Clipper Logistics managing director Tony Mannix. “For instance, we work with George at Asda to consolidate loads into containers overseas, and these can then go through a new state-of-the-art de-consolidation centre portside, at Teesport in the Northeast.” Here, product is made store-ready and can flow easily on to Asda’s three regional distribution centres, and then stores, says Mannix. Efficiency is achieved because greater volumes are carried together.

By consolidating suppliers’ freight and delivering full loads to stores – particularly for the supermarkets – thousands of supply chain miles can be cut.

For instance, Asda, is using a trunking system through Pall-Ex, and reduced the distance travelled in 2011 by 340,000 miles compared to previous methods. Congestion at Asda’s distribution centres has fallen, and having one carrier means a single point of contact to trace freight, resulting in cost-savings and administration reduction.

Asda primary development manager for central supply Andrew Robinson says: “This has an impact on our end-to-end supply chain costs and helped lessen environmental impact by reducing the number of vehicles on the road.”

Consolidated loads also improve efficiency of last-mile deliveries to stores. DHL has teamed up with Westfield to provide a consolidation delivery solution to Westfield Stratford City, improving efficiency for around 250 retailers. It runs a consolidation platform eight miles from Westfield Stratford City, allowing retailers and suppliers to deliver stock into a warehouse with 24-hour availability and assisted deliveries. This has reduced vehicle movements to the shopping centre by up to 80%.

Alternative vehicles

Electric vans promise lower running costs than diesel fleets, although the initial price to purchase is higher – around £32,000 per van as opposed to £20,000, according to industry estimates. “It’s early days but electric vans will be ideal for deliveries in the conurbations, and will be popular for their quiet engines and low carbon footprint,” says Kenneth Porter, director of supply chain consultancy Total Logistics.

Retailers are also looking at the rail option. Working with DHL to take stock to Scotland, Marks & Spencer has transferred around 25 trailer-loads of hanging garments per week from road to rail. The project reduced environmental impacts, removed five vehicles per week from the roads, and makes £158,000 a year cost savings on transport for M&S. Cost savings with environmental benefits are seen as a double win.

Reducing inventory

One of the reasons so many retailers focus on inventory reduction is the fact it can improve cash flow.

“It can be painful for retailers to write off stock that’s been sitting in the warehouse too long, but sometimes it’s necessary to cut storage costs,” says Porter.

“Systems should be in place to prevent having too much slow-moving stock in the first place, and retailers are finding new channels such as eBay and their own outlet stores and websites to cut inventory holding costs without damaging the main brand.”

Homebase has been carrying out a strategic plan to reduce inventory by £20m a year in order to improve cash-flow. By collaborating with Unipart Logistics, and tightening up stock management and operations, Homebase has reduced its stock holding, improved on-shelf availability and cut costs across its distribution and storage operation by making use of the Unipart’s shared user facility in Cowley, Oxford. “We now need less warehouse space and because Unipart Logistics have been flexible in being able to accommodate additional ranges from other distribution centres, we’ve been able to rationalise our network infrastructure,” says Homebase head of distribution Nigel Basey.

Warehouse and inventory management systems

Modern multichannel retailing can cause inefficiency because too much stock is held to ensure all channels can cope with hard-to-predict demand. “At the core of multichannel is IT that can support the services consumers want and provide real transparency across channels,” says Richard Wilding, professor of supply chain strategy at Cranfield School of Management.

Systems must allow for a common view of stock, and retailers including Aurora, White Stuff and John Lewis are all investing in systems that will support multichannel visibility. “Buying software is the easy part,” says Wilding. “The challenge is teaching supply chain and merchandising teams how to use the systems intelligently so efficiencies come through.”

Darryl Owen, SAP head of trading industries, EMEA, says retailers must address the issue of inventory in silos, and have systems in place to cut out duplication. “There is now a lot of extra stock in the system and the cost bases of retailers are higher as a result,” he says. 

Supplier engagement

In the age of social, web-based communication, retailers are improving supplier communication and transaction processing, helping to cut supply chain costs and bring products to market faster than the competition.

“By putting in place a simple technology infrastructure, it’s easy to work in partnership with suppliers, plan better together, and cut out arduous admin that can slow order fulfilment times,” says Tracy Saunders, a consultant at Marshall Consultancy, which specialises in supplier collaboration techniques.

“Giving buyers and their suppliers an interactive portal helps with managing supplier profiles and product catalogues, compliance and orders. It speeds up on-boarding of new suppliers and ensures everyone has one version of the truth in real time,” says Saunders. “In modern retailing, blaming order delays on lost emails or wrongly updated paperwork just won’t wash,” she says.

Closer supplier collaboration could also eliminate the costly problem of poor product data. “Data contained in barcodes must be correct or it’s a nightmare for retailers,” says Wilding.

The Data Crunch Report from data standards organisation GS1 UK says product data inconsistency in the UK grocery market stands at 80%, amounting to an estimated loss of £300m sales over the next five years. Wilding says: “At the moment retailers are pouring money down the drain because no-one takes responsibility for this. Working with suppliers to ensure one version of the truth will help enormously.”