Trends and Drivers in Grocery Retail: the need for more flexible DC solutions
Every grocery retailer strives for a competitive edge, an edge that sets them apart from competitors, meets customer’s ever-changing lifestyles and expectations, and generates profits. One of the foundations of being able to respond to these ever-changing challenges and opportunities is how flexible an organisation’s supply chain and distribution network is to adapt to changing business strategies and requirements
What is driving change in the Grocery Retail world today?
Firstly, there are the continuous demands of business stakeholders. It goes without saying that everyone is looking to increase profit, deliver consistent growth, and for public organisations, increase their market value. There is a continual drive to cut cost through scale and asset reduction, including reducing inventory.
Consumers are demanding ever more choice and convenience, are becoming more price sensitive, and are increasingly willing to switch retailers in order to get better value. Very few retailers can command a significant price premium these days.
Globalisation continues to be a major opportunity as well as a challenge for grocery retailers. The world is getting smaller, and most businesses look globally to gain competitive advantage. At the same time, retailers are consolidating in an industry that it still highly fragmented compared to others.
Lastly, there are regulatory and environmental pressures. Many jobs in Distribution Centres are poor in terms of ergonomics and health and safety, and in many developed countries there is a drive to improve these.
These drivers have forced retailers to respond to them. Dematic has identified eight key industry trends that affect DC design, each with its own challenges for traditional manual and automated solutions, and an opportunity for retailers to develop solutions that address these as well as their own unique trends and business drivers.
Global Trends Affecting Distribution and Implications for the DC
1. SKU proliferation: How to handle the increased number and variety of products
For many retailers, the rate of increase of the number of SKU’s is increasing at a faster rate than the increase in the total volumes. Brand extensions into new niches, the increase in ethical and private labels, are all increasing the number of SKUs grocery retailers have to manage. How can the Distribution Centre cope with this? Traditionally, one SKU sits in a pick slot, but there are limits to how many pick slots can be sensibly and productively accommodated, and expanded as required. This has particular implications for manual solutions and certain automated solutions.
2. Multi-format retailing: How to handle different order profiles from the one DC
Many retailers, driven by the need to increase market penetration, and to improve customer loyalty, now operate out of numerous store formats, and are becoming increasingly sophisticated locating these different format stores and what they put in them. For example a leading global retailer has introduced five formats matched to customer types: convenience, supermarket, superstores, hypermarkets, as well as an on-line channel. This is not atypical of the industry, with other retailers having a comparable mix of format in their portfolios. The implication for DCs is that significantly different order profiles now need to be fulfilled from the same distribution centre. For any particular retailer, the mix of store formats is always changing, and order fulfilment solutions need to be able to respond accordingly.
3. Store-friendly deliveries: How to improve in-store logistics and reduce back-of-store inventory
There is a continuing focus on making in-store processes (where typically most of the labour is employed) more efficient by better processes in the Distribution Centre. However retailers are operating different store layouts within the same store formats based upon the demographics of the store location. For example, does the location have a predominantly ageing customer base or is there a particular ethnic mix? Add to this the mix of different store formats, and we will need increasingly complex processes to fulfil store-friendly orders in an optimal way.
4. Increasing Cost of Transport: How to make your transport network more efficient?
Oil price increases have had a huge effect on the cost of transport. Reducing transport costs by increasing its efficiency will be an area of focus in the coming years. For example, in the US grocery DCs are shipping larger quantities to reduce the number of deliveries to stores. Transport utilization, the efficient use of space on the vehicle and maximising container fill will be essential. Traditional assumptions about the size and locations of Distribution Centres will be challenged; centralised strategies, and "big is beautiful", may not always be the answer.
5. Pressure to Reduce Packaging: How to manage product with reduced or lower quality packaging?
Environmental awareness will have an increasing effect on the type and quantities of packaging used in the supply chain. There is a competitiveness aspect to this as well in an effort to reduce costs by reducing or simplifying packaging. All of this means that some of the more traditional ways of handling product, both manually and in some mechanized solutions as well are being rethought.
6. Drive for Increased Productivity: Labour costs and availability are a major issue
In many parts of the world, labour is becoming an ever more expensive and scarce resource. Labour turnover is high, the highest in order fulfillment where workers must pick cases all day, with some grocery retailers experiencing turnover in excess of 100% per year. As retailers grow their business, extra distribution capacity has to come through increased productivity, not by adding labour. Increased productivity lowers the overall distribution costs, providing direct bottom line benefits, and reduces reliance on an increasingly unreliable, scarce and expensive workforce.
7. Push to Improve Accuracy: How to achieve perfect order performance?
Getting the right product into the stores at the right time is becoming crucial. On shelf availability is everything. And with improved accuracy comes better transparency of costs, traceability and visibility. Order accuracy rates in the order of 99.999% are now feasible and are being realised with new concepts and solutions.
8. Focus on Ergonomics, Health & Safety
Increasingly, government legislation, corporate responsibility and employee retention strategies require improved working conditions. In some regions there are already very low limits to how many tonnes a worker can lift per day. We are also facing an increasingly ageing workforce, which will have an effect on the tasks that they can carry out. With better ergonomics comes improved productivity and greater accuracy.
Modular, Scalable, Flexible Solutions
It is clear that the most important feature of automated solutions is going to be flexibility. The flexibility to handle different order profiles, and deliver to different store formats and layouts. The flexibility to handle different product ranges and packaging types. At the same time, productivity and accuracy needs to continue to improve, as do working conditions. New modular, scalable, flexible solutions, integrating the latest developments in automation technology are now available that deliver to these requirements. Effectively addressing the latest trends in grocery retail, these solutions ensure that the supply chain continues to be a core enabler of the business strategy, and a key competitive differentiator.
