No more wasted time on the dock of the bay

By John Dunn

- Last updated on GMT

Related tags: Supply chain, Supply chain management

No more wasted time on the dock of the bay
John Dunn reports on the latest retail trends affecting the warehousing of manufacturers' products

Robert A Willet is chief executive officer for US consumer electronics and entertainment software retailer, Best Buy International, in Minneapolis. Willet just loves Tesco.

"A supply chain that can manage lettuce effectively can manage any product. That is why we look to retailers like Tesco for best practices." Having worked for some of the major retailers in Europe, Willet believes that the food industry has the world's best supply chains.

It was Tesco, after all, which 10 years ago began to change the way the UK's food was delivered to, stored in, and supplied from warehouses. Today 95% of all products on Tesco's shelves are replenished from central distribution warehouses. Merchandise flows through to its shelves via multiple daily deliveries to all stores. And 65% of its suppliers' collections are by Tesco's truck fleet, including 200 new double-deck trailers.

Fresh or frozen, ambient or chilled, food warehousing has been undergoing a revolution as the major food retailers chase the ultimate goal of full shelves with minimal or zero stock.

Call them what you like - sheds, distribution centres, consolidation centres, fulfilment factories - warehouses are now having to cope with continual changes in food distribution practices. Order lead times are getting shorter; delivery quantities are shrinking; and delivery frequencies are on the increase. Demand is also booming for shelf-ready packaging.

The result is that many older warehouses are finding that their warehouse management systems and order picking technologies are out of date, leaving them creaking at the seams under the onslaught of all these changes.

According to the latest study from the IGD think tank, 5bn cases of food and goods were distributed through 3.2Mm2 of retailer warehouses last year. In Retail Logistics 2006, IGD reports how 13 UK food retailers are managing their supply chains. There are now over 170 depots averaging around 19,000m2 each, compared to 13,600m2 in 1996. And 95% of stock is delivered via a retail warehouse rather than from the supplier to store.

Warehousing now accounts for half (51.4%) of a retailer's distribution costs, which have increased to 4.7% of turnover. But overall stock levels have continued to fall, down now to an average of 11 days. This has largely been achieved by shorter, more frequent deliveries to and from warehouses and distribution centres, says IGD. The average delivery frequency for produce, for example, is now 10 times a week. Chilled and fresh meats are delivered on average 7.5 times a week, and frozen foods and beer, wines and spirits five times a week.

Also, says IGD, 45% of food and grocery warehousing is managed by third-party logistics providers dominated by two players, DHL-owned Exel and Wincanton, which between them manage 38 depots covering around 882,550m2.

There has also been an increase in the use of consolidation centres for regional suppliers and for direct imports. Consolidation centres allow suppliers and importers to send small quantities of goods into a local centre to be combined with goods from other suppliers before being sent out together into the retailer's depot.

Factory gate pricing

But perhaps the most significant development in recent years has been factory gate pricing, the move by retailers to take over responsibility for deliveries from food manufacturers. By taking over the collection of products from the factory gate, the retailer can demand a price discount from the manufacturer. However, smaller manufacturers may still bear the cost of transporting their goods to a nominated warehouse or consolidation point which then becomes the 'factory gate'.

Peter Baker, lecturer in logistics and supply chain management at Cranfield University says: "Factory gate pricing is a way for supermarkets to try to push prices down because they can do distribution more effectively because they can back-haul some of their transport." But that really only applies in a local area, says Baker.

It was Sainsbury that coined the phrase 'fulfilment factory' when it embarked on a massive overhaul of its supply chain logistics five years ago. It poured millions into updating its IT systems and replacing 21 depots with a small number of automated warehouses - the fulfilment factories. The idea, says Baker, was that these would be capable of piece picking. "If you wanted to replenish just two cans of baked beans to a store, you could do it rather than deliver a whole case."

However, Sainsbury has learned the hard way that conventional warehousing still has some advantages. When a conventional facility goes wrong you have other options. But, as Sainsbury logistics boss Lawrence Christensen has revealed: "When an automated fulfilment factory goes wrong, frankly you are buggered."

Also, the continuing move by supermarkets to 'just-in-time' deliveries has pushed the problem of stockholding up the supply chain to the manufacturers. "A manufacturer may have a fully automated warehouse geared up for full pallet output. Now they are having to do case picking in warehouses that weren't designed for that. It is causing problems," says Baker.

Track and trace demands

Another big challenge facing warehouse managers is the lack of adaptability of their systems to meet the growing demands of track and trace, says Hugh Murphy, regional sales manager of 3M Supply Chain Solutions.

There is a growing need for improved track and trace systems to ensure compliance with "political" and legislative demands, says Murphy. "Warehouses are already struggling with their systems. Now they are finding that they can't modify them for track and trace requirements. The biggest challenge is the lack of adaptability in their systems."

Supermarkets have by and large moved chilled foods out of the warehouse so that they now effectively go straight from manufacturer to store - usually by going straight across from the in bay to the out bay in retailer distribution centres in a process known as 'cross-docking'.

But they are now applying this "stockless initiative" to ambient goods as well, says Tim Knowles, partner at supply chain consultancy TKA and Food Manufacture columnist.

"If they can make it work, the impact on manufacturers' warehousing and transport operations will be enormous," he says.

"It has already had a fairly deleterious effect on some large manufacturers who thought they were immune to the effects of small order-ism and shorter product lead times." Knowles believes that the move to stockless is being driven by the increase in the range of items sold by supermarkets.

But there is a reluctance at boardroom level to invest millions in a distribution centre when they could build a new store for the same money, he believes. "So the supermarkets have had no choice but to go back to manufacturers and suppliers and say: 'Sorry guys, we're going stockless, it's the only way we can keep within our present infrastructure without new investment.'"

And this all pushes the pressure further back up the supply chain ... to the food manufacturer. It's now all about production times, says Jeff Anderson, md of the manufacturing sector at Wincanton. But the problem is that most food manufacturers don't have enough storage space at their plants to cope. So they tend to use third-party warehouse companies such as Wincanton.

But as the pressure from supermarkets grows for shorter lead times and more frequent and faster deliveries, the production cut-off in a factory is absolutely critical now, says Anderson.

"Production might have to stop just two or three hours before it gets into the warehouse. This forces the food manufacturer to produce on time. So if he has any delays at all, this can lead to shortfalls at the customer."

The chilled food sector is the most extreme example of this move to reduce stockholding levels, says Anderson, because of the nature of the product. "But the frozen food sector is going that way, too," he adds. FM

Key Contacts

  • 3M Supply Chain Logistics 01344 857073
  • Chartered Institute of Logistics and Transport (CILT) 01536 740104
  • Cranfield University 01234 751122
  • Institute of Grocery Distribution (IGD) 01923 852531
  • TKA Consultancy 01772 655535
  • Wincanton 01249 710000

Related topics: Supply Chain, Processing equipment

Related products

show more

Minimise the impact of product recalls Post-Brexit

Minimise the impact of product recalls Post-Brexit

Epicor | 10-Dec-2018 | Technical / White Paper

The impact of Brexit on current legislation is a topic of much conversation and debate. When it comes to product recalls the uncertainty around what may...

Hygienic design boosts quality and safety

Hygienic design boosts quality and safety

Minebea Intec | 16-Aug-2018 | Technical / White Paper

Avoiding food contamination and increasing product safety are key objectives of all food producers. It is critical to prevent any type of contamination...

Packaging Machinery Report

Packaging Machinery Report

William Reed Business Media | 23-Jul-2018 | Technical / White Paper

Food manufacturers investing in new equipment and in a given specification of packaging materials will naturally expect both to be fit-for-purpose and...

Related suppliers

Follow us

Featured Events

View more

Products

View more

Webinars