In today’s extremely competitive business environment there are continuous demands on the business community to improve stakeholder value.
Globalisation is also a driver and most businesses look globally to gain competitive advantages. Retailers are consolidating, although this sector is still a highly fragmented industry compared with others.
Many of the trends and challenges in the industry have been present for a number of years. Indeed the main difference has really been the rate of change and the need for a business to be flexible In meeting those challenges.
Consumers are demanding more choice and convenience.
They are more price sensitive and are increasingly willing to switch allegiances in order to get a better deal.
Online spending is growing, impacting not only our expectations of choice and convenience but also on the way we shop.
These challenges are summarised as follows:
Very few retailers can command a significant price premium these days.
Therefore they need to seek opportunities in many areas to realise the cumulative benefit in their business. One such area is the distribution centre (DC).
There are many opportunities within this sector of the supply chain that influence the business and can improve performance in all of the above.
Efficient and well planned DC’s will have a beneficial influence on the primary and secondary networks as well as the retail end of the chain. One trend that is having a significant influence is the cost of transport.
Transport costs will continue to rise and bear greater influence in the supply chain overall.
Not all retail outlets are the same, even within the one company, often having different ranges of product driven by size, location and layout.
Many jobs in DC’s are poor in terms of ergonomics and occupational health and safety. In many developed countries there is a drive to improve these, often underpinned by legislation.
Future trends pose a significant challenge to the way DC’s have traditionally been designed.
A key challenge for the future will be to deliver high productivity and flexibility: two attributes that are often perceived to be mutually exclusive.
Many DC’s are located where there is available land and labour, often compromising transport costs.
The ideal location is determined by metrics such as demographics, transport costs and speed of response.
However, efficient DC design broadens the choice by optimising the use of labour and land, potentially offering more choice near the ideal location. In designing a DC, the above considerations come into play.
Efficient design considers all aspects that influence performance e.g. resources, transport, product and service levels.
Automation has traditionally been associated with efficiency but often perceived to be limited in flexibility.
This is no longer the case.
DC design has to consider a number of criteria that reflect global industry trends:
There is a clear trend towards increased numbers of SKUs.
Customers are demanding more choice. For many retailers the rate of increase in SKUs is faster than the increase in volume.
This has seen a flattening of the typical ‘Pareto’ curve from 80/20 to 70/30.
Essentially there is less volume per SKU being picked.
Traditionally, only one SKU has always sat in a pick slot. There are limits on how many pick slots can be sensibly and productively accommodated in a DC.
Increased SKUs means less space for each SKU in store, leading to more frequent ordering in smaller quantities, thus affecting the delivery profile and transport network.
For the DC this means smaller order quantities with more split case picking. Due to lower stock in store, higher service levels are required to ensure that products remain available.
Diversity (Multi-format retailing)
Many retailers, driven by the need to increase market penetration and to improve customer loyalty, now operate numerous store formats.
Retailers are becoming increasingly sophisticated about store location and product range.
We see significantly different order profiles having to be fulfilled from the same DC.
The mix of store formats is always changing, and order fulfilment solutions need to be able to respond accordingly.
There is a continuing focus on making in-store operations more efficient through better processing in the DC.
The most important feature of future DCs is going to be the flexibility to:
- handle different order profiles
- deliver to different store formats and layouts
- handle different product ranges and packaging types
- cope with promotions and events
- efficiently handle peaks at short notice
Concurrently, productivity and accuracy needs to continue to improve. The environment in which people are employed must also improve to achieve this.
Other key trends include:
- Reducing transport costs as fuel costs continue to rise
- Environmental awareness will have an increasing effect on packaging
- Labour is increasingly becoming an ever more expensive and scarce resource
- DIFOT (delivery in full on time).
- On-shelf availability is everything
- Improved accuracy
- Better ergonomics and improved occupational health and safety
To combine the desired attributes of the DC to meet future demands requires a new approach to the problem.
Dematic has developed a concept called “Order Assembly” which drives both efficiency and flexibility through innovative operational design.
This concept goes a long way to addressing these key trends offering significantly improved flexibility.
Order Assembly is an order fulfilment technique whereby stored product is brought together on demand at one location to assemble complete despatch units such as pallets or roll cages.
Order Assembly involves the use of automation to achieve the desired result. However, there are significant differences when compared to traditional automation.
In conventional applications, automation can create interdependencies between operators and processes.
These dependencies may limit the flexibility or performance if the business changes significantly from the design model.
Order Assembly removes these dependencies by making the processes independent.
Effectively it combines the flexibility and independence of a manual operation with the efficiency and speed of automation.
Product is stored in a buffer (analogous to a reservoir). Operators work at pack stations. The rate of flow of work is determined by the rate of demand.
When they “turn on the tap” at the pack station, products for individual orders flow towards them, propelled by the pressure of the reservoir behind.
The harder the operator works at the pack station, pulling work towards them, the faster the product is pushed from behind.
The concept allows the upstream (reservoir) and downstream (pack stations) processes to be decoupled.
Operators can work in parallel, unaffected by each other as each operator has the same pressure behind them. Any despatch unit for any order can be filled by any operator at any pack station.
A proportional number of pack stations can be switched off dependent on throughput, and the remainder still run at full efficiency.
Productivity remains high despite overall fluctuations in the actual level of volume through the DC.
A typical concept will have a number of logical sections divided into modules.
Advances in cost effective technology have allowed a concept like Order Assembly to become viable.
These products, combined with real time software, allow the design of high performance modular “engines” to power these solutions.
In the appropriate configuration these engines can achieve performance levels significantly higher than previously realised.
Real time software provides the intelligence to drive the engine and sequence the product.
This, coupled with an information suite, allows more informed operational decisions to be made. Greater consideration is also being given to the environment in which people are asked to work.
Combining such performance with ergonomic workplace design brings sustainable productivity.
A utopian view of the DC of the future may well be one which is efficient, compact, flexible, has no pick face to manage, is always efficient and meets the demanding service levels of a dynamic industry.
As a concept, Order Assembly delivers some compelling benefits:
- Eliminates the pick face
- Not sensitive to SKU proliferation
- Despatch units can be in an exact sequence
- Very high productivity levels
Given the latest drivers and trends in retail and wholesale, the use of automation in DCs will continue to increase.
Therefore, this latest generation of solutions will offer previously unachieved levels of productivity.
Flexibility will become the most important design attribute, with the great advantage that sensitivity to business change will be reduced.
Designs will be increasingly modular, scalable and adaptable, making them easier to phase into existing operations, and expand according to planned growth.
Already a number of major retailers around the world are starting to embrace the Order Assembly concept as a solution that will provide a clear competitive advantage.
Written by Dematic’s Milan Vjestica (Manager-Grocery & General Merchandise) and Pas Tomasiello (Manager-Direct & Wholesale Distribution).