Shoprite – The Journey to Central Distribution

Shoprite – The Journey to
Central Distribution
The drive to continuously satisfy the
customer
Gary Benatar
Managing Director
Industrial Logistic systems
The Journey to Central Distribution
Summary
• This paper will take you through the journey
of the last 24 years as Shoprite Checkers
embarked on Centralised distribution
• The challenges
• The learnings
• The results
• The change it caused to the total FMCG
supply chain in South Africa
Background
The start !!
1991
Background
• The Retail Landscape 1991
–
–
–
–
–
–
Largest retailer –
2nd largest –
(180 stores)
3rd Largest –
(169 stores)
4th
5th
6th
(about 72 Stores predominantly Western Cape) Most retailers had Direct Store Deliveries (DSD) besides:
– Woolworths – Clicks
Retail was a marginal business ‐ ave 2% margin
In 1992 was acquired by
and the group was born Challenge
• How to integrate the two companies
and gain advantage •
became 2nd largest retailer overnight • This was a 3 fold growth in stores to 241 .
• Turnover was 6 times from R1bn to R6bn
Something dramatic was needed
Central Distribution
Central Distribution
Rollout
1995 - 1997
DEFINITIONS
• DSD (Direct Store Delivery):
– Suppliers delivering directly to the store.
• Centralised Distribution:
– Can refer to the move from de-centralised or
multi-centralised
centres
to
one
central
distribution point.
– More commonly associated with the move away
from DSD to one centre supplying stores
• CDC (Central Distribution Centre) or DC:
– The infrastructure (buildings, materials handling
and systems) to effect Central Distribution.
NEGATIVES OF DSD
• What was Direct Store Delivery (DSD) • Why was it so wrong?
– Suppliers
• Each supplier needed Warehouse/ DC to pick pack and deliver orders per store
• Needed systems to pick and deliver at case level
• Deliveries needed to be made to each retail store
• Truck and transport utilisation poor – Queuing time at stores (6 hours)
– Lots of half full vehicles on road
– Multiple invoices and checking at each store – big administrative function
– Costs
• Inefficient and non optimised infrastructure
• Transport inefficiency
• Lost sales due to poor service levels
BACK OF STORE BEFORE CENTRALISATION
• Stores.
NEGATIVES OF DSD
– The back-door capacity was a limit to the receipts
per day.
• Inventory delivered needed to be enough to last until
next delivery
• Too much for shelf – majority ended up in stock rooms
• Each store had a “warehouse”
• Typically 1 – 2 months inventory in each store
• Average store had 45% to 50% of retail space as back
up area
– Furthermore, the need to check all loads adds to
the delay.
– Each delivery resulted in a delivery note,
checking, and invoice and administration to pay
– Any error was a cost for the retailer
Negatives of DSD
• This results in costs relating to:
–
–
–
–
–
–
–
Inventory.
Lost Interest.
Double Handling.
Shrinkage.
Damage.
Space.
Stock Control.
CENTRAL DISTRIBUTION
• ILS had been consultants to both Woolworths and Clicks on the rollout of Centralised Distribution
• Centralisation was about reducing costs and improving efficiency
• What was Central distribution?
– Deliveries could be made from suppliers in bulk to a DC – Full trucks and full pallets ‐ inbound
– DC could pick full range of products • daily across all suppliers • deliver 1 full truck to store • enough inventory till the next delivery – tomorrow
CENTRAL DISTRIBUTION
• Savings
– Stock rooms / retail rental space
– Inventory
Suppliers
– Fewer trucks on the road
– Less queuing time at stores
– Savings for suppliers
• No case picking
• Full trucks
• Less admin
– Less admin to check and pay suppliers
CENTRAL DISTRIBUTION VIABILITY
– Needed a Distribution allowance to offset retailer distribution costs
– If allowance wasn’t sufficient – product / supplier left as DSD
– Supplier cost savings – Needed ABC:
•
•
•
•
•
•
Queuing time at stores
Multiple invoices and admin for store receipts
Economy of scale of order (no picking)
Frequency of replenishment
Better on sale potential
Less handling in process
– Retailer efficiency gains
•
•
•
•
•
Fewer deliveries to stores
More frequent product deliveries
Less costs and admin
Less inventory
Less retail space
– Retailer costs
• Development of DC’s
• Running DC’s
• Transport from DC to Stores
SIMPLE BRIEF
• Develop and design central distribution to be self funding
• Cost of running DC must be less than supplier allowance
• All added benefits of centralisation must be a cherry on the top:
–
–
–
–
Inventory savings
Space at stores
Better availability
Increases sales
Sustainability and environmental efficiency must be a driving factor
START OF CENTRAL DISTRIBUTION
• Needed to develop and build DC
• Needed to develop and set up operations
• Needed to negotiate with suppliers which products were going central
• Was more complex than imagined
– Suppliers were reluctant to pass on full savings from not doing distribution to stores
• They still had costs and infrastructure for other retailers
• Costs were cross subsidising retailers still on DSD
• Suppliers still had investment and need for distribution infrastructure
DISTRIBUTION ALLOWANCE AND COSTS
• Suppliers were prepared to give an average of 4% • Real costs of supplier DSD were closer to 8%
• This meant we had to get our costs under this
– design target was 3%
• This changed approach to design
• Needed to optimise everything:
–
–
–
–
Footprint
Productivity
Operating costs
effectiveness
DC DESIGN 1993/94
• Focus on operational productivity
– First use of High level reach trucks 10 m lift
• no movement from bulk to reserve
• No separate bulk area
– Height – eaves at 12.5m
– Picking in Case weight and height sequence - to build tall and
stable pallet loads – fill trucks
– Monitors for natural light
– Picking with 2 pallet order pickers
• Step up for second level – compress pick area for number of SKU’s
– Put in two Batteries per machine – full cycle charging with peak
power management
• Needed a good Warehouse Management System (WMS)
– Needed to get productivity in line with UK and Europe
• SA pick rates 20 – 40 cases per hour
• International 140 – 160 cases per hour
– Chose Dallas System
SHOPRITE’S PIONEERING WORLD‐CLASS ELEMENTS
•
Systems
• Warehouse Management System (WMS)
Pallet Label
Scanned
Directed
Put-Away
Return to Receiving
dock for next pallet
Check digit verification
by forklift driver
Product put-away in slot
System verifies,
updates database
WAREHOUSE MANAGEMENT SYSTEM (WMS)
• With the development of centralised distribution as part of the strategy towards world class Supply Chain – Shoprite needed an excellent Warehouse management system (WMS)
• The EXE 2000 (now INFOR) system was chosen (previously called DALLAS)
• The uniqueness of this application is the way it was set‐up to optimise the productivity of operations in the DC
• The system tracks product down to single unit with:
–
–
–
–
–
–
Cube
Weight Category
Environment
Case and pallet build
Full history
• As a result the system can make the right decisions relating to slotting, productivity, service levels and accuracy.
EXAMPLE OF INTERLEAVING
Aisle 1
Aisle 2
Section 1
Receiving
•Prioritises work
•Utilises equipment
•Paperless
Aisle 3
Aisle 4
Section 2
Aisle 5
Aisle 6
Section 3
Shipping
•Ensures stock in pick face
•High productivity
•Continuous work without returning to a
control point for instructions
RESULTS FROM WAREHOUSE MANAGEMENT SYSTEM
• Put away accuracy at 99.8%
• Product availability at 98%
• Pick accuracy at 99.7%
• Cost of operations optimised
• Productivity 8 times higher since system implementation
System has allowed Shoprite to be benchmarked with the best in the world
1995 – FIRST DC BRACKENFELL
•
•
•
•
•
•
Initial range non grocery – General
merchandises ± 10% of sales
nationally
This allowed Shoprite control of all
imports and General Merchandise
Ability to learn the business of
running efficient distribution
Used PX containers to supply
stores outside Western Cape
Became PX’s largest customer
Developed first DC worldwide that
did hybrid picking
– Cross Dock
– Flowthrough
– Pick by store
•
As DC went live achieved 2.4%
operating costs
1997 – EXTEND BRACKENFELL DC TO
TAKE ON NON PERISHABLE GROCERY
•
Plan to service approximately 100
stores in Western Cape with 45%
to 65% of grocery
• Problem was service level – less
than 80%
• Supplier inbound service level <
70%
• Needed system to manage
replenishment and inventories
JDA’s E3 was purchased
• Service level went to 98%
• Central distribution started to work
Number of firsts:
• Deep lane storage – shuttles
• Push back for fast movers
• Split case picking in totes
CENTRAL DISTRIBUTION BENEFITS & SAVINGS :
•
Improved on-shelf availability
•
•
•
Lower costs
•
•
•
•
Availability and consistency of a large range is guaranteed
Effectively handle smaller suppliers that would otherwise not have access to large
chain
Improved quality
•
•
Removing the need for large amounts of inventory at store
•
caused by infrequent supplier deliveries
•
results in smaller store storage areas
Opportunity to take advantage of economies of scale
Supply Chain costs much lower than direct store delivery
Increased range
•
•
•
Deliveries to stores when required - not dictated by supplier delivery schedule &
not dependent on supplier reliability
Reduces potential for stockouts & consequential lost sales
Professional Supply Chain focus at DC rather than ad-hoc at store
Shoprite was no longer reliant on suppliers to influence the Supply Chain
These benefits were not possible with suppliers delivering directly to stores –
focused on their own efficiency and costs instead of retail needs
The overall Supply Chain costs to the
customer were less
NEXT STEPS
• With Western Cape established and progressing
• Needed DC in Gauteng and KZN
• In 1997 acquired OK for R1 – an additional 180 stores
• Group had now grown to 400 stores • OK acquisition gave faster growth to DC capability in Gauteng and KZN
OK ACQUISITION
• OK had embarked on central distribution, the model was different to Shoprite
– Their approach was 100% centralisation
– Retail was typically a 2% margin business, • Cost of running OK DC’s was 6%
• Supplier allowance was 4%
– OK’s consultants had gone against the basics of making supply chain work. • Efficiency came from economies of scale
• They had belief that DC should handle no more than 40 stores per DC
– Next step was to integrate the 4 OK DC’s into Shoprite distribution network
1997 OK INTEGRATION
Get costs of DC down
•
Needed to eliminate non‐profitable SKU’s from DC
– Dropped range down to 45% central •
Added Shoprite stores – From 40 to 120 stores per DC
• Switched to Shoprite’s systems
Got Distribution cost under 4% so any product centralised was profitable
DC Network
• Gauteng serviced by 2 Old OK DC’s in Alrode and Pretoria West
• KZN serviced by Isipingo DC
• Western Cape OK stores added to Shoprite Brakenfell DC
– Challenging as Grocery DC went live 2 months before OK acquisition
– Added 40 stores overnight to Grocery – Added 160 stores to General Merchandise (2 months before Christmas)
Gave Shoprite National DC presence •
•
•
45% of Non perishable grocery was central by Dec 1997
100% of General Merchandise central
100% of Fruit and Veg ‐ central
Growth and refinement
1998 - 2008
SETTLING IN PERIOD
• After take on of OK – Challenge – Systems rollout to all DC’s
– Implementation of Labour standards
– Get centralisation to work across group and all stores
– Increase percentage to 65%
– Integrate Africa expansion
• GROWTH MILESTONES in Africa:
•
•
•
•
•
•
1995 - First store outside South Africa in Zambia
1997 - Store opens in Mozambique
2000 - Stores open in Zimbabwe & Uganda
2001 - Seven Stores open in Egypt
2002 - Stores open in Madagascar & Mauritius
2004 - First store opens in Mumbai, India
DISTRIBUTION PRESENCE - BRACKENFELL
• SITE ‐ 18 hectares (180 000 m2)
– Dry Goods ‐ 50 000 m2
•
•
•
•
•
•
1995 – Phase 1 completed (30 000m2)
1997 – Phase 2 completed (20 000m2)
98 Doors – a true distribution centre not a warehouse
84 pieces of materials handling equipment
– Freshmark ‐ 10 000 m2 developed 1998
– Return’s Centre ‐ 2 500 m2
OPERATIONS
– 3 shifts per day, 24 hours
– 7 days/week during Peak season
– 200 people per shift
THROUGHPUT (dry goods only & excl. exports )
– No. of lines (SKU’s) – >25,000
– Average ‐ 90,000 cases per day go Live – Peak ‐ 160,000 cases per day
– Approximately 85 local store deliveries per day – Services over 1000 stores nationally DISTRIBUTION PRESENCE – MIDRAND 2001
Consolidated 2 old OK DC into 1 ‐ Alrode and PTA West
• SITE ‐ 50 hectares (500 000 m2) – Distribution Park developed with EIA (environmental impact assessment) and sensitivity to local community
– Dry Goods ‐ 65 000 m2
• Expansion for another 45 000 m2 available
• 92 Doors – a true distribution centre not a warehouse
• 93 pieces of materials handling equipment
– Freshmark ‐ 15 000 m2
• Expansion for 15 000 m2
•
•
OPERATIONS
– 3 shifts per day, 24 hours
– 7 days/week during Peak season
– 170 people per shift
THROUGHPUT (excl. exports & dry goods only)
– No. of lines (SKU’s) – >9,000
– Average ‐ 140,000 cases per day
– Peak ‐ 200,000 cases per day
– Approximately 86 store deliveries per day
FOCUS ON SHOPRITE’S
PIONEERING LOGISTIC ELEMENTS IN CREATING A WORLD‐CLASS SUPPLY CHAIN
• Systems
WORLD‐CLASS ELEMENTS
•
Warehouse Management System (WMS)
•Infrastructure
•
High Density Picking Area
•
Battery technology, management & handling
•
Equipment monitoring & management
•
Low maintenance and safety aspects in design
•Operations
•
Introduction of incentives based on labour productivity & standards
•
Removing store checking
•
Optimised product profiling and placement – Slotting
•
Fast flow logistics – Flowthrough & Crossdock
•Collaboration
•
•
Inventory & Order management
Collaborative Planning Forecasting Replenishment (CPFR) with
suppliers
Growth and maturity
2008 - Present
CAPACITY REACHED BY 2008
Centurion extension
• Extension went live 2010
• 110 000 m2 Dry non
perishable Grocery
• 15 000 m2 Equipment,
Transport and Returns
Centre
• 30 000 m2 Refrigerated
infrastructure
Innovative changes
• DC laid out in 11 store friendly categories
• Went live on Rolltainers in 2008 – extended to full
distribution
• 5 level pick tower with Autosort consolidation
• World Class crate and equipment washing in ERTC
WESTERN CAPE REGION
BRACKENFELL CAMPUS
WESTERN CAPE REGION
Brackenfell Campus
KWA‐ZULU NATAL REGION
PORT ELIZABETH REGION
Wells Estate Campus
PORT ELIZABETH REGION
Wells Estate Campus
CENTURION CAMPUS 2014
170 000m2 infrastructure
Results
Where we are now?
CURRENT STATUS
• Shoprite is over 85% centralised
• Service level to store over 98%
• Availability in stores highest in industry
– Results in highest customer satisfaction
– Customer retention
– Price differentiation
• All retailers effectively buy at same price
– Supply chain gives Shoprite the ability to get highest
margin with lowest cost on shelf
• 1% out of stock
– 3-4% lost sales
– 33% potential loss of customer
QUOTES – Whitey Basson
•
“Heavy investment in distribution and technology has resulted
in huge cost savings. We now have the lowest cost structure
in the industry”
•
“Through this investment Shoprite completely outmanoeuvred Pick n Pay.
The signs were there in 2007 when Shoprite share price started
outperforming Pick n Pay at an accelerated pace.”
•
“To ensure products are on the shelf where and when our customers want
them we have invested in some of the most sophisticated stock
management and distribution systems.”
•
“Economies of scale, meticulous cost control and increased Efficiencies
generated by the Group’s extensive distribution infrastructure enabled us to
achieve a world class trading profit margin of 5.6%”
•
“The Group has created and continues to increase its strategic lead in the
supply chain, through its ongoing investment and recognition of the supply
chain’s strategic importance”.
2000
1999
1998
1997
Year
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
80
1996
100
1995
1994
1993
1992
1991
BILLION RANDS
YEARLY TURNOVER
120
Shoprite Turnover
Pick N Pay Turnover
60
40
20
‐
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
Year
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
Percentage
GROSS MARGIN
6.00%
5.00%
4.00%
3.00%
2.00%
Shoprite Gross Margin
1.00%
Pick N Pay Gross Margin
0.00%
COMPARISON OF MARGIN 10 YRS
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
2005
2006
2007
Shoprite
2008
2009
2010
Pick n Pay
2011
2012
Spar Group
2013
2014
Year
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1500
1995
2000
1994
1993
1992
1991
Amount
TOTAL STORES
2500
Total Stores Shoprite
Total stores Pick N Pay
1000
500
0
Effect on South African
Retail and FMCG industry
Shoprite has Cause the total industry to
change
COMPETITORS
• Pick n Pay embarked on Centralised Distribution in 2010
• Said CEO Nick Badminton “Our decision to move to
centralised distribution was motivated by changes in South
Africa’s retail landscape which had seen us fall behind our
competitors, who were investing significantly in their supply
chains and in improved service to their stores through
centralised distribution systems”
• All major retailers have now centralised
• DSD is limited and will ultimately fall away except for limited
high volume low value product and even this will change
eventually
• All retailers today operate on a central distribution basis
saving customers billions of Rands’
• The industry is now looking at other ways to improve
efficiency
SUPPLIERS
•
•
•
•
•
•
Most suppliers are now allowing bulk loads from their production to
retailers DC’s
Others have totally outsorced to 3PL’s
Suppliers own DC’s have largely reduced to only full pallet
movement only
Balance of trade managed by 3 PL’s to non chains and smaller
outlets
Wholesalers, cash and carry and 3pl’s are the only method to supply
independent's
Suppliers now want to go through DC’s
– They have no choice
– Supplier allowances are now more representative of costs they would
have incurred in DSD
– The Consumer is benefiting
Retailer Cost – Case Study
Tesco took a different look at supply
chain management
Replenish
Shelves
46%
Gather
Data
5%
Deliver to
Store
Assemble
Order
Deliver to
Depot
9%
19%
18%
Process
Orders
Manage
Store
Orders
Manage
Supplier
Orders
1%
1%
0.5%
Total
Supply
Chain
12.2%
Reference: Barry Knichel (Tesco)
Supplier
Production
&
Packaging
?
Management
&
Development
0.5%
WHERE TO NOW
• International trends and benchmarks
– Pick productivity from 220 cph to 350 cph
• Local challenges
• Local status, trends and challenges –
–
–
–
–
Centralisation – still opportunities
Last 50 m – get better store efficiency
Consumer Protection act
Health and Safety focus
Carbon Footprint – sustainability
• Returnable transit packaging
• Shelf ready
– Toll roads
– Fuel costs
CUSTOMER FOCUS
CHANGE
• Traditional focus of savings in Supply chain • Supplier – DC – to Store – Technology
– Labour
– Transport
• Not customer focussed • Don’t help with availability in store Key focus should be to get product to customer
• We look at how we can improve on shelf availability and service to the customer by being clever at the DC and supply end of the supply chain
"Only when the last tree is cut
only when the last river is polluted only when the last fish is caught
only then, will they realize that you cannot eat money”
Cree‐Indian, Proverb
IS THIS THE END
OR THE BEGINNING OF THE END
THE END
Real Customer Focus begins at the top. It can only happen with visible, passionate, relentless, commitment by all