Meeting the multi-channel challenge
The next five years in UK grocery retail will be all about convenience, discount and online sales, according to the latest research from supply chain analyst IGD. While sales through superstores and hypermarkets will remain the largest channel, the new outlets will enjoy all the growth. IGD predicts that they’ll increase by £31.3bn, which equates to 110% of the overall market expansion as more conventional channels decline.
While the difficulties that these growth channels pose for traditional supermarkets have been well documented, it’s also clear that they present significant challenges for food manufacturers and other suppliers too.
“Our research indicates that 23% of suppliers say they are well prepared for multi-channel supply chains and another 41% are getting started, but this is still behind where retailers say they are,” says Richard Jones, senior supply chain analyst with IGD. “This is because for retailers, the multi-channel supply chain has been a key focus for a little while, as they have been making and assembling orders for home delivery, replenishing smaller stores in urban areas and generally assessing how they can compete with the ultra-lean processes of the discounters.
“But, for suppliers, how multi-channel will impact their supply chain has not been so obvious. While some are already being forced to adapt their working processes, for many the impact has been masked as changes have been downstream, concentrated within the retailers' supply chains.”
So far, the most disruptive channel has been discount, with 54% of suppliers already adapting their processes to cope, says Jones. “The discounters are asking for many things to be done in different ways,” he adds. “This ranges from drivers unloading their own vehicles or products to be supplied on European specification pallets, to having different products mixed up in the same case.”
Convenience and online are not far behind, each forcing 36% and 37% of suppliers to amend their processes respectively.
Will Shepherd, senior consultant with LPC Consulting explains how these channels are increasing complexity: “Convenience stores have a wider range of smaller SKUs [stock-keeping units] compared with supermarkets or online.”
More frequent deliveries (Return to top)
The need to serve all these channels simultaneously is substantially increasing the range of SKUs that are held at the retailers’ distribution centres (DCs). That demands smaller, more frequent deliveries made on a very precise schedule, according to Shepherd: “They need much tighter delivery slots or they can’t fit in all the SKUs, so they're specifying very narrow time windows so they can fit the stock into the DC.”
The rise of convenience is another driver for more frequent deliveries, since the stockholding at these stores is very small. “It means that the passage of goods speeds up through the supply chain, so suppliers in turn need to make more deliveries,” says Shepherd.
The situation is exacerbated by the difficulty of accessing many convenience stores during large chunks of the day, perhaps because of unloading restrictions or congestion charges in cities. “More distribution points are appearing around cities so the retailers can access the city centre easily when permitted. This means food suppliers will be asked to deliver not just to the main DCs but to smaller ones as well,” he says.
Predicting how all this fragmented activity translates into future orders is increasingly complex, but the problem is made worse by a lack of visibility, according to IGD’s Jones: “Retailers have very clear visibility of how all the different channels are performing – in particular, which types and sizes of products sell best through each channel. The challenge for suppliers is that they often don't have visibility of this, so they can’t tell if stock is sold through a supermarket, a convenience store, an online order from a dark store or an online order replenished from a conventional store. This creates a challenge because each of those channels has a different demand signal and a supplier can’t separate the single order into individual channels to tell what is causing variability in demand.”
Improved visibility (Return to top)
Improving visibility and building better links through the supply chain is bread and butter to GS1. GS1 is best-known for barcodes, but it also champions other automated tracking technologies, such as radio frequency identification (RFID) and serial shipping container codes (SSCCs). “Suppliers are no longer shipping in bulk to bulk DCs. There’s a lot more picking going on,” says Andy Robson, supply chain solutions manager with GS1 UK. “Deliveries also have to be ‘bang on time’, with a greater mixture of SKUs within each load to get the product range right for each channel.”
For GS1, the answer is to speed up the flow through the supply chain by automating processes at as many stages as possible. This includes everything from electronic ordering and electronic proof of delivery (which removes the need to count goods in and out manually) to invoicing.
Standardisation will become more important as mixed pallets or roll cages become the norm, predicts Robson, otherwise the manual effort costs associated with keeping track of products through the supply chain will balloon: “You need a standardised ‘licence plate’ system an SSCC. There’s no other easy means of identifying mixed groups of products travelling together. You could, in theory, read the bar codes on each packet, but if the retailer trusts the supplier, pallet-level identification effectively does away with the counting of individual goods.”
Chilled food (Return to top)
Interestingly, there is one sector of the food industry that observers identify as being far ahead of the pack when it comes to being ready for the new ways of operating: Chilled food has always had to deal with little-and-often deliveries, accompanied by low stockholding at every point in the supply network.
“The chilled food industry has long been a proponent of fast supply chains and day one for day one or day one for day two services, but this is an area that sectors such as ambient food can fall behind on,” says Richard Slater, sales and marketing director for logistics provider Fowler Welch. “In a changing retail environment ambient manufacturers must take advantage of flexible, responsive supply chains to keep up with demand rather than falling back on large consignments of stock reliant on warehouse storage space.”
LCP’s Shepherd agrees: “If you’re a supplier that’s used to delivering into the chilled channel you already operate like this, with smaller outlets and lot sizes and more frequent deliveries. It’s the companies that are used to bulk, long shelf-life products like tea that will be on the back foot.”
The problems of ‘little-and-often’ can extend beyond logistics and into the heart of manufacturing, chiefly because smaller batches and shorter production runs mean more product changeovers and downtime, says Shepherd. Companies may be forced into a fresh round of cost cutting and efficiency drives in order to compensate, he adds: “If they’ve been used to manufacturing to place large orders into large DCs they’ve probably got quite complacent. Now they’ve got more SKUs and it’s more complex as a result.”
In theory, this new environment could lead to fleets delivering smaller loads, but running deliveries partly empty is not an option for any firm looking to optimise its efficiency and costs. Third-party logistics providers (3PLs) say they are ideally placed to help.
Small quantities (Return to top)
“Suppliers will previously have been going to end distribution points as infrequently as possible and just topping up with chilled. Retailers have held the stock in their warehouse. But all that’s been changing over the past two years. They now need to go as frequently as possible with small quantities,” says Dean Wyatt, vice president for DHL Supply Chain.
“Transport is where savings can be made but it’s truly all about collaboration.”
DHL operates a freight exchange, whereby customers can collaborate with each other to deliver full loads. It’s something that competing manufacturers would struggle to do without a 3PL acting as an intermediary. “A and B may be competitors but it actually makes sense to consolidate because they’re currently sending two vehicles in. They don’t even need to know who else has space on the same delivery. As long as we have a ‘vanilla’ fleet so the truck doesn’t turn up with their competitor’s name all over it then they’re happy.”
Fowler Welch’s Slater highlights that consolidation is important for small- and medium-sized enterprises (SMEs), that might otherwise find it difficult to compete with more muscular players. He believes SMEs could be real winners in this new environment, provided they take the right approach: “SMEs are generally more nimble, agile and prepared to try new models, because change in their organisations is easier to effect. Making use of specialist consolidators makes new delivery models more accessible to manufacturers of all sizes.
“By consolidating multiple shipments from different manufacturers and importers before transportation to regional DCs, SMEs can access efficient haulage and storage, which can help them to compete with big businesses in meeting the changing demands of customers.”
