The opening of the Castle Donington distribution centre opens the way for the retailer to push ahead with its supply chain strategy, says Malory Davies.
Marks & Spencer has set out its vision of its general merchandise supply chain for the future involving not just new facilities, but also new business policies aimed at improving visibility and moving goods through the system faster to improve agility.
Speaking at the official opening of the giant Castle Donington distribution centre last month, M&S chief executive Marc Bolland made it clear that the retailer was working hard to make up for under-investment in the supply chain in the past.
The changes that M&S is making to its supply chain goes right back to its sourcing and procurement strategy. In 1998 M&S sourced 90 per cent of its manufactured products in Europe and North Africa. By 2012, it accounted for only 11 per cent – 42 per cent came from the Indian sub-continent and 47 per cent from the Far East.
In the past it has tended to work with full service vendors which deliver into the UK. But it is now moving to an FOB regime. Krishnan Hundal, director of general merchandise sourcing and technology, points out that this will improve visibility further up the supply chain, reduce complexity and save some £45m a year by 2015-16.
The regime also makes it easier to segment the supply chain. About 30 per cent of the GM product mix is regarded as “Core” where the imperative is to maximise value. But the largest proportion, 60 per cent, is “Seasonal”. Here the drivers are in-season availability while minimising mark-downs, the flexibility to chase sales and a focus on net margin.
Finally, there is a “Fast track and trials” segment which makes up the remaining ten per cent. Short lead time from design to shelf is critical.
There is also a move to a tactical push solution with a strengthened planning process – much of this is expected to be delivered in 2014-16. The aim is to improve availability, sales and margins.
In the UK, a core element of the strategy has been the development of a new series of logistics centres to replace the network of 110 sites from which M&S has historically distributed its general merchandise to stores.
When the plan was set out in 2009 there were going the be four sites serving the country. The 1.1m sq ft Bradford site opened in 2010. Then would come the 900,000 sq ft Castle Donington site followed by two sites serving the South West and South East respectively.
But the retail landscape is changing fast with the growth of e-commerce, and there have also been developments in the way the retailer is approaching its logistics function. A couple of decades ago, Marks & Spencer had 250 stores in the UK. Today it has more than 700 plus an international network of almost 400 stores in 43 territories.
Chief executive Marc Bolland had already made it clear that he wanted the transformation of the supply chain to be completed by 2016 rather than 2020 as originally planned.
Dirk Lembregts was recruited at the beginning of 2013 to take on the new role of director of supply chain. Lembregts has a strong background in manufacturing having held senior supply chain roles at General Motors, Philips and Xerox.
Speaking at the opening of the Castle Donington site, Lembregts made it clear that a key part of the strategy is to sweat the assets. Now there will be just three distribution centres rather than four. Rather than a DC in the South West, M&S now plans to use the other three more efficiently and build a cross dock facility to serve stores in the west country.
As a result, the next step will be a new site located in a port area in the South East. This will be an automated RDC covering the South East and South of the country.
The port location means that it will also serve as an import facility for stock coming in from the Far East and South Asia where Marks & Spencer now sources some 90 per cent of its general merchandise. And it will also have a key role in serving the retailer’s growing international network of stores.
Part of the plan is also to use the Bradford site as an RDC for the north of the UK. So in Phase 2 at the site, an automated facility will be installed there.
Completion of the network will result in big savings for the retailer. It expects to make recurring savings of £175m in the logistics operation – £25m more than the original plan.
At the same time upgrades to the IT system are expected to result in recurring savings of £125m – again £25m more than the original plan. The total recurring savings amount to £300m.
M&S also expects to see improvements in availability – for general merchandise it is forecasting a nine per cent improvement by 2015-16. It also expects to see a five per cent improvement in food availability by 2013-14.
Lembregts also highlighted a number of other efficiency improvements – including savings in its 3PL contracts. It has been focusing on payment by results and asking 3PLs to accept lower margins.
But there is still plenty of work to be done. The network of distribution centres has now been cut from 110 to 50. But goods coming into port still have to go through a network of holding centres and RDCs before getting to the store or customer. At best that process takes seven days – and can be almost three weeks.
When the new network is complete, that process will be cut to between one and four days. Lembregts said this would lead to a 33 per cent reduction in inventory and a 40 per cent reduction in costs.
The first customer orders started moving through the Castle Donington site only a few weeks ago but the process of ramping up operations is gathering pace. When fully operational it will process up to a million orders a day.
The site, which is reputed to have cost £200m, is fully automated and, at 900,000 sq ft and 25 metres high, it is one the biggest centres of its kind in the UK.
Chief executive Marc Bolland highlights the fact that the site provides one stockholding point for both the e-commerce activity and store network.
M&S is currently number three in the online market for clothing and footwear with a six per cent market share – lower that its 11 per cent share of the total market.
One of the problems has been that it currently has to service its online customers from three separate sites. This means that products have to be moved between sites to complete orders. This adds time and cost to the process.
And this has made completion of this site a priority as it opens the way to a service that is not only faster and cheaper but also more agile. At peak it will take as little as two hours from order to despatch.
Laura Wade-Gery, executive director of multi-channel e-commerce, makes it clear that the plan is to offer customers a market-leading delivery service.
M&S plans to ramp up operations at Castle Donington over the course of the next few months, so that it will be employing some 1,500 staff in the run-up to Christmas – about 30 per cent of which will be agency staff.
The site can store 150,000 SKUs – 16 million individual products in total. There is an area dedicated to hanging garments with automated cranes for put-away and retrieval. Vehicles with hanging garments are unloaded using a boom system – there are five booms each capable of handling 6,000 items an hour.
Boxed items come in on pallets – there is a pallet storage area – before being broken down in a box storage area ready to be delivered to the picking stations. Again the storage and retrieval system is fully automated.
To create the space for the picking stations, there are multiple floors in the 25m high building – three main floors plus a number of mezzanines.
Fast moving goods could spend as little as 24 hours in the DC, said Tim Owrid, head of general merchandise strategic network, though the site will also hold slower moving goods – hence the need for the storage capacity. Even so, there is still some spare capacity, which not only offers scope for expansion but also the ability to respond flexibly to changing demands.
The site was built with M&S’ Plan A in mind and features Europe’s largest solar wall – a sun-facing wall that absorbs solar energy and releases it to help heat the building. It is carbon neutral and has been part built using concrete from a former power station. None of the waste from the site has gone to landfill.
Bolland said: “Castle Donington is one of the most modern, fully automated distribution centres in the UK. As we are recruiting a significant proportion of employees through our Marks & Start Logistics scheme for people with disabilities, this investment in the UK is a unique combination of state-of-the-art technology and a great social working environment.”