All eyes were fixed firmly on the future of supply chain and logistics when industry leaders gathered at London’s Waldorf Hotel for the Logistics and Supply Chain Conference last month. Alex Leonards and Malory Davies report.
Ocado has built its reputation as a grocery retailer, but it has also been building a substantial general merchandise business. And Richard Locke, head of general merchandising and analytics at Ocado, highlighted the challenges of running a general merchandise supply chain within a grocer – particularly in terms of dealing with legacy competencies – when he spoke at the Logistics and Supply Chain Conference in London last month.
Locke highlighted the differences between the demands of grocery, where availability is critical, and general merchandise, where high price points mean over-ordering can result in failure on a big scale, and there is often a long tail in some product categories.
It became clear, that the Ocado systems which work so well in the grocery business were not ideal for general merchandise, he said. So the GM team needed to start again, stripping back and instigating new rules. He highlighted two key rules.
The first was that for new lines, the company should only order the minimum quantity possible. This was a deal the potential problem of over-ordering products for which there was no sales record.
The second rule was that no-one was allowed to place a second order until the company had actually sold something which stopped money being wasted.
A new forecasting system was put in place based on a rolling two week average of sales. Locke said this system was slightly less accurate than the previous system, but because people understood it better, they had more faith in it, and consequently, it worked better for the GM team.
One further step was driven by the fact than in general merchandise, a lot of the sales come from a relatively few key products. It needed to ensure that the real volume drivers were safe and untouchable, to ensure full availability, he said. We therefore had to accept lower availability for less good sellers to ensure that the focus could be put on best sellers.
A key challenge was explaining to everyone in the organisation why this was so important, he said.
The conference was chaired by Professor Richard Wilding of Cranfield School of Management, who opened proceedings with an examination of the skills issue. Competition no longer between individual companies: it is between supply chains. One of the key things we have to think about is aligning values across supply chains – create a common set of values that appropriate across the entire supply chain.
If you don’t have capability in supply chain then there will be problems with competitive strategy, he said. The supply chain director needs to be involved in developing the competitive strategy.
He pointed out that if you look as what businesses need from the supply chain director, recruitment specialists will say it’s business first, supply chain & procurement second.
If you as a supply chain director are going onto the board, it is a given that you know how to run the supply chain. It is business skills that are critical, said Wilding.
DynaSys provides an integrated and collaborative planning solution that allows businesses to optimise their supply chains. This includes sales and operations planning, demand planning, and network, inventory and business resources. In his presentation, business consultant Gary Shaw explored the concepts and benefits of Demand Driven MRP, which he described as a new paradigm in supply chain planning. In particular, he explained the need to consider complementary planning tools and techniques to achieve supply chain planning excellence.
Drinks giant Diageo is focused on synchronising its supply chain with the demands of its customers, and Adam Smith explained how it was achieving this on the second day of the conference in London.
Smith’s role is reflected in his unusual job title, ‘smoothing the peaks director’. He is responsible for the smoothing out of sales within the supply chain, and is part of a ‘transformation team’ at the company. He told delegates that the company aims to change its behaviours to achieve depletion driven value – to drive growth, volume and profitability.
Diageo produces some of the world’s most recognisable drinks brands from Guinness to Johnnie Walker and Smirnoff. It produces its products with consumers in mind – looking specifically at the culture and trends of the country it is selling to.
Supply chain operations need to be more depletion driven and end-to-end – working backwards from the consumer right through the production and delivery process, he said. When Diageo’s transformation process began, said Smith, manufacturers didn’t like this back to front system, and they still don’t. But they’re beginning to understand the importance of this process.
Focusing on the consumer and driving last mile delivery “lets us become more sustainable”, said Smith, adding: “Until the pint of Guinness is in someone’s hand, it isn’t sold.”
Data is key to providing the needed transparency. Some of the company’s customers provide 100 per cent transparency and access when it comes to data. But others deliver on 40 or 50 per cent access which, he says, needs to be brought up to at least 80 per cent. In some cases, Diageo will buy the data from its customers – which Smith said is definitely worth cost.
Of course, it’s important to take into consideration the wider consequences of bringing consumers to the fore. “There are going to be differences when you change your supply chain,” said Smith. The partnership, and relationship with customers, needs to be strong, because these types of changes can cause disruption, which can trigger tension with customers.
Sometimes you can’t plan your way through problems, said Smith. Instead, you can find out what the problems are and tackle them head on.
In some cases, manufacturing practices can create a peak. In one of Diageo’s African markets, there is a returnable bottle process. The bottle return procedure meant that for one product, it was constantly out of stock because not enough bottles were being brought back. He uses this example to relay how important it is to take instability out of the supply chain, bringing agility and responsiveness as well as efficiency to the forefront.
There is always the potential for disruption, which can cause peaks in the supply chain. But, said Smith, getting underneath these problems, finding out which issues are linked to the consumer and which issues a company has the ability to tackle – can enable a business to work more effectively with customers and consumers.
Booths Supermarkets is a long established family business based in the North West of England. Mark Gaw, head of supply control, explained how it updated its systems to bring its operations up to date.
The aim was to replace the in-house solution (good …but not great) with an automated, centrally managed solution, increase availability and reduce waste, and change the role of people from change supply controllers from data inputters to business analysts.
“We found a unique supplier, Relex, that came and learned our business. We were only their second contact in the UK. We wanted someone who could be flexible, as well as someone with right expertise and attitude,” he said. Work started in October 2013 with a specification and construction phase. It was rolled out six months later covering all stores and 13,000+ SKUs.
The first stage of the roll-out was in early 2014 with the fresh cabinets. By January 2015 the roll-out was completed with the central DC ordering system. Our dream was an all encompassing solution. We are now forward planning four to six months…not backward looking, said Gaw.
Gaw highlighted a number of innovations that the new system had enabled including “dug today potatoes” where farmers dig potatoes to order at night so that they are in the shop first thing in the morning. The success of this means that Booths is now looking at “picked today strawberries”.
Similarly, “crunchier croissants”. Booths worked with suppliers to take a day out of bakery lead time to improve availability.
Gaw also explained the advanced promotion forecasting process where it is working with suppliers on the forecast. There have been significant benefits include an overall ten per cent reduction in shrinkage. In bakery availability has been dramatically improved, not only reducing shrinkage, but also boosting the profitability of the business.
Andy Perry, logistics director of The Co-operative Group, has spent a number of years working in South East Asia, and in his presentation he examined the difference as well as some of the similarities and the opportunities to learn from each other.
A recurring theme at the conference was sales and operation planning – with Neil Bales, Carlsberg’s global supply chain academy director, followed by Lego’s operations director Calum Lewis, concentrating on the topic.
Bales focused on people and training – he said that companies need to be looking for ‘T-shaped’ people – those that are neutral and balanced, provide a clear line of sight and aren’t afraid to ask difficult questions, rather than short sighted ‘I-shaped’ people.
Lewis talked about Lego’s stimulus for better planning – financial uncertainty 12 or so years ago. He said that manufacturing close to market, designing products for commonality, and lead-time reduction, were all factors in the company’s turn around.
Robin Sundaram, Nestlé’s responsible sourcing manager, said that the company is trying to “create value for shareholders, as well as for society”. You have to get to the farms and plantations, he said – hammering home the need for businesses to tackle human rights issues and forced labour on the ground.
In a break-out session, Richard Tadman of Voiteq, looked at the benefits of voice-enabling your warehouse operations, with real customer examples of how the ‘Unheard Benefits of Voice’ improve productivity. He also provided tips on creating a business case for voice.