AN E-COMMERCE WHITE PAPER - Taming the e-tail tiger The UK's largest manufacturer of Pallet Racking, Shelving and Lockers - IMRG
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AN E-COMMERCE
WHITE PAPER
Taming the e-tail tiger
The UK’s largest manufacturer of Pallet Racking, Shelving and Lockers
© REXfeatures
CONTENTS
Introduction 4 Chapter four:
Executive summary 5 Technology takes hold 22
Influencing consumer behavior 23
Chapter one: Click and collect 23
Evolution or Revolution 6 The nightmare returns 24
Rise of e-tail 7 Retail: the throw away sector 24
Evolution moves to revolution 8 Logistics and packaging respond to
the click and collect challenge 25
Customer demand drives
European e-footprint 10 Rise of the robot 25
The ‘last mile’ impact 11 Advanced automation and
shelving solutions 26
Collaboration: Key to Europe’s
e-commerce success 11 Integration, integration, integration 27
Chapter two: Chapter five:
Market voice – industry reaction Spotlight on the grocery market 28
to omni-channel 12
Cold facts 28
Logistics reaction 14
Distribution centre deployment 29
Speed = Sales 15
The dark art of dark stores 30
Parcel delivery developments 16
Stand and deliver – the race is on 32
Warehouse response 17
Battle lines 32
Margin pressure vs delivering
Chapter three: the promise 33
Ports unlock key to distribution prize 18 Fresh start 33
Port centric solutions 19
Ports: Gateway to the UK’s Chapter six:
e-tailing network 20
Reaching out to the future 34
Expansion of port centric
Complex and unplanned challenges 35
shore solutions 21
Conclusions 36
Page 3
INTRODUCTION FROM JOHN HALLIDAY,
LINK 51 MANAGING DIRECTOR
This white paper makes interesting reading. Not just because of the
enormous opportunities that e-tailing provides across the supply
chain, but also because it is a salutary wake-up call for the industry.
I fully acknowledge that when we first started working with e-tail
customers, whether large established multinationals, small business
start-ups or SMEs, we had a lot of ground to make up developing
our e-tail offering, as did many of our traditional retail customers.
We needed to quickly understand a fast developing concept.
The e-tailing evolution is dynamic and we have witnessed change
beyond recognition during the past few years as developments in
technology and reliance on mobile devices have driven wide
reaching changes to the retail sector and its supply chain, especially
distribution. The e-tail sector won’t stand still and will demand
constant innovation, and this has been the approach that we have
adopted at Link 51, in order to support the growth in supply chain
developments that the e-tail sector demands.
In compiling this report we were surprised We’re experienced in designing storage
at the findings which varied dramatically systems to cater for palletised bulk storage
on a number of levels. Our findings ranged and hand-picked items in either large
from one respondent who freely admitted volume or on a smaller scale. This approach
they ‘didn’t have a clue’ about e-tailing and has enabled us to deliver combined solutions
had no knowledge or understanding of how for a wide variety of online retailers,
it would impact on their business, through fulfilment houses and traditional distribution
to established logistics providers struggling centres, in addition to meeting port centric
to adapt traditional practices to cope with logistics needs and estate portfolios.
e-fulfilment to 3PLs (third party logistics)
We have analysed our market and product
and retail clients who have e-commerce
offering, to establish what is impacting on
strategies focused on their customers’
our customers and consider how change is
service requirements.
dictating their future. Our intention is that
This lack of understanding from some this report confirms the direction for those
logistics organisations was mirrored by other who are on the path to developing e-tailing
areas in the supply chain, where their only solutions and helps those who have been
interest was essentially B2B. Those who on the side-lines to seize the initiative.
touched on retail, not surprisingly, had a We will be keeping a close eye on this
strong awareness of the e-commerce important segment of our industry and
evolution and how to tackle it. The point keeping ourselves and clients updated on
is that all of us, across the supply chain, this exciting market. Hopefully the
whether it’s the supply of automotive strategies explored in this report will help
components, foodstuffs or white goods, organisations who are relatively new to
need to be aware of the threats and benefit from this paradigm shift to apply
opportunities that e-tail presents. Even so, the e-tailing concept and understand how
most of the awareness is geared towards it impacts on their business.
sales infrastructure, mobile and customer
experience, and less so to the practicality
of warehousing, distribution and stock John Halliday
management. Managing Director, Link 51
Page 4
EXECUTIVE SUMMARY
Taming a tiger presents many challenges and ‘Taming the e-tail tiger’
is no different. One thing is sure, e-tailing is here to stay and
ignore it at your peril. But what are the future trends? Why should
warehousing and distribution operators, 3PLs (third party logistics)
and end users need to be ahead of the game?
• Dramatic developments in customer
service expectations and the push
The answer is market forces dictate the
shape and speed of this dynamic sector.
DEFINITIONS
for quicker fulfilment is impacting on Second place doesn’t cut it in e-tail, and
warehouse and distribution centre design. that’s why the entire supply chain needs
to be fit and smart enough to gain that all
E-COMMERCE
• Awareness and analysis of consumer “Business transacted
important competitive edge.
behaviour by retail clients is changing
the dynamics of the supply chain. Unwittingly this evolution in retail process for goods or services
is causing changes to the way that logistics by transferring data
• Global supply chain and environmental
planners think about how they work. This
considerations are defining a new electronically, especially
has ramifications on the supply chain and
geographical location for the “golden
that runs from transhipment and port centric over the internet.”
triangle” and traditional RDC strategies.
logistics to warehouse property and real
• Storage and distribution providers are estate configuration, through to transport
having to find effective fulfilment hubs and delivery to the end user – and
not forgetting of course the returns process.
solutions to the increasing demand for
This by definition adds to costs and
M-COMMERCE
grocery, especially chilled produce.
potentially builds in inefficiencies if “Business that is conducted
• Demand for warehouse space is adapting unplanned in terms of systems, sorting and
to cater for ever changing needs for on the internet through
storage.
space, format and productivity. the use of a mobile phone
When mapped out this all makes absolute
• Technological developments continue to sense, but those who are slow to put or other wireless hand
enable omni-channel marketing driving e-tailing strategies on their ‘to-do’ list will
increased flexibility into the supply chain. held device.”
either meet a challenge to catch up or
• Choices can be made anywhere – at point perhaps face the ultimate penalty for being
of purchase, in delivery method, in returns slow to keep ahead of market changes.
Anticipation and planning is all part of
process – and changed tomorrow, requiring
success in business today, whether on a local
E-TAIL
flexibility and future proofing in the
supply chain. or macro scale. Geographies may change “The selling of retail goods
and adapt, but forward thinking and
innovation are the essential ingredients of
on the internet to the
a successful business. end user.”
The lesson learned from witnessing this
paradigm shift in how logistics and goods
are procured and delivered to the end user
requires all those involved in the supply
chain to keep up with the pace of change
or potentially be left behind.
Page 5
Chapter 1
EVOLUTION OR REVOLUTION
Rate 1875 1900 1925 1950 1975
of I.T.
evolution
Apple
Telephone Ballpoint Pen Light Bulb Television Computer Satelite Lava Lamp Microwave Floppy Disc Computer
The technological revolution of the 1900s is still sending ripple effects through the 21st century.
Our desire to live in the present, demanding immediacy from every aspect has now resulted in the
birth of a whole new way of doing business and especially through the prism of retail. If you were
to order from a catalogue 20 years ago, you would be looking at five to 10 working days for delivery;
by 2014 next day delivery is a service most online retailers strive to provide in order to secure the
customer order. Now with online retail giant Amazon offering same day delivery to inhabitants of the
UK’s major cities on a wide selection of items, the demand for immediacy is slowly but surely being met.
It doesn’t stop there, as B2B wholesale and business operations, trade counters, building supplies and
component supply chain all increasingly answer to customers’ online orders.
Will ‘within the hour’ deliveries by drone
soon become a reality for consumes in our
major cities? If so, how will this impact on
the location, size and design of urban © Deutsche Post DHL
distribution hubs.
Page 6
2000 2014
?
www
World Pentium Video
Wide Web Processor Disc iPod Facebook Twitter iPhone iPad
But where did all this come from? Why
have we developed this passion for online
Rise of e-tail
shopping and the demand for receiving The retail sector has developed from having These new strategies mean that small
goods as quickly and efficiently as possible? competitors only located across the street retailers are no longer restricted to
There are many contributing factors, but to eBay bidding wars and price comparison targeting their local patrons, but instead
the solution may be relatively simple. sites introducing clientele to international can distribute and ship items over a much
The increasing pace of technological sellers. wider geography. Retailers aren’t held back
developments in the hands of customers by the traditional methods of point of
has enabled sales channels to communicate Retailers now have 24/7 access to their
sales displays and back of house storage.
more effectively, engage more consumers, tailoring offers and promotions
As a result of the support provided by
comprehensively and close more efficiently, to individual shoppers; the internet gave
the distribution and logistics sector, they
personalising offers based on behaviour; retailers the opportunity to cash in on this
can conduct business from large capacity
and all this, 24/7. Commercial channels unlimited direct access. To date 28 per
warehouses and integrated supply chains;
can be open all the time providing choice cent of online shoppers are choosing to
enabling them to offer a wider range of
at every level. The infrastructure and subscribe to stores or product newsletters
products with a larger back-stock of items.
logistical processes required to fulfil this and updates to stay informed.2 Data also
As the sales and marketing channel delivers
online demand are the cornerstones of any reveals that 28 per cent of customers
the logical result is an increase in frequency
successful venture and having a system who complete a purchase can be directly
and volume of orders picked, packed and
finely tuned to this online process is integral contacted with promotions and news, thus
fulfilled by the warehouse.
to the operation. increasing the exposure of a brand beyond
the visit to the online platform or the bricks To assume that the arrival of e-commerce
Since the 2008 economic nosedive the UK and mortar store. was the result of a revolution would be
has been steadily finding its feet again, with a mistake. There was no loud bang or
retail leading the way. Consumer confidence a battle for web space but rather the
has been the spearhead for recovery and steady, yet unrelenting, developments to
that fuels demand for goods. the skeletal structure of retail. Retail has
This steady increase in online shopping is demonstrably been the driving force for
evident; for every £5 spent on non-food adoption of online strategies.
items, £1 is spent online.1 The birth of the
internet in the early ‘90s changed the face
of retail forever, as tech-savvy retailers saw
the opportunity to expand their reach not
only on a national but international scale. FOR EVERY
By association, logistics and storage solution
firms had a new and exciting market to £5 SPENT ON
expand into.
NON-FOOD
ITEMS...
£1 IS
SPENT ONLINE
Page 7
Evolution moves to revolution
The future of
From the invention of the internet in the late The evolution of retail has now left the
‘60s to the world wide web in the late ‘80s sector unrecognisable from the supply e-commerce is
and the first online order in the mid ‘90s the chain of the 1970s: not set in stone
pace of change has been steady, evolving as
technologies emerged that enable the faster
paced change of the last 20 years - the dawn
of e-tail.
The Evolution of Retail logistics*
Overseas Supplier Shop
1970’s
Direct store replenishment
by suppliers or wholesalers Domestic Supplier Shop
Overseas Supplier Shop
Overseas Supplier Shop
1980’s Retail
‘CENTRALISATION’ of
Domestic Supplier Distribution Centre Shop
deliveries through retailer
distribution centres
Overseas Supplier Shop
Overseas Supplier Retail Import Retail Distribution Shop
1990’s
The rise of global sourcing
Shop
Domestic Supplier Shop
E-fulfilment Centre Returns
2000’s
E-commmerce model Parcel Hub Sortation Centre Delivery Centre Customer home
involving parcel network
Collection point
Local Depot (urban logistics) Delivery point
*Based on non food distribution in developed markets3
Page 8
The future of e-commerce is not set in stone, with a whole host of
contributing factors; economy, technology, logistics, customer service
“E-commerce… to name but a few, all impacting on the world of e-commerce; over
is the biggest the coming years the future is an exciting place and promises attractive
opportunities for innovators. Professor of supply-chain strategy at
revolution in the Cranfield University School of Management, Richard Wilding, shares in
retail industry for the sector’s enthusiasm for this ever moving evolution.
a generation.” He goes as far as suggesting that the developments that will take place
in the immediate future will resemble more of a revolution rather than
evolution as the pace of change increases whilst the impact of those
Professor contributing factors becomes apparent: “The next 12 months are
Richard Wilding absolutely critical. We will learn the true picture of what is actually going
on. We will find out who are the winners, who are the losers, probably
by about January 2015. Businesses are investing heavily in this – it is the
biggest revolution in the retail industry for a generation.”
© Tesco PLC
© Tesco PLC
Where next?
What impact will Omni-channel have
on our shopping habits in the future?
Page 9
CUSTOMER DEMAND
DRIVES EUROPEAN E-FOOTPRINT
With modern consumers becoming increasingly dependent on
instant gratification and the immediate supply of goods, the ability
to provide products to the consumer with little fuss and minimal
supplier expenditure has become paramount. More retailers are
choosing to represent their products online and as a result, the future
of e-commerce is driving businesses harder and nurturing new target
markets overseas.
The Centre for Retail Research claims that:
UP
“In 2014 online retailing in Europe grew by
a weighted average of 18.4 per cent to £132
The Centre for
18.4%
billion.” On the surface these figures appear Retail Research
staggering but The Centre for Retail Research
estimates the growth will continue at 18.4
estimates that
per cent between 2014 and 2015 brining 2015 will bring
estimated expenditure to £156.67 billion
for the year.4
estimated
EUROPEAN With Europe’s spending steadily increasing
expenditure to
£156.67 billion
ONLINE RETAIL over the coming years, what is the effect
on the sellers?
for the year.
GREW IN The retail evolution has been spreading its
2014 TO wings steadily over recent years, helped along
by the recession, driving bargain hunters in
£132 BILLION their masses to find the best deal online.
Dealing across EU borders is becoming
increasingly popular and as stated by the
gov.uk website, “the aim is that doing
business with other EU countries should The fundamental challenge experienced
become increasingly like doing business by retailers in this area is logistical; how
within your own country.”5 to transport goods across borders in a
consistent and collective manner? The
Last year Marks & Spencer6 launched an answer is remarkable, as there are no
international service delivering to parts of apparent consistencies in the sector for
Europe where it currently has no physical cross border logistics. Each retailer has their
footprint. This enabled customers in France, own way of managing cross border logistics
Germany and Spain to buy clothes and and in most cases these solutions are
other goods from its existing website, designed to fit in with each individual
marksandspencer.com, at a delivery cost of retailer’s margins, budgets and requirements.
£10. Fashion and home wear retailer Next In the absence of a ‘one size fits all’ solution
uses nextdirectory.eu, an English language there is a broad amount of inconsistency in
site, to deliver across Western Europe for a this area which many experts agree requires
charge of €5 (£3.98). further support and assessment.
With international delivery charges now equal For example Amazon is more inclined to
to a local supermarket home delivery service, build smaller ‘sub fulfilment centres’ which
increasingly more customers are manage the distribution of goods to smaller
willing to make cross border purchases, regions, rather than relying on the ‘mega
in order to buy the product they want. fulfilment centres’.
Page 10The ‘last mile’ impact
Other retailers favour the use of third party
logistics (3PL) to distribute goods, for
example UPS and FedEx who will distribute
the goods as a subcontracted support
network.
Outsourcing the logistical challenges that
3PL’s face, in some cases, is a cheap and
effective method of managing ‘last mile’
delivery. Choosing to source and
subcontract to firms who specialise only in
logistics, gives the retailer the freedom to
focus on the more intricate inner workings
of their business; these logistics experts,
who have the knowledge and facilities
to manage the logistical expectations of
their client, will deliver and collect items
from customers and transport the goods
between destinations, whilst permitting the
retailer to focus on the back of house
management of their business.
Collaboration:
Key to Europe’s e-commerce success
The number of overseas deliveries despatched where orders can be managed
from the UK could double within three years, on a local basis using infrastructure,
according to the IMRG MetaPack UK Delivery fulfilment centre design and practices
Index June 2014. 7 that reflect those in the home territory
An expected 161 million orders posted
for efficiency and consistency. In doing TOTAL ORDERS
cross-border this year may rise to 384 million
in 2017 if current trends continue. The total
so the carbon footprint of retailers would
be reduced, returns would be managed DESPATCHED BY
number of orders despatched by retailers in
locally rather than returning products
across continents to the ‘mega fulfilment UK RETAILERS
EXPECTED TO
the UK is expected to top one billion next
centre’ and deliveries can be completed in
year, and reach around 1.3 billion in 2017.8
shorter time windows which will provide
With this volume of dispatches taking place a more pleasing customer experience.
We will examine the returns challenge in
REACH 1.3
BILLION IN 2017
annually across Europe, a unified approach to
logistics across European borders is required. the ‘Ports unlock key to distribution prize’
The most favourable solution to date appears section of this white paper, from page 18.
to be the use of ‘sub fulfilment centres’
Page 11Chapter 2
MARKET VOICE –
INDUSTRY REACTION TO OMNI-CHANNEL
The UK has the world’s most developed online retail market,
according to a ranking by commercial real estate company Cushman
& Wakefield9, and the global online grocery market is set to grow by
an impressive 50 per cent from £21bn to £31bn in just two years.10
As a result of statistics such as these, there is a perception that the
internet is taking spend away from bricks and mortar stores; this,
however, “is one of the biggest misconceptions,” said Kantar Worldpanel.
“Having an online offer helps retailers to secure additional revenue.”11
Sebastian James, chief executive of Dixons As e-tail evolves, we are now starting to see post to return it. So what is happening for
Retail, owner of Currys and PC World, the appearance of omni-channel activity – retailers is that it has to be seen as one big
recognises the impact of retailers having multiple channels working in unison to omni-channel, a whole customer-service
both online and store propositions, as provide the consumer with a seamless offering.”14
more than 80 per cent of customers use approach to shopping. Professor of supply-
As omni-channel grows, there is an
both outlets to make their decisions: Being chain strategy at Cranfield University School
increasing requirement for ‘back office’
able to research online, see and touch the of Management, Richard Wilding, sees
support to be in the same league as its
product in-store, while also receiving expert development in the supply-chain sector
consumer facing staff and outlets. But what
advice, is hugely valuable.”12 approaching tipping point, as a result of
impact will omni-channel have on store
this new wave of retailing.
It also allows the consumer to have the footplates and the balance between sales
opportunity to conduct a price comparison “If you go back 10 or 15 years, we used floor and stock room? Will stock rooms
search whilst in-store. Tina Spooner, to talk about multi-channel retailing. You have to cater for e-fulfilment activity as
Chief Information Officer at online retail would have had your store channel, your well as store sales? If so, will stock rooms
association IMRG, revealed that 47 per cent internet channel, most likely then warehouses, need to be bigger, multi-tier and more
of consumers have used their mobiles to customer-service team and so on, all efficient?
browse a competitor’s website whilst in a completely separate entities. The problem
David McCorquodale, Head of Retail, KPMG,
store: “Much of this activity is likely to be is now consumers do not think that way.
added: “The onus is on retailers to better
comparing prices in order to get the best
“For example, to make a purchase today, connect with consumers online and deliver
deal.”13 Competitive pricing is a strong
I might go into a store and choose the item innovative, personalised campaigns which
persuader for customers to leave behind
to be delivered to my home, or order it on will capture the average shopper’s
their allegiance to a brand if they can
my smartphone, or use click-and-collect to imagination and encourage them to spend
purchase an item cheaper elsewhere.
fetch it myself, but then put it into the online and in store.”15
Page 12Retail footplates are changing, with large “This is due to the enhanced online
leases failing to be renewed and smaller
retail outlets are being selected as a
shopping experience which retailers have
worked hard to provide for their customers.
“Being able to
‘shop window’ approach, to encourage Retailer’s sophisticated multichannel research online,
customers to purchase more products
online – seen by some as a “change or
propositions are especially convenient for
shoppers who do not want to brave busy
see and touch
die” moment.16 The impact on the use of stores during the summer sale season. the product
space means that smaller storage systems
are required, as the volume of stock is
Scale is becoming a key differentiating
factor for the online market. Large retailers
in-store, while
no longer an issue. However, the storage with a more advanced online services also receiving
needs to be flexible and deliver more
efficient utilisation of space in order to
proposition and able to utilise efficient
distribution and logistics can now offer on
expert advice, is
adapt to changing trends and demand. their website brands from other retailers hugely valuable.”
who don’t have sufficient scale online,”
Not every online sector is growing as
commented Helen Dickinson, Director
quickly as The British Retail Consortium
General, British Retail Consortium.17
(BRC) and KMPG reveal. Online sales of
non-food products only grew by 10.6
per cent in June, in comparison with the
previous year, which is its lowest rate since
July 2013; despite this, the BRC remains
optimistic, as the proportion of online
sales keeps increasing, referencing how
distribution and logistics play a key role.
Multi Channel Growth in Retail
Web Store Mobile Call Centre Social
2011 84% 79% 37% 44% 30%
2012 96% 78% 41% 51% 28%
2013 96% 90% 68% 59% 32%
Page 13Logistics reaction
It’s not just the retailers who have realised
the impact of online shopping, which is
driving significant change across the supply
chain, but also the logistics sector. But how
is it reacting to developments in e-tailing?
Logistics companies will play a key role in
providing vital supply chain management
solutions that are able to evolve with
consumers’ changing shopping habits and
the growth of online retail. Casting an eye
towards its future is DHL, whose “Global
E-Tailing 2025” 18 study, describes the
role which electronic retailing will play in
people’s lives in the year 2025, how
international online retailing will change
consumer behaviour, and therefore the
world of retailing as a whole, and what
challenges the logistics industry will then
be faced with.
Jürgen Gerdes, CEO Post – e-Commerce
– Parcel at Deutsche Post DHL, said: “We
don’t know for certain what the world will
look like in 2025, but the study’s various
scenarios show how rapid the global retail
sector – online and offline – is changing
and that logistics will be a focal point of
these change processes.”
Referring to eBay’s purchase of delivery
specialist Shutl, Harry Cole, vice president
business development at DHL, said: “It’s
quite interesting actually, this deal is going
to link up all of these last mile challenges,
and final mile couriers. Within an hour of
ordering in a 15 mile radius a parcel can
supposedly be delivered to your house from
that store - this is another dynamic that we
really need to think about.”
The customer has to remain the number
one priority, said Emile Naus, head of
logistics strategy at Marks & Spencer.
“Whether you buy from mobile, tablet, or
in store, it is a customer requirement and
you have to fulfil it. Some customers will
value and be prepared to spend money on
e-commerce, and some won’t, so you have
to have that flexibility.” Naus highlights
that multi-channel has a high return rate,
with customers taking charge of their own
supply; what he calls a “feature of online.”
“The ideal solution is that if you process
the return, you assess it for quality very
quickly, so you can get it back in stock,”
he added.
© REXfeatures
Page 14Speed = sales
“The general The challenge for retailers and logistics However, Richard Jones, IGD senior
feeling among companies alike is whether to charge business analyst, says the online market
is moving so fast that retailers are highly
big supermarkets customers for the same day or next day
service. Head of business development focused on adapting themselves “so
is that FMCG logistics at Europa Worldwide Logistics, they find it a challenge to give suppliers
sufficient clarity on how to adapt”.20
suppliers do not Mark Wallace, said: “The issue is that
we have great parcel delivery here, so
understand the people don’t want to pay added value. If
People have an initial fear of online
according to head of logistics at Matalan,
online market” customers can shop online, and choose a
next day service without paying any extra
Nigel Prescott. “Although there comes a
point where you realise you need it,” he
costs, why wouldn’t they?”
said.
That said, more affluent customers who
“Then you have to ask yourself why.
shop at luxury retailers such as Fortnum &
Nowadays at one end of the scale we
Mason are prepared to pay a substantial
have the market online leaders, then at
premium for the quicker, same-day
the other, we have the people morphing
turnaround, according to director of retail
and trying to understand what online
and operations, Atty Hussein. “Customers
actually means. This shows that one size
in central London in particular want
does not fit all, and one model does not
products delivered to their offices now,
fit all; it depends on where you are in the
because it’s more convenient for them.”
marketplace, what your demographics
The speed in which online sales has are, and what your customer expects.
affected the supply chain has left some To succeed in e-commerce you have to
suppliers struggling to understand and understand your own business before you
meet the needs of the digital retailing get to a place you may not need to be at
channel. Derek Eccleston, commercial that point in time – it’s about creating a
director at eDigitalResearch, says: “The road map into your future.”21
general feeling among big supermarkets is
that FMCG suppliers do not understand the
online market.”19
© Deutsche Post DHL
Page 15Delivery Index Year on Year Parcel delivery
developments
250 The present day is just a small chapter in
the e-tailing story with new developments,
research and technology appearing on a
regular basis, which affects the whole
supply chain, from warehouses to delivery.
200 UK e-tail trade association IMRG and
e-Commerce technology provider MetaPack’s
Delivery Index reports that 920 million
parcels were dispatched by e-tailers in 2014;
20 million less than previously expected
(including economy specifies, time slot,
150 click and collection).
Improving economic conditions and the
continued growth of online retailing have
prompted IMRG and MetaPack to revise
their 2014 annual delivery volume growth
100 figure from 12.5 per cent to between 16-19
per cent. With the continued growth in this
area and increasing volumes of stock that
are handled, the processes throughout the
entire supply chain need to stepped up;
consequently there is a huge impact on
50 security, ease of identification and speed
of selection.22
0
May
Aug
Mar
Nov
940
Dec
Apr
Sep
Oct
Feb
Jun
Jan
Jul
2011/12 2012/13 2013/14 2014/15
UP
© IMRG / METAPACK DELIVERY INDEX
The latest Metapak delivery index shows 2014/15 developing a recognisable trend for the year.
MILLIO
However the January fall although slightly greater than prior year is on the back of a 9.5%
growth factor.
PARCE
The delivery index is ideal for displaying trend information, however it is worth noting that
the dataset displays an average of 5 million parcel deliveries in any one month and covers
accumulative total of 215 million parcels to date.
920 MILLION
PARCELS WERE
DESPATCHED
BY UK
E-RETAILERS
IN 2014
Page 16Warehouse
response
Savills and Transport Intelligence
commissioned research in June 2013 to WAREHOUSE TAKE UP BY RETAILERS
analyse the online retail sector, which
concluded that the replacement of the high
OVER NEXT 5 YEARS
street with warehouses and home delivery
is an extreme, and unlikely, view. ‘Click and
collect’ will enhance the high street and
out-of-town presence; there is a symbiotic
UP 21%
relationship with this combination, as the
process evolves but the shopper experience
improves and grows. One will not be able
to easily exist without the other.
Overall, the warehouse will have an
increasingly important role going forward
within retailers’ supply chains and a
requirement for smart technology and
ON THE LAST 5 YEARS
efficient storage and retrieval systems.
Savills believe that warehouse take-up, by Mega footprints and consolidation of “E-tailing will help drive a new era of
retailers only, will total 50 million sq ft over facilities do work when combined with smart demand for warehouse space... although
the next five years and that is a 21 per cent configuration of racking and inventory one size will not fit all,” commented
increase on the take up during the past five management. Designer bathroom specialist Richard Sullivan, National Head of Industrial
years; 13 million sq ft, more than a quarter and a leading supplier to trade customers, & Logistics.23 This highlights the need for
of this future take-up will be within e-tailing Crosswater, has embraced e-tailing. bespoke solutions, adapting the current
specific property and is driven by online sales Crosswater holds some 5,000 stock lines, methods to suit a future model rather than
and probably with large footprint fulfilment including products from the cutting-edge forcing a square peg into a circular hole.
centres. Bauhaus collection of bathroom furniture,
“It’s important that the industry is increasingly
and Simpsons and Crosswater Digital
talking about e-tailing, as it has previously
showers. In July 2014, the fast-growing
been one of those areas that no one knew
“E-tail is a process company moved to a new, purpose-built
headquarters at The Bridges, Dartford, with
much about and were sceptical about how
that needs to be 138,000 sq ft of warehousing and 10 loading
it would take off – but look at how heavily
reliant we are on email nowadays and the
adopted, in order docks incorporating under one roof accounts,
marketing, I.T, purchasing, sales, aftersales,
initial reaction when it was being used in
to prevent being warehouse and transport departments,
the workplace,” said Kevin Blanchard,
Major Account Manager at Link 51. “E-tail
left behind whilst alongside the new addition of Bathroom
Brands and consolidation of facilities. The
is a process that needs to be adopted, in
competitors are operational benefits of merging five ware-
order to prevent being left behind whilst
competitors are successfully riding its crest.
successfully riding houses into one means that warehouse
operators can pick orders quicker and easier,
Innovative thinking, good communication
its crest.” which provides additional capacity, moving
with supply chain partners and speed are the
essential ingredients to becoming successful
from 6k of pallet space to 17k.
in this emerging market.”
Page 17Chapter 3
PORTS UNLOCK KEY
TO DISTRIBUTION PRIZE
The integration of different storage systems to achieve the flexibility
required by e-tailers is a key factor in its success. Racking and
shelving systems combined with multi-tier capabilities work together
to maximise space efficiency without hindering pick rates and
productivity. Scalable strategies especially provide start-ups and SMEs
with the flexibility they need within their premises during the growth
phase. This is particularly important ahead of the need to invest in
new property or outsource to a mega footprint e-fulfilment specialist.
Courtesy of DP World London Gateway
Distribution centre design has evolved from of its business, as a result in the rise of
a ‘low and wide’ strategy to ‘narrow and e-tailing; the company had to build a new
high’, says TGW sales director Phil Steeds. shed in order to service both its shops and
Supply chain consultancy firm LCP recently also its e-tail fulfilment, making the business
reported that the non-food retail sector will more flexible to meet client demand. Regatta
invest heavily in automated warehousing installed a mixed system that incorporated
over the next five years, as it gears towards hand pick shelving, which was built into the
the ‘omni-channel revolution’. As a traditional racking providing a solution that
consequence, DCs and warehouses are enables the warehouse team to handle e-tail,
being reconfigured to meet increasingly retail and also returns.
complex fulfilment needs.24
Whilst retail has taken a proactive lead on
For example, outdoor and leisure clothing developing flexible omni-channel storage
supplier Regatta needed to upgrade its solutions, how have the UK’s ports responded
warehouse logistics to support the growth to the revolution?
Page 18Port centric solutions
With UK ports seeing 121 million tonnes of goods pass through our borders between
January and March 2014,25 the management of the distribution would initially seem like a
logistical nightmare.
There are three distinctive solutions each with their own impact on storage and
handling solutions:
1 Mega e-fulfilment centres where the merchandise is stocked and picked at item level and
often operate 24/7. These facilities, which are either operated by the retailer or a logistics
service provider, are typically 500,000 sq ft to one million sq ft in size, or even larger.
Customers typically want solutions that address the scale of the operation, but also
provide the flexibility and capability in order to meet demand and effectively utilise floor
and cubic space; for example, racking, automation and hand pick shelving and working
across supply chain with integrators.
2. Parcel hubs/sortation centres which sort orders by zip or post code, so they can be
delivered to the relevant parcel delivery centre for final delivery to the customers’ home or
selected collection point. This is low impact on storage solutions.
3. Parcel delivery and click and collect centres which handle the ‘last mile’ delivery to the
customer, and may require lockers cupboards and shelves, for example, which provide
segregation, control and security.
Managing the receipt and distribution of goods is an area that the majority of retailers are
focusing their efforts. Innovative storage and warehousing solutions are key to the effective
management of warehouse goods and the efficient distribution of products to customers.
With the popularity of e-tailing increasing daily, the seamless distribution of products has
always been a priority for retailers. However, the challenge has grown to include complete
fulfilment of the delivery of individual items to individual customers, as well as distributing
bulk store stock to a high street outlet.
Courtesy of DP World
London Gateway
Page 19Ports: Gateway to the UK’s e-tailing network
Third party logistics is leading to the growth “We have a proven track record of delivering
of a more port centric logistics strategy and tangible results for businesses across a range
whilst some port operators have admitted to of sectors, including clothes and food,
‘being clueless on the impact of e-tailing on adopting a port centric solution.” The
them and their customers’, others are ahead Portcentric Logistics operation at Teesport
of the curve.26 has seen rapid growth in recent years, with
major contracts including household names
PD Ports Group, is one operator that has
such as Asda, Tesco and Taylors of Harrogate.
grasped the nettle, and launched PD
Portcentric Logistics at the 2013 Multimodal Martyn Pellew, Business Consultant to the
logistics event. logistics sector (including those organisations
specialising in infrastructure and ports) and
Port centric Logistics is an alternative to the
together with the Teesport team, is seen as
traditional approach, which typically sees
a pioneer of port centric logistics and has
goods transported to the logistics ‘golden
forecast the dramatic shift in the sector as
triangle’ (the central and southern England
e-tailing has taken off in the UK and Europe.
hub) for onward distribution, by offering
He has witnessed the impact that e-tailing
customers the choice to go straight from
has had on the logistics sector and how RDCs
A to B. The approach can save time, money
were pulling away from the traditional model
and considerably reduce environmental im-
and moving closer to a port centric solution.
pact and importantly dovetails with the
JIT demands of e-tailing. “The evolution of e-tailing is presenting a
golden opportunity to redevelop logistics
Geoff Lippitt, Business Development Director
and fine tune its efficiency; London Gateway,
of PD Ports Group said: “Portcentric Logistics
Peel in Liverpool and Teesport, as already
has very real commercial and environmental
mentioned, are some who are doing just
benefits. Every year, in total, our customers
that.”
save millions of pounds in supply chain costs,
road miles and significantly reduce their
carbon emissions.
© PD Ports
Page 20Expansion of port centric shore solutions
Due to the trend of click and collect, more “The UK ports sector has done a lot of great “Port Centric Logistics has started to gather
businesses are pulling away from RDCs work to tackle the complex UK planning pace as a supply chain strategy, and a
located around the ‘golden triangle’ in the procedures, which has attracted a lot of growing number of retailers and
East Midlands and moving stockholding and capital investment in infrastructure; however, manufacturers are now looking to store
order picking closer to ports, where large more needs to be done to continue making goods and undertake logistics activities
distribution centres are now helping to improvements and continue the expansion close to the port of entry.
manage customer demand of wanting of port centric solutions on our shores.”
“Potential for Liverpool’s SUPERPORT and
goods within a faster turnaround time.
Bernard Molloy, Global Industrial Logistics port centric logistics activities looks set for a
This saves valuable time by cutting out the
Director at Unipart Logistics and Chair of bright future. If nearly 20 million people can
traditional centrally located national import
Liverpool City Region SUPERPORT be reached more directly from Liverpool, why
centres (the ‘middle man’) as the goods can
Committee, also agrees that now is the take any other route? The port has access to
be sorted at the port warehouse before
time to create a new UK logistics strategy, a potential five million sq ft of warehousing
being transported straight to the RDC.
commenting: “As the pace of growth in the and there is a raft of large development sites
Martyn Pellew continued: “Retailers are UK and global economies quicken, retailers close by. Access to 10 motorways within 10
growing a greater range of stock and a faster and manufacturers will need to review the miles combined with a closely integrated rail
stock turn than ever before. Therefore RDCs structure of their domestic and international network and the new port near completion,
are taking up a larger share of the grocery logistics operations to keep up with increased sea, rail and road are easily brought together
market throughput, particularly chilled goods. demand. Expanding capacity and delivering in tri-modal facilities that can reach out
The problem with the port centric model is value to customers in a competitive market, across the country. Being located near a
that more ports are focused towards the that is conscious of cost and carbon usage, port that facilitates the fast international
electrical market rather than food, so storing will make port centric logistics and the movement of part completed and finished
and transporting chilled goods is a challenge direct import and export of goods through product will become increasingly important.”
– but also an opportunity to become more Northern ports (such as Liverpool’s
innovative and competitive. SUPERPORT), a strategic imperative.
Traditional Portcentric
Model Model
Town/City Town/City
Port Port
Page 21Chapter 4
TECHNOLOGY TAKES HOLD
2013 was declared the Year of the Mobile27 and with the advent of
4G and faster connections, purchases made via mobile devices, such
as smart phones or tablets, doubled between December 2012 and 2013
December 2013. In addition, more than two thirds (68 per cent) of 2012
4G users feel that faster access to the Internet encourages them to
make more purchases from their smartphone, according to the latest
consumer research from IMRG and Voice of the Customer specialist
eDigitalResearch.28
PURCHASE VIA
MOBILES HAS
DOUBLED AND
Year on Year Growth Table: 4 OUT OF 5
Total e-Retail & e-Retail excluding mobile
MOBILE ORDERS
20%
ARE VIA TABLETS
15%
YOY Growth
Tina Spooner, Chief Information Officer at
10% IMRG, said: “With over half of 4G users
having shopped via their smartphones,
compared with around a third of their
5% 3G counterparts, it is clear that faster
access brings a higher level of customer
engagement via mobile. During the
0% mid-2000s we saw a similar trend in overall
e-retail, when the adoption of faster
broadband connections resulted in a surge
-5%
in online sales.
Q1 2011/12
Q2 2011/12
Q3 2011/12
Q4 2011/12
Q1 2012/13
Q2 2012/13
Q3 2012/13
Q4 2012/13
Q1 2013/14
Q2 2013/14
“Mobile has become an integral part of the
online shopping journey, with a third of UK
e-retail sales now coming via smartphone
and tablet devices. Although tablets currently
account for the lion’s share of m-retail, as 4G
Total E-Retail E-Retail Excluding Mobile adoption increases and more users sign up to
high-speed mobile internet services, there is
© IMRG
little doubt we will see an increasing number
of consumers shopping on the move.”
As a result, the impact on retailers and the
But ‘being mobile’ hasn’t just affected eDigitalResearch research revealed that just supply chain will witness a growing need to
customers. The consumer’s ability to make 2 per cent of smartphone owners state that know where stock is or isn’t located, how
purchases on the move is an attractive mobile sites or apps are their first port of and when to replenish, and at what cost.
opportunity for businesses; despite thousands call when they shop and browse, compared
or even millions of new apps being created to 11 per cent of 4G users who said the With online spending continuing to gain
each year, analysts’ estimate the number of same. Whilst this isn’t a particularly high in popularity, the trend highlights the
app downloads in 2013 range from 56 to number, it still accounts for a tenth importance of having the capability to
82 billion and by 2017, there could be of customer share, which is important manage online purchases on a retail,
200 billion downloads29 . However, IMRG/ not to ignore. storage and logistical scale.
Page 22Influencing consumer behaviour
The retail sector has become an expert in product placement affects purchasing choices browsing or buying history, similar
influencing purchasing decisions, including in a retail outlet, then it’s not surprising customer profiles, and standard shopping
product placement in prominent displays that this is also replicated in the online patterns (e.g. birthday parties).
to attract shoppers’ attention, price marketplace.
“While this can benefit consumers, there
interventions, music selection and different
In its latest flagship report, “Food Processors are multiple incentives for a retailer to
scents’ selection.
Challenged by Online Growth Dynamics,” persuade a customer to change products
A recent study funded by the Department Rabobank, a global leader in Food and Agri too, which may lead to concerns around
of Health Policy Research Programme and financing, explores how new technology transparency and privacy online.” By
carried out mainly by Cambridge University allows retailers to control what customers influencing online decision making, it’s
and East Anglia University has found that an see. “In this algorithm-controlled world, not surprising that e-commerce has had
estimated 30 per cent of supermarket sales retailers can steer customers in a certain to create more innovative ways to make
come from aisle-ends and placing beverages ‘ordering direction’ with tailor-made their service, what Rabobank describes as
in end-of-aisle locations uplifts sales sharply. If promotions and substitutions based on “online-proof”.
Click and collect
If 2013 was the Year of the Mobile, then Network Rail has also recognised the Collect+ sends follow-up emails to
2014 is the Year of ‘click and collect’. potential to generate extra income, as it has customers asking for feedback on their
Click and collect is often the first step set up a joint venture with Travelex founder experience, which results in 10,000 to
into e-commerce for established retailers Lloyd Dorfman to invest £24m in 300 15,000 replies per week; the collection
and so they need to review their logistics, Doddle pick-up-points at rail stations. business drops stores if they do not address
distribution and technology to support them negative feedback. The pick-up partners of
This requires secure storage and management
in the delivery of this service. Tanya Lawler, Collect+ include BP garages, Co-op stores
of parcels, receipts, labels and scans, which
the UK vice-president of eBay, said: “Retail and a multitude of smaller retail outlets,
adds to the cost and potential complications
has changed and shoppers are in the driving all of whom need to consider product
if the systems don’t work in harmony
seat like never before. They want to shop and parcel segregation, and security in
together. Organisation, efficiency and
anytime, anywhere, on any device, and the delivery of their service. Shelving
technology are imperative here.
British shoppers love to click and collect.” kits, cupboards and lockers present ideal
Like e-tailing, click and collect began life at storage solutions especially where space is
Argos and Collect+ are examples of this
a slow pace, but is now enabling retailers limited.
evolution with both companies boasting a
to sprint ahead of the competition and
network of more than 5,500 local stores in David Robinson, chief operating officer of
according to Retail Week magazine, is
the UK, “open ‘til late”. Argos extends an Argos, said: “Fulfilment is the next retail
“the most innovative period in the sector’s
eBay tie-up to bring click and collect service battleground and Argos’s unique model is
history.”32
to 650 stores and by the end of this year, well placed to leverage this.”
around 65,000 eBay sellers are expected to Even though home deliveries are the
offer items for collection at Argos, rising to preferred option by consumers, it is actually
80,000 in 2015. fundamentally inconvenient. “They want
home delivery but if it’s not on their terms
The online company has joined this growing
they will find a different fulfilment
retail phenomenon, through its partnership
solution to fit their schedules,”
with Argos to enable online shoppers to
maintains Neil Ashworth, chief executive
collect goods at 650 stores.30 An article in the
of convenience store collection network
Guardian suggests that some see this idea as
Collect+. “With click and collect, the
the “potential saviour of the high street, as
customer is in control.”
it connects the fast-growing online shopping
world with physical stores.”31 It has grown by
such an extent, that more than half of British
CLICK & COLLECT
shoppers have now collected online orders
from a store or another convenient location. BY THE END OF THIS
Many retailers are following suit, with
collection lockers being deployed across the
YEAR 65,000 EBAY
country. Amazon has plans to trial online
shopping pick-up lockers in two London
SELLERS ARE EXPECTED TO OFFER
Underground car parks, which has already
been tested by Asda, Tesco and Waitrose.
ITEMS FOR COLLECTION AT ARGOS
Page 23The nightmare
returns
But a new challenge has arisen; returns and
reverse logistics. The way in which consumers
Stock
return their unwanted goods has for too Scrap/Return store
long played second fiddle to the distribution Web Sales
side of e-commerce. Some companies even Store
go as far as claiming that their biggest
‘supplier’ of goods is their returns
Supplier
department. The rate in which customers
are returning unwanted goods is now higher Drop Off
than the frequency that retailers are receiving
new products from their suppliers. Inventory
management and the maximisation of value DC / E-fulfilment Centre
have become an increasingly large bone of
contention for many online retailers.
Post
The problems surrounding returns can often
take a back seat while outbound sales and
logistics take the wheel. Where many DC / E-fulfilment Centre
retailers are struggling to manage is in the Store
‘Reverse Logistics’ of their business, which
often results in loss and misrepresentation Courier
of stock; items that bought online can be
returned to store stock, rather than back to
the distribution centre. Consequently, the
shop’s IT systems and delivery or collection
logistics need to factor this in, as naturally Retail: The throw-away sector
there will be cost implications.
‘Throw-away society’ is an ugly term the retailer is then making efforts to
commonly used in reference to our society’s guarantee the repeat business of customers
willingness to disregard food, clothing, and maintaining their sales.
technology and other products to the scrap
“Where many heap when its purpose has come to an end.
A recent study conducted by MICROS retail
technology experts found that 50 per cent
retailers are Now a new group of contributors to the
pile of disregarded products is emerging.
of the 217 retailers they reviewed had a
struggling to Retail is dramatically becoming the
shop front that permitted consumers to
return unwanted goods directly to the
manage is in the ‘Throw-away Sector’, as an increasing store.33 This eases the demand for logistical
‘Reverse Logistics’ amount of retailers are choosing to refund
a customer the full amount for their online
solutions as many customers are inclined
to return items directly to the physical
of their business, purchase, but do not wish to receive the store of the retailer. Alongside this is the
this often results product back as it poses a long list of
reverse logistical issues that many retailers
challenge of shipping the item back to the
manufacturer or identifying a solution for
in loss and are unwilling to tackle for various reasons. the final destination of the product, as it
misrepresentation The cost of postage, couriers, handling and
sourcing a final destination for the product
will eventually be placed on the shop floor
for other customers to buy in the same way
of stock” in many cases outweighs the cost of the the majority of returns are purchased and
item. In providing this ‘goodwill gesture’ returned to bricks and mortar stores.
Page 24Logistics and packaging respond to the Rise of the robot
click and collect challenge Online sales fulfilment has a different
profile to retail distribution logistics, as
Logistics professionals are also becoming Paul Young, head of DHL’s packaging single item picking occurs more frequently
even more focused on fulfilment, in order to services, said: “The packaging industry than more efficient batch picking. Not
keep up with increasing consumer demand. really hasn’t moved on much in the last 20 only that but the short picking window as
or even 30 years. We need to take notice of a result of next-day delivery and late order
Tim Allison, logistics director of Dixons,
what today’s savvy consumer is concerned cut-off times mean that picking accuracy
has overseen the evolution of the electrical
about, and that includes less waste. is crucial to the success of the operation,
retailer’s entire supply chain to focus on
which must also be able to handle a high
offering true multi-channel fulfilment over
level of returns, particularly with fashion
the last four years. He highlights that the
real challenge is in balancing the demands “Although the UK goods.
of joining up those channels and keeping is a world leader Consequently, to help with the quicker
stock flowing, without bloating the turnaround, warehouse bosses have been
supply chain: “Meeting that demand, for click-&-collect, looking at alternative technologies,
without increasing stock.” few brands are particularly the increasing deployment
of robotics.
Michael Kliger, eBay Enterprise’s managing currently servicing
director EMEA, believes that a more refined
approach to click and collect could have it in this way Perhaps the most eye-opening technology
to be developed at Ocado, by teams at
even more potential, for example in the despite its both Hatfield in Hertfordshire and in Krakow
burgeoning convenience sector. “Another
way retailers can get ahead is by realising benefits in terms in Poland, are the “vision” systems that the
company intends to apply to robotics.34
the full potential of click and collect of customer “Many applications of robotics, in terms
convenience. By making in-store inventory
available for click and collect, they could experience and of ‘statics’ or b-axis robots, are often quite
fulfil orders not just same day but within brand loyalty.” learnt or repeatable actions, whether that’s
stacking trays of lasagne or picking items
a two hour window. Although the UK is
a world leader for click and collect, few off of a moving conveyor belt and putting
brands are currently servicing it in this way them into an empty box. It does the same
despite its benefits in terms of customer thing each time,” says Ocado’s technology
experience and brand loyalty.” director, Paul Clarke.
“I am really concerned about the
emergence of e-tailing and how this is It also potentially leads the company into
Whilst the logistics sector has significant
affecting packaging. Increasingly, more and the realm of driverless technology and the
issues to overcome, it recognises the need
more retailers are selling more and more possibility that driverless delivery vehicles
to tackle these challenges head on; using
products over the internet. Little thought is won’t be far behind.
responsiveness is a key weapon.
given into how they should be packaged.
Seth Pacha, global inventory management “The commercial applications of such
This is clearly impacting on efficiency, but
solutions manager for Neovia Logistics, technology are huge – not only from a cost
more worryingly we are seeing potentially
commented: “By processing returns, point of view, but from a safety point of
harmful situations where liquids and
inventory is returned to the global pool of view,” says Clarke.
solvents are being packaged into re-used
resources and is allowed to move throughout cardboard boxes with little or no thought
the supply chain to the appropriate area still given to protection or barriers to prevent
requiring that demand. Significant savings in damage or leakages.”
inventory and purchasing exist by allowing
Packaging is an essential stage in the e-tail
recognition of this supply stream.”
supply chain, as products are handled so
The logistics sector isn’t naive about its often and/or shipped in order to reduce
position in the e-tailing market, particularly the cost of delivery; correctly packaged
compared to other key players along the goods help prevent damage and stock loss,
supply chain, but believes there is still plenty therefore reducing additional costs to © Drew Kelly@WIRED
of work to be done. replace stolen stock.
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