Innovative logistics needed for intense grocery eCommerce market

The trends taking place across the sector are well documented, and the results are driving an industry that is becoming increasingly fragmented across a multitude of levels including retail outlets, distribution channels, customer service requirements and product offerings.

The effects from digital trends alone include an increase in localisation, the need for added ‘late stage’ customisation, and increasing response speed and smaller batch sizes of a wider variety being pulled through the supply chain. Adding complexity in this way is not normally associated with driving cost efficiency, and as is also well documented, current day margins are as wafer thin as ever. Against this backdrop then the need for supply chain optimisation and the drive towards ever increasing levels of efficiency continues to be of critical concern.

One area where businesses can create the difference is with Intralogistics; which describes the concept of optimising the flow of goods with that of information in any particular node of the supply chain, and in the food and grocery space that description is related most often to the DC or fulfilment centre. Whilst ‘Intralogistics’ is a relatively new term to many, the concepts behind it are hardly revolutionary, but the rapid pace of change in supply chain technologies is placing a new emphasis on this area. Modern DCs and fulfilment centres are having to cater for an increasingly diverse range of goods, operate at far greater speeds, and to much higher levels of accuracy than has historically been the case, and the winning businesses are those that are investing in their capabilities in these areas so that they can keep the costs of fulfilment under control. In fact, you could argue that conventional fulfilment is no longer fit for purpose, as it cannot cost effectively cater for the complexity of modern day service levels, and as a result the costs can be (and often are) highly prohibitive.

Fortunately, not only is there a need for new solutions, the industry is itself experiencing a revolution in terms of the capabilities for automation, digital control and advanced analytics.

All elements of the pick pack and ship operation are increasingly being automated, driving down the operational overhead at product level, and improving productivity by increasing the length of activity during the operating period.

For the food manufacturer one of the advantages of the eCommerce market is the opportunity to exploit the direct to customer channel, and a recent analysis of the businesses that are making headway in the market show a number of similar characteristics. These include:

• A clearly defined eCommerce multi channel strategy
• Customer centric digital supply chain and eCommerce capability serving both retail and the consumer
• Bricks and Mortar channel presence
• Good platforms and processes, around standard SC capabilities (e.g. S&OP / Demand Forecasting)
• Manufacturing agility, the ability to respond quickly to customer needs
• Strong downstream 3PL and last mile partnerships, in terms of execution and visibility

Going hand in hand with these capabilities is the need for the manufacturers factory and DC operations to embrace modern intralogistics solutions. Traditionally these operations would have dealt, for example, at a pallet or case level, but with a Direct to Customer offer have no choice but to cater (efficiently) for pick, pack, sort and despatch at an individual SKU level as well. The channel economics of course are quite different across these markets and often the product range itself will broaden to embrace a wider market offer ... perhaps with the introduction of a more ‘premium’ range.

Increasingly in the future, scenarios will exist where manufacturing postponement will also shift from the factory to DC, with 3D printers utilised to customise orders. In itself this late customisation can be the basis of the premium, but the results are a more complex DC operation which now must allow for a production element within its flow processes. At the same time it must embrace a capability to meet the delivery requirements and customer service expectations of an individual consumer, which are very different to those demanded by the traditional retail channel.

With our own research showing that those manufacturers leading the move into DTC, expect this channel to grow by 5 per cent CAGR over the next five years, we will see modern intralogistics solutions play an increasingly important role. However, the critical thing is to understand which levers to pull to optimise the channel economics.

The writer is Richard Walters, a manager at BearingPoint