Best Practices in Supply Chain Management in the Retail Industry

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1 Best Practices in Supply Chain Management in the Retail Industry Presented by Dickson Yeo Director (Supply Chain) NTUC FairPrice, Singapore 20 th August 2013

2 FairPrice - A Co-operative of NTUC FairPrice was established in 1973 as a cooperative with a social mission to moderate the cost of living in Singapore Today FairPrice is a leading grocery retailer in Singapore with a retail network of more than 270 outlets

3 FairPrice Retail Formats

4 FairPrice Central Distribution Centers First supermarket retailer in Singapore to have its own central warehousing and distribution company Joo Koon DC Area: 300,000 sq. ft. Product: Food, beverage & dry merchandise Daily throughput: 66,000 cartons SKU: 9,000 Penjuru DC Area: 200,000 sq. ft. Product: Bulky items and imports Daily throughput: 15,000 cartons SKU: 1,300 Fresh Food DC Area: 180,000 sq. ft. Product: Frozen, Dairy, Vegetable, Fruits, Confect & Wine Daily throughput: 44,000 cartons SKU: 2,300

5 Overview of Fresh Food DC Warehouse Area (sq.ft.) Temperature Frozen Warehouse 16, Celsius Dairy Warehouse 6,000 4 to 6 Celsius Vegetable Warehouse 38,000 4 to 6 Celsius Fruits Warehouse 25,000 4 to 6 Celsius Confectionary & Wine Warehouse 29, Celsius Ante Rooms 20, Celsius

6 Distribution without Centralization Transport route, order transmission, invoice payment, order receiving, order checking etc Some stores recorded up to 200 deliveries per day

7 Centralization Central Distribution FFDC Only 15% of SKU coming directly from suppliers

8 Delivery Overview of FairPrice Supply Chain Suppliers 1 Consolidated Ordering 3 Invoice Centralized Purchasing 1 Electronic Document 2 Centralized Distribution 4 5 Electronic Ordering Delivery Supermarkets Supermarkets Supermarkets Core Benefits of Centralization Improved service level Increased front-end SKU holding Supply chain cost reduction

9 Improved Service Level High replenishment as frequent as 2 deliveries per day Inventory aggregation reduces out-of-stock, as some demands are not positively correlated Lock in stock ownership to buffer against profiteering and market manipulation Controlled stock allocation in face of sudden shortage for better stock distribution Increased Frond-end SKU Holding Better match of order volume with demand pattern Optimized space usage by imminently needed items only (average SOH of 1.5 days at front-end supermarket) Front-ends focus on core competency of offering variance; back-end manages the storage and picking

10 Supply Chain Cost Reduction Centralized purchasing lowers unit procurement cost Suppliers achieve savings via less delivery point and full-truck-load delivery (warehousing cost is recovered from suppliers) Minimize receiving transaction and handling at supermarkets Ease of expansion for new store opening Centralization renders economy of scale thus enable automation

11 Material Handling System Pick-to-Light Technology Paperless and hands-free picking No material handling equipment required Simple process and staff training High productivity (3.6 times faster) PTL Panel

12 Material Handling System Pallet-Live-Storage Module Continuous picking & replenishment (independent processes) Multiple picking level plt-deep pick points within 845m 2

13 Material Handling System Pick-to-Tote Ideal for slow or non-conveyable item Small, fragile or odd packaging Piece picking Better demand-supply match

14 Material Handling System Carton-Live-Storage SKU proliferation Compact picking module Minimize travel distance High hit rate (1,000 SKU for 62m aisle)

15 Material Handling System Conveyor System Automation in goods movement: Multi level goods transportation leads to space savings Minimize material handling equipment thus less traffic congestion Connectivity throughout the distribution center

16 Material Handling System Sortation System: Cross-Belt System FMCG of various sizes with suppliers own barcode Batch picking and flowthrough distribution Cartons are sorted directly to its allocated staging lanes Capacity: 7,200 carton per hour

17 Benefits of DC Automation Productivity & Capability Improvement Daily Throughput Without MHS With MHS % Improvement Current Future Projection 66,000 carton / day 90,000 carton / day Throughput / hour 3,800 6, % Headcount % Throughput / hour 4,500 8, % Headcount % Tremendous improvement in productivity Less reliance on manual labor Improved accuracy and traceability

18 Importance of Processes Inventory Management Visibility of stock-on-hand for HQ, distribution centers, supermarkets & Online Inter-branch-transfer is possible System accuracy allows one stocktake exercise per year Activity-Based-Costing Logistics charges to supermarket is directly proportional to activity incurred Active adherence to on-time ordering and delivery Discourage non-essential delivery for non-critical item Urgent delivery is still available at extra cost

19 Healthcare Automation Totebox Storage Solution Vertical Storage Solution * Courtesy of Swisslog

20 Pitfalls of DC Automation Investment Cost ROI High capital investment Annual asset depreciation Nominal salvage value Maintenance cost Business organic growth More centralization New formats & SKU Throughput volume Returns on Investment

21 Pitfalls of DC Automation Business Model & Requirements: Push vs pull model Stock turn-over (ex: fashion vs grocery industry) Volume vs number of retail outlets (WalMart vs 7-11) Logistics Operating Models Customer s geographical dispersion (US versus Japan) Day / night / 24 hours delivery Cross dock & flow-through Lead time requirements

22 Pitfalls of DC Automation Localization & adaptation of automation Local regulations Voice picking customization Flexibility & adaptability

23 Pitfalls of DC Automation System Failure Build-in system redundancy Modular design Distributed risks Strengthening of single point of failure Contingency for minor failure Alternative order fulfillment processes Cross-train employee Contingency for major failure Partial/full operation diversion to alternative site Updates of critical items list

24 Success Factors for DC Automation 1) Bold foresight and calculated initiative Automation project conceived in 2003 Operational in 2007 Utilized full facility capacity in 2015 Action before productivity/capacity crisis 2) Learn from the world s best Many world-class distribution centers utilize ASRS and automated picking modules Suitable technology 3) Early employees involvement Feedback and participation from ground level Employee acceptance towards automation 4) Invest in talents Establish teams with multi-functional skills

25 Key Sharing I. Centralization concept rendered higher throughput volume, therefore better business case for DC automation II. III. Automation leads to: Improved productivity Higher capacity Overcome manpower crunch Better service level Cost savings to customer Do with care: ROI calculation System availability & redundancy Suitable technology investment Coordination with business partners

26 Thank You

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