Home shopping - new requirements on logistics and packaging

Transcription

1 Home shopping - new requirements on logistics and packaging Gunilla Jönson Professor in Transport Packaging Mats Johnsson Associate Professor Department of Design Sciences, Packaging Logistics Lund University Box Lund Abstract One important future change in the retail industry is the increased use of home shopping through different media. New requirements are presented to the retailers by the customers. Internet home shopping presents the products to the customer on web pages. No traditional retail activities are required. Products are delivered to the customers house/apartment or to a customer pick up place. This new way of shopping will affect home delivery logistics, customer service as well as packaging. The requirements we discuss are based on studies of the Tesco Internet Superstore, Sainsbury's "Order & Collect", Safeway's "Collect & Go" and experiences from new Swedish initiatives. Price is often not the main issue. The consumer wants added value. New services such as Customer Purchase Lists can be offered to the customer - a list based on purchase activities during the last month. Other services are laundry services, video rental, bakery products, etc. 1 Introduction In today s society with an increased time pressure, many people are looking for time to increase the possibilities for activities, which provide quality of life. Shopping is one activity many want to limit in time. When a group of customers where questioned about shopping, the following answers were reported [1]. A majority of consumers dislike current in-store based shopping experiences Grocery shopping is low ranked on desirability of weekly household tasks 1

2 Consumer spend an average of 2.8 hours per week performing routine household consumable replenishment Many households have all adults working outside home Consumers are willing to pay for convenience A majority of consumers interviewed in the referred study state that they will order all types of groceries and general merchandise electronically if opportunity exists. It is also the consumer, who will be the driving force in the development of internet [2]. While we at present may recognise a market, that promotes product functions, the next century is expected to develop a market that will adopt to individual needs and demands [3]. Internet will make this possible. In practise the internet then opens a new store for every consumer every day and the world market is present at each moment. From the product development point of view, this means that there is competition in every segment at all times. Inefficiencies in one area cannot be covered up by efficiency in another area as the consumer will be able to evaluate every part of an offer. Traditional distribution as in Figure 1 may be replaced by a distribution as in Figure 2. Producer Distributor Sales Consumer needs Figure 1: The traditional value added distribution chain Producer part 1 Consumer need 1 Producer part 2 Electronic sales Consumer need 2 Producer part 3 Consumer need 3 Figure 2: The possible future demand and need chain At present producers or retail chains, that are involved in home shopping, use the internet to transfer information. Usually, the information is transferred by text lines. This will naturally not be satisfactory when the electronic commerce develops. The producers will need to 2

3 transfer images and experiences using modern graphics to meet consumer wishes. The presentations of the products on the internet must then be followed by packaging and products meeting the expectations when reaching the consumer. Any information about discrepancy between what is offered on internet and what is actually received will be possible to transmit back on the net immediately by the consumer. In reality, the marketing must be very transparent and honest [4]. The distribution of ordered products are presently handled very traditionally by the internet actors. This is not efficient and consequently the costs are too high to meet future competition. Home shopping of groceries and convenience food differ from purchasing of textiles, books and electronics by hygienic requirements on the distribution. This means also that systems that seems natural to utilise, like the postal service net, cannot be used without modifications. Handling of groceries requires methods and equipment that secure the quality of distributed products. Right temperatures are required when food is distributed. Equipment needed to secure the specific temperature range for hours must be provided in a total home shopping concept. 2 Methodology Internet based home shopping and its requirements on distribution is a fairly new research area, that needs to be developed. We have selected the case study methodology together with literature studies to gain knowledge about the present structure and existing problem areas. However, the literature is limited about distribution systems for internet trade. 2.1 Logistical reference base When a product is delivered to the consumer it has an added value compared to the original product as a service meeting customer demands has been provided. Three different kinds of values are found: Form use Place use Time use 3

4 According to the marketing mix theory [5] the supplier utilises one or more of the following parameters in the competition: Price Product (quality and assortment) Promotion (quality and personal selling) Distribution Important elements in a logistical system, that supports physical distribution [6], are: Warehousing Loading and unloading of goods Methods of packing Warehouse control 3 Collection of orders During a start up phase the order picking activity can be carried out in the regular shop but relatively soon this will become too time consuming and costly. Still, most of the current distribution is not revised. There are three issues to consider in a home shopping assembly facility[7]. 1. The pick/pack operation requires an assembly container in attaining high efficiency. The container has to be uniform to make it easy to move around a picking line. The dimensions of the container must be adapted to a high degree of volume use and suitable for assembly as well as delivery. Labels for routing and tracking purposes must be easily attachable on the container. 2. The great number of articles in a normal retail store has the consequence that the picking area of a home shopping facility will be large. An average order might be in the region of 300 litres and have up to 50 order lines. To pick and assemble each order in series would be both difficult and inefficient. The picking and assembly facility should therefore feature parallel picking with zones. A solution is to bring the orders through the picking area in parallel and then combine the order at dispatch. Each order will then be processed in a shorter time. In addition it is sensible to arrange the picking area into different zones. Pickers have specific zones, which helps them to become familiar to the product range. This leads to higher productivity and picker accuracy. 3. In the initial stage of home shopping many retailers pick the order in the store and move around as a shopper. In a picking facility conveyor systems are used for the movements. 4

5 The mistakes are then minimised as to where the assembly container is going after finishing one pick zone. A computer system handles the orders and guides the picking containers through a time optimised route. As different groceries require different temperatures, the zones might be arranged differently with divergent temperatures. The basic structure is however the same. The products picked are placed in front of the pickers in so called pick faces. There are many ways to place products so the pickers can handle them easily. Experience from other fields of business [8] show that the best way to store products for fast and accurate picking is to place the secondary packages in front of the pickers in First-In-First-Out (FIFO) racks. The racks can then easily be replenished from the back without interrupting the pickers in their work. The picker takes out primary packs needed directly from the secondary packages. When the order volumes are fairly high the facility is likely to have a warehouse that holds the products in close or in direct connection with the picking face. To process the pallets and feed the picking area with secondary packages there might even be a small intermediate warehouse. The warehouses could be handled by a warehouse computer system using automatic cranes and trucks. In order to manage a home shopping facility, some new skills are required compared to normal retail trade to run a home shopping facility with high efficiency it is important to have a sound product range. The higher the number of products in the pick faces, the lower the efficiency. It is still important to carry products with high turnover rates. the product range must follow trend and demand fluctuations to ensure low warehouse costs and high picking efficiency speed of delivery and customer interaction must be efficient and cost effective 3.1 Design Features and Principles of Home shopping facilities There are some features and principles of interest in the home shopping facilities The operation of service deli/commissary, prepared meal, etc. which demand a unique set of storage, skill and processing characteristics not found in a wholesale operation may be outsourced in general home shopping. We will see more specialised internet stores as well as shops in this market segment (see Figure 2) The facilities must include special packaging considerations to maintain quality and safety such as bananas, meat, fish, etc 5

6 Shelving and store racks must be modularized to support flexibility and mixed loads Customer Response Centres must be located in close proximity to the markets serviced but not in high traffic areas. Warehouse management technology must be used to maintain accuracy subject to the economic constraints of a large facility. Warehouse management software is also needed to secure that FIFO is applied on all products. 3.2 Two key sources forming logistics and economy The order assembly unit This unit breaks down incoming pallets and roll containers to outgoing customers orders. The front end looks like the present receiving docks of distribution centres. High productivity picking system and IT-system are needed for flow co-ordination. Plastic crates are short-timestored before transfer to customers. In this type of system the following logistical variables are important and must be measured: Delivery and reception - docking, time for unloading, control functions Front end storage - capacity, turnover rates, assortment, temperature zones Order assembly system - capacity, mode of movement, load carriers Back end storage - capacity, storage times, temperature zones Order specific variables - orders/day, order lines/order, items/order line Consumer Delivery Channels The layout of the delivery system can be of two general types small truck directly to the consumer or truck to Consumer Delivery Unit and from there to the consumer by truck. Irrespective of system the same logistical variables will influence efficiency. The identified variables are Geographic customer spread Door delivery times Traffic situation Route design Maximum number of orders per vehicle 6

7 Maximum number of routes per day The geographic customer spread concerns the physical distance between the individual customers. It also involves how the delivery is carried out from the point of arrival at the individual customer address to the point of departure from the address. The handling of a single house delivery will differ from the way of handling a delivery to an apartment. In other words, there will be a difference in handling times between these deliveries. Another time sensitive activity is the actual delivery where the goods are to change hands from the person delivering to the customer. This procedure will involve ringing doorbells, waiting for the door to open and finally handing over the groceries and getting some kind of delivery note signed. The traffic situation in the area of commerce will have a determining role for the times related to movement between the delivery points. The times of movement will most probably vary in relation to rush hour traffic. The design of the routes involves dividing the total spread of delivery points into clusters of delivery points representing a specific geographic area. From interviews with customers following expectations on the home shopping service are found [9] : On time delivery Order accuracy In-stock Freshness Price competitive Flexible Selection Quality These requirements together with the geographic customer spread determines what types of service to be used; delivery or pick up. Delivery service require e.g. a refrigerated box and a secure area at each delivery place to maintain high quality of delivered products. 4 Added value The competitive advantages of home distribution can not only lie in cost reduction but also in adding value to the groceries. A total grip of the logistical functions and the marketing consequences of a home shopping system can offer a home shopping actor competitive advantages towards normal retail stores. 7

8 The choice of distribution is mainly decided by three factors the markets, market segments and target groups the competitive situation the demand of resource by the different distribution alternatives The whole concept of home shopping requires new ways of thinking. The challenge for the internet actors is to replace the traditional added value chains and replace them with chains meeting the consumer demands. An example can be that a retailer in addition to present product range can provide services such as dry cleaning, video rental, bakery products, etc. The logistics must also be developed to handle such services or the consumer will find a better alternative. 4.1 Packaging requirements Products, that are sold through the information provided on the internet will need brand marketing to support products and companies. In addition the packaged product will need to submit the same image and experience on the store shelf as shown on the internet as few consumers will only use the internet for their purchasing. They need to recognise the products where ever they meet them. The graphic design of consumer packaging will then be crucial, both form and graphic design. The product handling in store must be efficient and cost effective to meet the internet trade. Handling of packaging makes up 75% of all activities in store and every decrease in handling time is crucial [9]. SEK 500 is the present break even order value in a grocery home shopping system in order to make it possible to hold the same prices in internet trading as in the average retail store [10]. 4.2 Environmental aspects Internet based home shopping may influence the transportation as it often is assumed that delivery of products to the households are made when traffic is low. People will go straight home and no extra driving is required for shopping. If additional services (laundry, video rentals, bakery products, etc.) can be added to the basic grocery shopping, the need for extra transportation is decreased even more. The environmental impact may as a consequence be lowered. However, it must be recognised that many products may be purchased globally 8

9 instead of locally, thus influencing transports needed. Examples start to show that increased internet trade influences local business 1. In addition store owners may select new areas to establish their businesses, thus changing the traffic patterns. Low populated areas may also need additional transports to get the products needed. The environmental consequences may therefore vary depending on circumstances and need to be investigated before any general conclusions can be drawn. 5 Conclusions The internet can help reshape business processes to become more competitive and take advantage of new markets. E-business means delivering an integrated technology solution for better business processes and communication between: employees (intranet); business partners (extranet); and customers & constituencies (internet). Electronic commerce encapsulates many aspects of business functions, not merely selling products. It will provide dynamic competitive advantages in the domestic market place as well as in an increasingly global environment. Home shopping puts new requirement on logistics. The traditional distribution systems will be too costly. Before any type of investments are made in home shopping it is important to have a clear vision of tomorrow's home shopping concept, how the value added product chains shall develop to meet the consumer needs and demands chains. Home delivery creates an added value that might moderate the importance of lower prices Research areas related to home shopping A number of questions need to be answered when the internet and home shopping is growing in importance. Examples are Price and market effects on employment what is needed to get more effective logistic processes price structure on an international market 1 In the paper Sydsvenskan there was an article in April 1999 claiming that a book store needed to fire a number of persons due to declining sales caused by increased internet trade 9

10 Regional markets How will the retail structure in low populated areas be effected when business allocation decreases Daily business Will required electronic trade devices cut off groups of customers? Will households ask for more home deliveries? Will the environmental pressure effect home shopping? Future university driven logistics research at Lund University will emphasis: Packaging logistics EU order assembly unit Service requirements and service structures Consumer driven logistics development Sales efficiency Sales of logistic identity Sales of green logistics 6 References 1. Bradley., C., V., Direct Grocery The Consumer Channel: What are Its' Logistics Challanges. (1998) Council of Logistics Management Conference, Anaheim, USA. 2. Presentation of The Transparent Market by Mats Larsson and David Lundberg, Skissernas Museum, Lund University, March 4, Ibid. 4. Ibid. 5. Tankersley, Modifying the marketing mix strategies for the mature customer. (1990), Copley Pub Group. 6. Johnsson, M., Packaging Logistics - A value added approach. (1999) Dep. Of Design Sciences, Doctorial Thesis, Lund University 7. Andersson, O., Winther, J., Home shopping Cost and Function Analysis of a Future Grocery Distribution System. (1998) Lund. Master Thesis. 8. Jönson, G., Johnsson., M., Packaging Logistics - A value added approach. (1998) CTT Research Days 3-4 November1998, Gothenburg, Sweden. 10

11 9. Bradley, C., V., Direct Grocery The Consumer Channel: What are Its Logistics Challanges Council of Logistics Management Conference, Anaheim, USA. 10. Andersson, O., Winther, J., Home shopping Cost and Function Analysis of a Future Grocery Distribution System. (1998) Lund. Master Thesis. 11