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Presented by
Best Practices in Supply Chain
Management in the Retail Industry
Dickson Yeo
Director (Supply Chain)
NTUC FairPrice, Singapore
20th August 2013
• 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
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FairPrice - A Co-operative of NTUC
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
Warehouse Area (sq.ft.) Temperature
Frozen Warehouse 16,000 - 20 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 29,000 18 Celsius
Ante Rooms 20,000 15 Celsius
Overview of Fresh Food DC
Distribution without Centralization
Transport route, order transmission, invoice payment, order receiving, order checking etc
Some stores recorded up to 200 deliveries per day
Supermarkets Supermarkets
Overview of FairPrice Supply Chain
Centralized
Purchasing Suppliers
Centralized
Distribution Supermarkets
Consolidated Ordering
Invoice
Electronic Document
Del
iver
y
Electronic Ordering
Delivery
Core Benefits of Centralization
• Improved service level
• Increased front-end SKU holding
• Supply chain cost reduction
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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
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
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)
Material Handling System
PTL Panel
Pallet-Live-Storage Module
• Continuous picking & replenishment
(independent processes)
• Multiple picking level
• 592 2-plt-deep pick points within 845m2
Material Handling System
Material Handling System
Pick-to-Tote
• Ideal for slow or non-conveyable item
Small, fragile or odd packaging
• Piece picking
Better demand-supply match
Material Handling System
Carton-Live-Storage • SKU proliferation
• Compact picking module
Minimize travel distance
High hit rate
(1,000 SKU for 62m aisle)
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
Material Handling System
Sortation System: Cross-Belt System
• FMCG of various sizes with suppliers’ own barcode
• Batch picking and flow-through distribution
• Cartons are sorted directly to its allocated staging lanes
• Capacity: 7,200 carton per hour
Productivity & Capability Improvement
Benefits of DC Automation
Daily
Throughput
Without
MHS
With
MHS
%
Improvement
Current 66,000
carton / day
Throughput
/ hour 3,800 6,000 57.9 %
Headcount 187 176 6.1 %
Future
Projection
90,000
carton / day
Throughput
/ hour 4,500 8,000 77.8 %
Headcount 303 210 30.8 %
Tremendous improvement in productivity
Less reliance on manual labor
Improved accuracy and traceability
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
Pitfalls of DC Automation
Investment Cost
• ROI
High capital investment
Annual asset depreciation
Nominal salvage value
Maintenance cost
Throughput
volume
Returns on
Investment
New formats & SKU
More centralization
Business organic growth
Pitfalls of DC Automation
Business Model & Requirements:
Logistics Operating Models
Push vs pull model
Stock turn-over (ex: fashion vs grocery industry)
Volume vs number of retail outlets (WalMart vs 7-11)
Customer’s geographical dispersion (US versus Japan)
Day / night / 24 hours delivery
Cross dock & flow-through
Lead time requirements
Localization & adaptation of automation
Flexibility & adaptability
Local regulations
Voice picking customization
Pitfalls of DC Automation
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• 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
Pitfalls of DC Automation
System Failure
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
Success Factors for DC Automation
Key Sharing
I. Centralization concept rendered higher throughput volume, therefore better business case for DC automation
II. Automation leads to:
• Improved productivity
• Higher capacity
• Overcome manpower crunch
• Better service level
• Cost savings to customer
III. Do with care:
• ROI calculation
• System availability & redundancy
• Suitable technology investment
• Coordination with business partners