A retail conundrum

Warehouse design needs to manage the demands of opposing retail strategies, says Andy Blair, sales manager at Swisslog

Two major strategies in modern day retailing make opposing demands on the warehousing process and both need to be considered when designing a distribution centre.

Sales promotions are characterised by the requirement to deliver relatively simple, high volume, small number of SKUs (products) over a short period of time. On the other hand, the product range extension strategy is more complex, involving delivering a larger number of SKUs, often in smaller quantities but more often, over a longer period of time.

Sales promotions encourage customers into stores and can be effectively used to introduce new products, but they create logistical difficulties due to the unpredictable volumes created over a short period. The traditional way of dealing with this would be to estimate demand and build up stock in the period prior to the launch. Now, retailers have closer links with producers so can manage the whole process much better, with production flexed more closely to meet demand. This is especially important as research shows that Tesco had 38.8% of its products on promotion in April 2011, while even Asda, with the lowest percentage, still had 22.9% on promotion in the same month (just-food.com, 3 May 2011).

Sales promotions mean that higher volumes pass though the distribution centre in a shorter period. This can be enabled by changing the units the product is transported in, for example by the use of merchandising units that are taken directly through the supply chain to the point of sale. If there are sufficient volumes then direct delivery from manufacturer to store may be viable.

Product range extension results in any single store stocking a greater range of products. This usually means reducing the volume of existing products as the shelf space remains the same. To enable service levels to be maintained, this results in smaller but more frequent replenishments per product.

At the distribution centre, picking smaller quantities of items per order line across an increased range may now mean that the existing strategy of, for example, pick-by-order is no longer efficient. There may be insufficient space on the pick face to present all the products and, even if there is sufficient space, the pick path becomes longer and more inefficient.

Storing products in totes or trays rather than on pallets could provide an overall benefit as this then enables the use of the latest warehouse automation to provide dynamic pick locations.

It is vital that these two strategies - promotions and product range extension - must be taken into account when designing a warehouse.What will happen in the future is hard to predict but the winners will be those companies whose crystal ball allows them to build in an amount of flexibility for the future while retaining an efficient operation for today's requirements.