DISTRIBUTION AND LOGISTICS
STRUCTURE AND FUNCTIONS
The Distribution and Logistics division is responsible for managing stock received from suppliers and distributing it to the group’s stores efficiently and on time.
The group’s DCs are based near the head office in Cape Town. The group’s entire stock distribution function, including receiving, storage, picking, packing and despatch, takes place from these DCs.
The DCs together with the divisions or operations they serve are as follows:
- Tygerberg DC: Foschini, donna-claire and fashíonexpress footwear; @home and returned goods
- @homelivingspace DC: @home furniture
- Ndabeni DC: exact!, Markham and style accumulation (comprising certain partly completed orders)
- Sports DC: Totalsports, sportscene and DueSouth
- Foschini DC: Foschini, donna-claire and fashíonexpress apparel
- Jewellery DC: American Swiss, Sterns, Matrix and Foschini division jewellery
- Cloth store DC: Fabric for local production of apparel
- Shopfitting DC: Shopfitting stock for the group
FEATURES OF THE PAST YEAR
In this period the DCs distributed 39,4 million units (i.e. individual items of stock), which represents a drop of 5,3% in unit volumes from the previous year.
The decreased unit volumes once again placed pressure on efficiencies in the DCs when measured on the basis of costs per unit. However, the overall cost of logistics as a percentage of group revenue decreased from 1,68% to 1,51%. The main factors contributing to the decrease were a 10% reduction in transportation costs, based on lower fuel costs, as well as a 6% drop in operational costs at the DCs because of improvements in process efficiency.
- Improved throughput speed: Stock throughput speed averaged 4,9 days. The group continues to fine-pick the majority of its stock and this requires extensive processing time. The group cross-docks only 7% of its merchandise through the DCs, and this volume can be accomplished within a single day. (Cross-docking means that a container passes unopened through a DC to a store.) Notably the @home division cross-docked 47% of its stock, as against 30% in the previous year. Cross-docking saves costs and reduces product damage en route to stores. In the next year it is expected that the overall proportion of the group’s stock that is cross-docked will increase, so enhancing speed to market.
- DC accuracy: The accuracy of fine-picked stock leaving the DCs was maintained at a level of 99,9% in unit terms. This creates reliability in the supply chain to stores and is consistent with best-in-class retailers around the world.
- Shipping time: The Group Shipping department has further reduced the lead time of international shipments from 30 to 27 days. This represents an improvement in reliability and ensures that less stock need be held in the DCs before being dispatched to stores.
- Supplier delivery conformance: The performance of suppliers is measured in terms of the accuracy of order bookings, the promptness and accuracy of deliveries, the degree of conformance of packaging to applicable norms, and the accuracy and speed of product ticketing. Delivery conformance in terms of perfectly delivered orders improved from 69% to 77%. Significant progress was made with the local clothing suppliers who moved from a score of 56% to 74%. These improvements have assisted with process efficiencies in the DCs.
INFORMATION TECHNOLOGY AND OPERATIONAL SYSTEMS
It has been reported previously that the group has acquired Manhattan Associates’ Warehouse Management System (WMS) to support its requirement for an agile supply chain.
In the past year WMS was implemented in the Markham and exact! divisions within tight project timelines.
Because of these WMS implementations there have been far-reaching advances towards the group’s goal of having a world-class distribution model. The result is greater visibility of deliveries to the WMS-enabled facilities. These facilities have also been tested for their ability to hold stock and react quickly to consumer demand, so ensuring maximum allocation efficiency.
As was previously reported, best operating practices (BOP) have been fully implemented as against the group’s previously achieved figure of 70%. The programme used for this purpose covers four key performance indicators (KPIs), namely visual performance management (VPM), teamwork, 6S (health, safety and shop-floor organisation) and problem-solving. The programme has contributed to a culture change of greater employee commitment at all levels. This will yield enhanced process efficiencies over time in all of the group’s distribution facilities.
The major risk associated with the DCs is fire, and this risk can be mitigated with prudent preventative action being taken. This covers the steps inter alia of training staff members at the warehouses in fire-fighting, undertaking maintenance of fire-fighting equipment, implementing atmospheric detection systems, and installing inter-rack sprinkler systems. Close attention was again given to these issues. Historically the group has been free of fires, but there is no place for complacency.
Generators have been provided at all the DCs in order to avoid or minimise the ill-effects of electricity interruptions.
Security is an important element of the distribution operation, particularly at and near the time of transportation. The group’s DCs are equipped with CCTV cameras and are guarded 24 hours a day. As part of the security procedures, access control systems are in place. The group’s security procedures are extended to its transport partners, who have comprehensive security through a combination of secured premises and satellite-tracked vehicles. Regular procedure audits have ensured minimal losses throughout the past year in spite of an incidence of crime which is perceived to be high in South Africa.
Business continuity plans are in place and they were again regularly tested and reviewed by the group’s risk committee.
In reviewing the division’s impact on the environment and measuring its carbon footprint, indirect emissions from the consumption of cardboard packaging and outsourced transport were identified as the two factors accounting for the greatest impact.
To mitigate this impact the division has engaged with its merchandise suppliers to standardise their carton specification so that the group can reuse their cartons rather than buy new cartons for redistribution of its merchandise to the stores. The success of this initiative has led to a reduction of 65% in the consumption of cardboard packaging and a reduction of 54% in waste cardboard.
The outbound transportation of merchandise to the stores is outsourced. The division collaborates with its transport partners in seeking ways to reduce the group’s environmental impact. All new vehicles are equipped with the latest diesel technology to make engines run efficiently. A strict maintenance schedule is in place to ensure that the fleet is regularly maintained by the manufacturer’s agents and so maximise its operational efficiency. All transport partners utilise the latest routing and fleet management technology in order to minimise the number of kilometres travelled.
OUTLOOK FOR 2011
As the group’s supply chain processes continue to mature and to respond to challenges there will no doubt be continued gains in stock efficiency and in the overall efficiency of operations.
The new Group Merchandise Procurement division can be expected to make a mark in assisting the group to make better procurement decisions. Suppliers will be systematically measured and each will for the first time receive a score against certain criteria including On-Time, In-Full, quality, DC delivery conformance, product performance and the quality of relationships. The supply base can be expected to provide increasingly good service to the group through the year.
A consequence will be higher efficiencies within the DCs. However, the fuel price is expected to increase during the year and this will place pressure on transport costs and hence profitability. WMS will be implemented in the Foschini and Sports DCs where it is expected to provide substantial benefits.
