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 Retail Formats

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

Central

Distribution

FFDC

Centralization

Only 15% of SKU coming directly from suppliers

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

Healthcare Automation

Vertical Storage Solution

Totebox Storage Solution

* Courtesy of Swisslog

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

Thank You