UK retailer bullying of suppliers ramps up

For may years the consequences of intensifying competition among the UK's grocery retailers have been visited on their hapless, bullied suppliers through up to 60 odious ploys designed to squeeze the last drop from suppliers. Matters had seemingly improved in 2013 when the code of conduct was enforced by the Groceries Code Adjudicator but now that is all out the window following Tesco's resurgent, macho stance as it prepares a price war with the leading discounters, Aldi and Lidl.

Past apologies by Tesco's chief executive, Dave Lewis, for his company's "naked pursuit of growth" that led to an investigation into its bullying of suppliers account for nothing as Tesco delivers an ultimatum for draconian price cuts of up to 50% within a few weeks' deadline. But what is behind this move, which can only be expected to be followed by other big grocery retailers, could it have been foreseen and who are likely to be the winners?

David Sables, chief executive of Sentinel Management Consultants which trains suppliers to negotiate with supermarkets, put his finger on the pulse when he claimed that suppliers were being asked to fund deficiencies in Tesco's business model relative to the discounters, but without going into reported specifics. So what are those specifics and can and should Tesco win and if so what would be the consequences for the consumers?

Part of Tesco's problem is its refusal to cut its relatively high profit margins of 4%+ compared with the 2% the discounters are happy with so how can these upstart Continental challengers continue their remorseless rise in market share at the expense of the big four supermarkets?

Stock control is paramount

The recent paradigm shift in retailing sees value for money as the new mantra pursued by consumers which the discounters have delivered in spades, typically undercutting the big four's prices by 30% on a typical shopping basket. They have partly achieved this through a no-frills approach to shop openings which are much cheaper and quicker to commission than the big superstores but far more important has been its approach to inventory control. Warehouses put money to sleep so much so that inventory holding costs can dwarf all other logistics costs combined. A typical Tesco superstore could house about 40,000 SKUs compared with around 1,600 for the discounters, most all of which would be fast movers. Any that became slow movers would be promptly dropped and replaced with anticipated fast movers. This puts the big grocers at a serious disadvantage because most of their stock would be slow and medium movers.

The big retailers must now see their superstores as albatrosses but their online side of the business could bring relief if and when they decide to trim down their costly, giant property portfolio. But internet shopping could also be a threat if many of the big food, etc suppliers band together to build huge shared order picking warehouses for direct deliveries to consumers, thus disintermediating the traditional retailer. Amazon has shown success in this by acting as a wholesaler, but it still represents a cost layer that could be eradicated if suppliers banded together. Meanwhile, sole traders with a slick website working from home can already place orders with manufacturers for direct home deliveries to their customers. 

There is a risk that yet more attempts may be made by the grocery giants to beat the discounters through mergers, like the recent Sainsbury overture to Asda, a move that undoubtedly would have harmed consumers' best interests had it been allowed to go through. There are risks, too, that many of the smaller suppliers will fail over what has been described by one of Tesco's suppliers as a straightforward money grab. If Tesco succeeds and reverses the discounters' fortunes then the ultimate losers could also be the consumers because they would once more be in the grip of the big four who will have more leeway to raise their prices while keeping the suppliers squeezed.

Could all this have been foreseen? Nearly 40 years ago I warned of trouble ahead for the big UK grocers following my visit to Netto in Denmark, a food discount retailer with 120 shops supplied by just one national distribution centre (RDC). Their slick business model, supported by EPOS and EDI, saw all sales replaced at each store every 24 hours. This meant that the NDC, equipped with fast sortation conveyors, saw 90% of all its stock pass through it every day, partly because Netto stocked only 600 SKUs, nearly all fast movers. In my report to Materials Handling News I warned that if this business model crossed the North Sea to Britain it would give Britain's big supermarkets "nightmares." The rest, as they say, is history.
 
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Pallet rack netting demands safety look

How safe are your pallet racking safety devices? Not safe enough, it seems. No matter how well designed, installed, regularly maintained and correctly aligned with the most appropriate MHE, accidents will always happen and one of the five key causes of warehouse accidents involves moving or falling objects.

Protecting the storage medium has long been the poor relation in terms of warehouse safety priorities but such is the risk to business survival from the worse kind of racking collapse, namely domino- style, it almost beggars belief that this aspect of racking safety attracts such relative insouciance. Next to the risk of racking collapse itself is falling objects on personnel.

For many years the only defence against pallet collapses from collisions with MHE has been the upright post protectors and various truck guidance measures but these were restricted to heights of no more than about 4 ft. Then, three years ago, RCP Ltd* patented its Rhino system that connects the upright racking posts to a ceiling structure via steel ropes. This addressed the problem of domino-style racking collapses that could be so serious as to jeopardise the future of companies, especially those geared to e-fulfilment functions when failure to make timely deliveries could see permanent loss of future business. In some domino-style collapses it is worrying how little contact there is between a forklift and a horizontal beam which causes virtually all of the racking to collapse. But what of the more confined peril from falling objects from the racking?

There have been two main measures to protect from this peril, namely racking safety netting and steel mesh containment panels. Of the two, netting creates a safer working environment and risk reduction solution when used as part of a suitably safe system of work, says Chris Hopkirk, sales director of Warehouse Partners, a trading division of Westbrook Industrial.** Available in various sizes and strengths, RackNets are strong and lightweight and easy to install (up to 2 to 3 times quicker than steel mesh). They are made to measure so there is no cutting down or edge working on site. Unlike steel mesh, RackNets will not dent or corrode and life ownership cost is much reduced. Retrieval of goods/pallets is made easier and they are designed to contain and restrain 1 tonne loads within the net envelope. Easy net removal enables beams to be adjusted and rack repairs to be carried out quickly.

The nets are normally used where there is pedestrian access to the rear of a single run of racking and is particularly important where employees are picking off the rear of the rack. The risk of pallets being inadvertently pushed through the rack are greatly increased where a support system such as timber or mesh decks are used. In-flue netting, therefore, provides increased protection from product or pallets being pushed through from one rack to another.

So why is so little netting sold in relation to steel mesh panels? Chris Hopkirk suggests the racking industry could be educating the industry more about the inherent risks of falling objects from pallet racking and that as a minimum a risk assessment and safe system of work should be carried out to ascertain their requirements. The fact is that steel mesh is designed to retain only boxes of up 50 kg and no more.

**www.warehouse-partners.co.uk
*www.rcpsystem.com




RackNet in place

Pallet racking collapses' preventative measures are inadequate

Outside of fire, the most damaging warehouse hazard is collapsing pallet racking. Such can be the grievous losses and business disruption that despite insurance it can break businesses, yet arguably the defence measures against such risks are woefully inadequate.

Pallet racking is safe. It only becomes unsafe when it combines with careless people and so any means to eliminate huge costly collapses should be encouraged but is there foot dragging on this? Sadly and evidently there is. Until three years ago the only anti-racking failure measures were a variety of rack barriers, column guards and guide rails, all with one serious limitation, namely they extend up from the ground no more than a few feet. Given that pallet racking legs reach many times higher than that they are widely exposed to that most common cause of collapse --- forklift collision. This can even occur while a truck is manoeuvring in an aisle with load at maximum lift height, causing it to topple over, crash the mast and load into the racking and create a domino collapse.

This is not to belittle the traditional means of protection but their shortcomings clearly show they need augmenting that would protect at all heights. Just such a solution is Rhino from RCP* introduced three years ago but seemingly downplayed by the leading UK trade body, Storage Equipment Manufacturers Association (SEMA). This unique, patented design prevents racks from collapsing by means of using wire ropes suspended from the steel structure of the building, if possible, and then attached to each racking support leg. When the building's steel structure cannot be used than a secondary steel structure is installed to form a support for the suspension ropes. With this system in place, any leg that is damaged will not be able to collapse, thus preventing any costly domino effect.  

But does the cost of Rhino make one blink? Hardly. the cost of a domino-type racking collapse could run into seven figures, not including any serious injuries, fatalities and possible, permanent business losses through disruption, and massive future hikes in insurance premiums. One of RCP's benefits, in fact, is reduced insurance costs because the system has been proved in the field. Irrespective of the number of stored pallets, the cost is calculated by the length of the racking run. As an indication, this can vary from £85 to £130 per outer leg. Inner legs are not used if the racking is back-to-back. In respect of drive-in racking, RCP would look to fit to three rack legs deep. The only form of racking that would not warrant the system would be automated crane rack systems.

As regards Rhino's maintenance, the only action needed would be an annual inspection so as to identify any unreported impacts, which in any event is a requirement with or without Rhino. The issue of rack inspection is critically important because one of the rarely mentioned risks that really catches the facility and safety managers off guard is the rack collapse caused by the pervasive, subtle damage that can be unnoticeable to the untrained eye. For example, if a rack system has multiple uprights that exceed out-of-plumb guidance of 0.15 inch per three-foot section a collapse could occur. It is very easy to walk by a 0.15 inch deviance and not even notice it, or "it's just a little damage, not worth bothering with now." The necessity for watchfulness becomes even greater in cold store environments.

So far, most of RCP's 12 installations have been retrofits, and there are five pending with  30,000- pallet stores, and there is much interest coming from seismic-prone regions. As regards overseas representation, RCP would consider licencing arrangements.

One might reasonably ask that given this major breakthrough in warehouse racking safety why does Britain's leading warehouse racking trade body, SEMA, apparently take a low-key view, even though SEMA's technical adviser has witnessed a live demonstration and reported that the system works. It has been mooted that if they recognised Rhino warmly as worthy of serious consideration then that would be questioning their members' installation design and integrity, a curious attitude if true because all racking is safe but accidents will happen.

UK racking collapses involving fatalities are rare, about less than one a month, but serious injuries are measured in their hundreds. SEMA also claims that UK rack collapses are rare, but with at least one major racking collapse occurring every week, according to one involved source, that is a curious definition of rarity.

*www.rcpsystem.com
Email: craig@rcpsystem.com                                                                

Domino style pallet racking collapses like these could break businesses

Rhino's anti pallet racking collapse suspension ropes above a new installation

New unique compactor slashes reverse logistics costs

Do retailers know the true costs of their reverse logistics? With regard to waste handling it seems not, according to the creators of the Spacemaker* card and plastic compactor devised by two directors, Simon Brown and Paul Overfield, formerly at Translift Bendi whose revolutionary articulated forklift did so much to transform warehouse economics. The result is that in Britain alone many millions of pounds are lost every year through the inefficient handling of waste card/plastic in reverse logistics.

One of Britain's four leading grocery retailers knew it had a costly problem handling its reverse logistics for waste card and plastic, made worse by the fact that recycling plants became more discriminatory over acceptance of waste card. This meant that card should not be mixed with plastic, otherwise it would be rejected and so any payments (cost recovery) made from recycling waste would be lost, which can be considerable given that clean cardboard can fetch £45 per tonne and polyethylene stretchwrap £200 per tonne.

The supermarket method of choice was to use traditional baling machines in stores but the problem with such a compaction rate was that if the bale was contaminated it did not fall apart easily and so the extra labour needed to separate the card and plastic eroded the bale's value. One innovative retailer decided to remove the conventional compactors from stores and use reverse logistics to collect the card from and take it to one of eight regional recycling plants located next to their regional distribution centres, (RDCs), where it would be sorted and baled to maximise cost recovery. The Spacemaker, however, is unique as it is designed to reduce volume by 75% and hence the cost of transport whilst showing that it is still easy to separate and sort on arrival.

What Spacemaker does is to use a compression rate of only 4 to 1 while card is still inside the roll cages because the patented design protects the cage from the effects of compression whilst inside the Spacemaker. But to see if the machine is suitable to achieve all the 'soft' and hard benefits plus the considerable environmental bonuses it is necessary to consider your current set-up.  

If you are using roll cages to decant lorry loads what type are you using and are you so short of space in the back of store that you have to replace card/plastic filled roll cages out in the yard for return to recycling centres? To save time and therefore money roll cages should be nestable with a metal front rather than use of a cling film wrap to the front to contain the load, which is time-consuming and nauseating given that operatives must walk around the cage several times. Storing card-filled roll cages out in the yard for long periods where they can get wet and attract pests is inadvisable because rain water adds weight and there is a good chance of recyclers rejecting such waste. But not putting roll cages in the yard can lead to congestion in back of store, leaving no room for arriving produce. This hugely impacts the time taken to tip a load and also delays putting stock on shop shelves.

Volume is the big issue

Does your yard space typically store many hundreds of trays and stacks of pallets along with roll cages waiting to be reversed for reuse? If so do you know how much capital is tied up in them? So the big issue is that card and plastic take up too much volume and adds cost of business. Each supermarket of this retailer, for example, typically produces one full lorry load of card and plastic (40 roll cages) in one 24 hr period. Spacemakers' directors were given a brief to reduce volumes by any amount they could by compacting it in a cage to reduce double handling and much else besides and all by using a 13 amp power supply.

Correctly integrated into the labour shifts, the Spacemaker saves time, space and transport costs. The space gained from the roll cages is the footprint of 10 instead of 40 which saves almost 30 mt2 but the empty roll cages can also now be stacked outside as they take up far less room and don't attract pests. Over a seven-day period Spacemaker can produce close to 300 packed rolled cages which gives three benefits. The first is the reduction in cage fleet size. Secondly, cage availability at peak periods is critical to get products on the shelves without delay. Spacemaker is also reducing lorry loading and unloading times by over one hour a day, and estimates show that an ambient lorry costs £50 an hour to run. Space is also freed up in the returning lorries because now only 10 card-filled roll cages are needed instead of 40, thus releasing 30 mt2 of space for pallets and trays to be returned.

But what, you may wonder, are the environmental benefits, which also translate into cash gains? Let us just take one superstore experience at a trial store. After 10 months of operation completing 19,800 cycles, potential roll cage reduction was from 11,313 to 2,829 and what would have been 257 lorry loads reduced to 64  In a full year this store expects to save 231 lorry journeys a year or 6,237 miles of HGV travel. What is more, it released 10,182 roll cages back into the network, plus 6,930 pallets and 69,300 reusable trays out of the stores. With a steady Spacemaker roll out to the stores, by the end of this year returns would be reduced by 1,078 HGV trips which so far will mean 12,936 saved trips or 342,272 HGV road miles per year. Those figures will be very much larger after all stores have Spacemaker which leaves this innovative retailer deserving some 'green' accolade of the year.

There are 14,000 potential supermarket users of roll cages in the UK alone. Worldwide the figure is far more and so shows the huge potential to cut costs and improve the environment. Relevant businesses should take a serious look at the Spacemaker.

*www.spacematedirect.co.uk     









                                                                                                                                                                                 
Spacemaker tutorial at a new installation

What makes a great logistician?

Logistics, when formerly known as materials handling, storage and distribution, was less complex, with the disciplines required to make the materials, components, sub-assemblies flow cost-effectively through all the production processes well understood. But it was a small field of disciplines relative to what is required today to fulfil the effective control of the global supply chain from raw materials through to final consumer. Driving that change from relative simplicity to complexity is globalisation, in which global companies will typically source on a worldwide basis for global production.

While logistics nowadays rightly attracts far more board attention, those thinking of rising to board level through the logistics hawsehole might like to think twice, because it would be like needing encyclopaedic knowledge in your head. It would be no exaggeration to say that a great logistician needs a tolerably good grasp of subjects like global economics and politics, good governance throughout the global supply chain, and even history. Now that is a tall order for any one person but logistician directors can alleviate that by ensuring the teams under them have the various knowledge disciplines to look at all the angles. So far, however, experience suggests there is still much room for improvement, the 1995 Kobe earthquake and the Japanese 2011 tsunami being good examples.

The risks to smoothly operating logistics are legion. Those logisticians who do not anticipate, assess likely disruptions and have robust plan Bs to fall back on are asking for trouble. These risks range from industrial accidents involving key, globally-demanded components, through to natural hazards like earthquakes, hurricanes, tsunamis and volcanic eruptions. The latter have been used by insurance companies to assess disaster-prone areas but they cannot accurately forecast future events. But what about the less likely and more opaque risks of a political/economic nature, and is enough attention being paid to labour conditions in one's supply chain partners? Should they be a worry? Yes, they most certainly should.

Take the economic threat for starters. Would it surprise you that the International Monetary Fund (IMF) at a meeting last month thought Italy was considered a bigger threat than a no-deal Brexit? On one analysis it was thought that no-deal was a risk only because it would catalyse an Italian crisis. It is not difficult to see why. Good financial governance in Europe's southern EU nations has never been their forte and is largely built on chronic, ubiquitous tax evasion. Greece needed nearly a Euro 300 billion bailout, the world's biggest, that nearly wrecked the Euro but Italy's debt is much larger, making it not only too big to fail but too big to bail. With its credit rating just two notches above junk, should Italy's sovereign debt rating fall to junk status then the nation faces insolvency. One cannot rely on the guardians of fiscal responsibility in Brussels for a solution because it has consistently failed to do its chastising duty by just kicking the can down the road. If it were only Italy that was the problem it would be a less nightmarish outlook but the fact is France and other countries have also been fiscally irresponsible, leaving the EU with a ticking time-bomb.

The political threats, which should include terrorism and cyber crime, are no less scary. Political instability is global and needs to be properly assessed, along with the feasibility of alternative supply sources that can be rapidly deployed. But be of good cheer. Yet another threat on the horizon --- disruptive technology--- like 4D printing, could make logisticians' life easier because it will be much quicker, easier and cheaper to produce goods in home markets and so sidestep the problems of globally-stretched supply chains. If you are into containerised shipping, now may be a good time to jump ship.
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Lessons from allies' Afghanistan defeat

Afghanistan has shown that logistics can defeat the most potent of world powers when ignored in the environment where it is expected to work. After 18 years of war, the Allies working to defeat the Taliban have admitted defeat, a war that cost America alone over an estimated $1 trillion and 2,400 lives. In Britain a very conservative cost estimate is put at over £30 billion, money diverted from pressing demands elsewhere. President Trump is preparing America for a cut and run as he attempts to deliver on his promise to pull out of America's "endless wars" by excluding the Afghan government from the peace talks with the Taliban, who have never been defeated in the countryside where the terrain and climate favours guerrilla warfare and imposes huge logistics cost on the foreign occupying forces.

As I warned in my blog of July 10, 2010: "Logistics will be Britain's Afghanistan calvary," the Talibans' great advantages over its enemies were the country's ideal guerrilla warfare terrain and its enemies' logistical problems, "the cost of which would break the coalition's will at a crucial time when nations must tighten their belts as the world faces another possible financial meltdown." I went on the say: "Military logistics is not just about controlling the supply chain effectively to deliver all that is required to the war theatre at the right time. It is also about how the chosen battlefield can be used to degrade an enemy's military ambitions. In this respect the Taliban had the country's geographical and climatic conditions working in their favour That, perhaps, more than any other factor, ensured that the allies could not win a military victory."

But there are other lessons to be learned from the allies' Afghanistan defeat. First and foremost, never fully trust the military mind, almost never known for its original thinking, because, as with the Pentagon, it will always advise throwing more good money after bad. Britain's military advisers were no less obtuse when, following Britain's withdrawal from Iraq, the British commander in charge was more concerned at using up his recently freed-up troops for fear of losing them. "If we don't use them we lose them," he crassly averred.

Another key lesson is the economic one and its political reverberations since the two are inextricably entwined. Consider what these "endless wars" have cost the American societal fabric. Real incomes per capita are lower now than the were over 30 years ago, while most of the country's wealth is now concentrated in the hands of a tiny few. Huge sums are desperately needed to shore up America's crumbling infrastructure. Such is the level of homelessness in American cities that the Government has been concerned at the soaring rates of Hepatitis A, which is caused by faecal contamination. Its response has been to issue poo maps so people can avoid the risks! One wonders if Capitol Hill is on a poo map.

President Trump's aim is to pull out of Afghanistan before next year's election. The proposed deal is that the Taliban will pledge not to host any terrorist attacks on America, in return for bringing American troops home. Years of strife would suggest that the Taliban would be inclined to uphold the deal, but don't hold your breath. Reportedly, the Taliban have also pledged not to undo the progress made with women's rights. In a deeply conservative society that, too, alas, may prove a hollow pledge.
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Ocado automated warehouse fire cause identified

The cause of Ocado's disastrous automated warehouse fire at Andover, England, earlier this year has been identified as an "electrical fault at one of the first-generation battery charging units at the edge of the ambient storage grid....caused the plastic lid on top of a grocery-carrying robot to catch alight." This was revealed in a document issued to shareholders as part of its planned tie-up with Marks & Spencer (M&S) retail group. Steps to prevent further crippling fires involve introduction of extra "localised" smoke detectors and removing the plastic lids on its robots, which serve no practical purpose and will not impact the robots' efficiency. It also plans to add heat sensors in the ambient product storage grid, in addition to the those existing sensors in the chilled storage grid. Curiously, however, one is left asking why an 'award-winning' fire suppression system was so quickly overwhelmed. Fire fighters at the scene also remarked on the highly compact nature of the grid storage locations over the top of which hundreds of robots swarmed, which made it difficult for firefighters to get around easily.

Automated warehouses have been around in Britain since the 1980s and while their level of applied 'intelligence' has grown remarkably there are certain aspects that have not changed. Their costs and risks remain as high as ever, and while some improvements have been made regarding their flexibility, if business circumstances change so much as to make them redundant then their resale value would be near zero. Their payback periods will, of course, vary according to how hard they are worked and that, of course, is a function of customer demand, but anything less than five years would be unlikely. All this shows the critical necessity of conducting a sound payback exercise. But is there something else that may be overlooked and yet is critical to any successful, automated warehouse? Yes, there is, and big automation investors ignore it at their peril.

                 Price governs automation viability

The overall business model must be closely examined in relation to where a company stands with its competitors. If the revolution in British food retailing over recent years proves anything it is that price is king, but the dominant  retailers have still not taken that fully on board, which partly explains the meteoric rise of the food discounters like Lidl and Aldi, who between them now account for nearly 15% of the total UK grocery market. Their secret of success was two-fold. They spent far less on outfitting new shops and brought them to readiness much quicker. Secondly, they treated inventory-holding costs with respect, because such costs can dwarf all other warehousing costs combined. This meant sticking with far fewer product lines, typically 1,600, compared with 40,000 for their big competitors, all of which were chosen for their fast turnover rates, and if they began to slow they were quickly replaced by anticipated fast movers. Translated at the shopping level, it meant buyers, comparing like-for-like shopping baskets, could expect to spend 30% less than with the big four retailers. 

This brings us back to the payback scenario that will emerge next year once Ocado has dropped food retailer Waitrose in favour of M&S. Next year M&S will pay £750 million to form the 50-50 joint venture with Ocado to allow it to offer its customers an online service, currently lacking. In the Ocado shareholders' circular about the fire, however, it warns of several risks relating to the deal, one of which is that Ocado's retail customers may stop shopping with the company and instead buy products from Waitrose online or other competitors because they view M&S to be more expensive. In one survey of 250 Ocado customers a disturbing 22% said they would no longer remain with the company if it did not sell Waitrose products. M&S's notoriously high food prices  may yet prove its undoing now that it has embarked on a costly automation route. Before its proposed tie-up with Ocado was announced, M&S's food side was already struggling against cheaper competition, warning enough, one would think, in a world where price is king.

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