The online supply chain challenge

As a Brit living in North America, it is particularly striking to see how relatively under-developed online food and grocery retailing is in Canada compared to the U.K.

But this is likely to change over the next few years as growth through more traditional channels is likely to remain relatively low, while demographic and technology trends point to strong shopper demand for online grocery.

These are exciting times!

Retailers around the world are developing different supply chain models to support their online strategies, and experimenting and innovating as they seek to understand what works and what doesn’t.

With a focus on fulfillment and product availability, there is a continual assessment of the ‘route-to-shopper home’, to increase speed and productivity, while reducing costs. Retailers are also seeking to improve flexibility, quality and accuracy of pick processes, while making the best use of their assets.

The store pick model is used by the likes of Tesco, Sainsbury’s and Germany’s Metro Group.  Under this system, stores use their own employees to walk the store picking groceries to order.  This is often done before stores open.

The pickers can be assigned to zones, often picking for multiple orders at a time, and the benefits of repetition and route planning can make this process more efficient.

For retailers, the initial investment is often relatively low and it provides an opportunity to maximize existing assets. The model is also scalable and can cater to local assortment  needs.

Alternatively, retailers use dedicated distribution centres (or ‘dark stores’) to pick online orders. This can feature a mix of manual and automated processes, although fully automated models require high investment and quick growth to make them viable.

‘Dark stores’ are purely dedicated to fulfilling online orders and are stocked in the same way as regular supermarkets, except customers are replaced by order picking staff.

Completed orders are then often manually loaded into an automated system until they are released and sent to the appropriate loading bay, with the crates of products sorted and loaded in reverse drop sequence – the crates are stacked in the delivery vehicle in the order in which they will be dropped off at customers’ homes.

‘Dark stores’ are often used by retailers with physical shops, who have initially adopted a store pick model, but as the density of orders increases, have increasingly turned to ‘dark stores’ to reduce the pressure on shops in areas with a high proportion of online shoppers.

The key benefits of using  dedicated stores, or distribution centres, are that a link in the supply chain is removed, potentially reducing costs and helping to get fresh products to customers more quickly.

One model proving increasingly popular, is the ‘click and collect’ or ‘drive’ model, where retailers utilise their existing stores as collection points for orders placed online.

Shoppers appreciate the convenience of this model, particularly as many offer same-day collection.

For retailers with a store pick model, it helps to drive volume through existing stores, and eliminates the need to make the final leg journey to the customer’s home.  I think we will see some testing of this model in Canada in the future.

Regardless of which model is adopted, the supply chain challenges are common.

As shoppers increasingly demand multiple digital channels for browsing and evaluating products, the ability to compare prices, and a broad assortment to choose from, there are major supply chain implications.

Real-time information on sales and stocks across channels becomes even more critical.  Accurate master data, a consistent pricing policy across channels and a strategy to procure and manage a broad assortment are also important supply chain considerations.

As shoppers also look for immediacy between when they place and receive their order, retailers will also need to consider the flexibility and responsiveness of their supply chains, and decide which model works best for their business. They will need to balance this with the low volume needs of an emerging channel here in Canada, and the cost to serve it.