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John Lewis: Omnichannel leadership through automation


Following its ‘logistics Christmas’ and announcement that 54% of all orders placed with the firm are now fulfilled via click-and-collect, John Lewis’s operations director, Dino Rocos, spoke to Emma Herrod, eDelivery’s executive editor, about how its supply chain operation stays ahead of the curve.
Online orders at John Lewis account for one third of sales and added up to £1.4bn in its financial year to 31 January 2015. This is way ahead of early predictions that ecommerce would account for £300m by 2017. Since then, the retailer has grown its ecommerce operations enormously moving past the point of it becoming “the biggest store” through the launch of clothing online in 2010, multichannel operations and mobile commerce, and heading out on its omnichannel journey.

When John Lewis scoped its first DC at Magna Park – a 650,000sq ft space which started operations in 2009, it was primarily set up to make store replenishment more efficient – the company strategy was 10 in 10, explains Dino Rocos, Operations Director, John Lewis: opening ten new stores over 10 years. The plan for Magna Park was “all about efficiency for replenishing the selling branches,” says Rocos. The firm knew that forecasts come with an element of risk and it questioned how confident it could be in its predictions for ecommerce and the future of the business over the span of the 10 in 10 plan. “We knew how to mitigate the bits we weren’t so sure about,” adds Rocos.

This led to the DC being fitted out in a modular, semi-automated format. High bay racking for slow moving items or extra stock is located next to a traditional automated storage and retrieval system (ASRS) for mid-moving items and KNAPP’s OSR Shuttle for faster-moving SKUs. The ASRS has a single crane picking bins from both sides of the aisle, while the OSR has bins accessible on all levels allowing for speedier access. Product assortment is automatically rebalanced between the ASRS and OSR as order levels fluctuate.

The automated picking and packing is supplemented by manual operations able to handle the more delicate inventory items such as china teapots. In all, 4 automated pack stations work 24/7 along with 53 manual pack stations. The warehouse is managed by an overarching system from Austrian warehouse logistics and automation comapny KNAPP. “Everything has to integrate seamlessly into KNAPP or we don’t use it,” explains Rocos.

John Lewis’ first Magna Park DC went live with store replenishment on 7 June 2009 and started processing customer orders the following year.

The retailer currently operates a single stock pool for all fulfilment channels with different product types held in each of 8 DCs in different locations. “We have gained real advantage by having a single solution for stores and ecommerce,” says Rocos.

Magna Park handles 75,000-85,000 orders a day for delivery direct to customers or to store for collection, as well as the orders replenishing its estate of 43 stores. At peak periods, including Black Friday, 180,000 customer orders are processed each day.

Omnichannel retailing had led to personnel, systems and infrastructure all being overhauled, explains Rocos. His role is also different to what it would have been in the past; he not only has responsibility for supply chain and logistics but merchandising, too. Once the buyers decide what to purchase, it is the merchandisers who work with the operations team to work out what stock is needed in which locations.

Rather than sending stock in cartons to sit in the stock room at stores with selling shelves replenished from there, the supply chain now allows for single items to move from supplier to shop floor. In fact, because of the wide variety of products sold by John Lewis, goods-in could be by the lorry load or by a person with a Volvo containing one-off artisan-made goods from Devon.

sept-10-johnlewis4Store-specific bins move around the automated system in the Magna Park DC with people adding product to the 12 store bins they are picking for from two product bins as they arrive in front of them. Using pick to light displays, the person simply adds the correct number of items from the product bins into whichever store bins the system tells them to add the stock to. The mix of items and product categories is not fixed and only the system knows what will be in each bin by the time it’s loaded onto a dolly at the end of the day. From November, for example, toys are not mixed with any other products because of the quantities of this category going to stores.

At the end of the day the store-destined bins are moved from an automated holding area in the correct order for loading onto the transport and then unloaded in the most efficient order to go to the correct area of the shop. This increases efficiency in stores as well as reducing the amount of time staff have to move stock between departments or floors and around the selling floor.
This swift store replenishment has led to stock rooms becoming selling space and the launch of new formats such as John Lewis At Home stores, which run on a sell one/pick one model. This tightening up of stock control does mean though that if replenishment isn’t cleared through the warehouse by the end of the day, the next day will see empty shop shelves.

In the pick area for customer orders, bins are brought to the pickers by the automated system, and by using pick to light displays they are told how many of which item to put into which of the two customer order boxes they are filling. A flexible batch algorithm ensures that the containers are emptied in a few stations and that the number of containers being transported back into the system is minimised.

“The challenge is constantly feeding product to the people,” says Rocos. All of the systems merge to give a consistent flow of product, he explains, with KNAPP providing all of the warehouse control system.

Wherever possible, ecommerce orders are also picked by the automated system, but because of the wide range of products the company sells not everything can be handled in this way.
The final stages of the automated solution see the despatch note added to each John Lewis-branded box; the height of product inside assessed (the system already knows from the dimension and granular data entered at goods-in how much space should be in the box); the four sides of the box scored at the correct height so that the next part of the machine can fold them down; a lid with easy-tear opening attached; and finally the customer delivery label affixed.

The automated machines work as fast as nine manual pack stations, explains Rocos.

Customer orders which are to be collected in store are added to cages and allocated space alongside dollies on lorries leaving the DC. The system knows how many of each will fit on a lorry so empty space is not being transported around the country. In fact, as Rocos explains, while the level or orders has increased by 9.2% over the past year, the efficiencies have led to a 2% reduction in the amount of traffic leaving Magna Park.

Using modular automation and remaining flexible has enabled John Lewis to stay ahead of ecommerce growth and to launch new trading formats such as its At Home stores.

This year sees two new DCs going live at the Magna Park site to handle clothing, large electrical appliances and furniture. These will be fully operational by 2016.

Some 70% of orders have to be available for the customer to collect the following day, so the company has less than 24 hours in which to process and deliver the order. Its answer to this challenge has been to increase efficiency through automation. For example, dynamic sortation in the new Magna Park 2 facility gives access to any product from the hanging inventory so an order can be processed in as little as 40 minutes.

Because of its business model of being owned by the employees, and not beholden to shareholders, John Lewis is able to be more strategic in its long-term investments than publicly listed companies, explains Rocos. The new DCs allow the business to consolidate and merge, rather than replicate operations across the supply chain.

Automation has allowed the firm to operate more efficiently, explains Rocos, and it is getting a “comfortable return” from the investment made. The modular design of the system and the decision to work with one overarching system supplier, with which any other systems brought into the DC need to integrate, means that automation and functionality within the DC has been able to evolve to meet the needs of ecommerce and omnichannel growth. Rocos says these are the key factors in the retailer’s operational success.

Every year, since January 2011, the level of automation in the DC has been extended to handle peak trading and the subsequent years’ growth in ecommerce orders. It’s an 18-month project. Business planning and budgeting start in April with forecasts for the level of growth of each product category, how much will be sold and fulfilled through each channel, and therefore what is required of the supply chain. The existing setup is also assessed against expectations, new technologies are investigated and the main supplier, KNAPP, consulted.

A pitch for funding to the board takes place in the first October. Once funding has been agreed, and peak trading completed, the engineers start work on the installation in the following January. Everything is complete and ready to go live by the end of the second October at the latest, explains Rocos. This annual process sees the expansion then being utilised by the upswing in sales over the following year.

It also gives breathing space for testing. “We are rigorous in our testing,” says Rocos. He explains that every single switch and every gearbox is tested so there’s no disruption once systems are live. A team of engineers is on hand and every part of the DC is closely monitored from the control centre to flag up issues should they arise.

Therefore, although the business has planned space through to 2021, the DC is constantly evolving. “We have a plan but are prepared to deviate from it,” says Rocos.

The decision on whether to implement an automated system or a manual process is straight forward, he explains. “If a man with a sack barrow can do it, let him do it and then optimise.

“It’s about working smart,” he adds. Despite having the different channels of store and customer orders, stock levels have actually reduced with the business operating a leaner supply chain and less stock held in stores. The investment in automation and technology has led to efficiencies, but this has to be balanced with customer experience and costs.

“The challenge is to not compromise service or growth but deliver to support the customer experience,” he says. Known for its reliability, John Lewis will not compromise on its customers’ trust. It applies that philosophy to all areas of the business, including the final mile. It continues to look at the options around delivery, lead times and even how it balances deliveries between its own fleet and external carriers.

DPD vehicle at depotIt works closely with DPD and Hermes, which deliver eleven million parcels annually for the retailer, as well as running its own 1,000-strong fleet of delivery vehicles, which makes three million deliveries each year. But Rocos says he is concerned about the disparity between the level of demand on carriers and the level of investment across the industry.

The John Lewis model for two-man deliveries “works well for us,” he says. As with Click & Collect, the company can manage the customer experience and in this case not just on the doorstep but also in customers’ homes. “That’s a differentiator for us.”
Some 54% of online orders are collected by the customer in a John Lewis or Waitrose store and John

Lewis relies on the third party carriers for delivery to customers’ homes, so the level of one-man deliveries made by the company is very low at the moment. John Lewis hasn’t ruled out the possibility of extending its own fleet to cover one-man delivery. “Is it appropriate for us to consider how our customer proposition is fulfilled – yes,” says Rocos but he does quantify by saying that “the company is not at a point where we’d propose or announce anything.”

Under Rocos, the retailer works in a way that mitigates risk, from the rigorous testing of every switch in the DC to two levels of contingency planning at peak periods. Peak 2014 “was challenging” admits Rocos, but although customer order volumes were higher than expected, they were still within the second level of contingency and “we didn’t get close to breakdown”. He adds: “There was no interruption to the flow of data through the tube.”

There’s no doubting that the ability to flex merchandise across its DC network as well as flexing teams across functions and across sites will have helped with the company decreeing it a ‘logistics Christmas’.

Will 2015 be the same? “Black Friday won’t be smaller than last year,” says Rocos. Plus the firm’s ethos of “Never Knowingly Undersold” means it doesn’t have the option of opting out.

“Plans are being revised for this year,” he says. The retailer is investing £18m to enable it to process 220,000 orders a day instead of the 180,000 at peak 2014. This is spread across many areas of the DC, including order storage and retrieval, pick benches, outbound sortation and packing.

And what about post-Christmas? John Lewis outperformed the market in the last financial year with gross sales up 9.2% and every channel and category seeing growth during the year. Sales through grew by 21.6%.

This year is already a logistics Christmas and the investment in Magna Park 2 and 3, which will be fully operational in 2016, will bring greater efficiencies in the three category areas – Fashion, Home and EHT – which are seeing growth in sales and in market share. It seems like John Lewis will be extending its logistics Christmas to 2016.

Two further buildings are currently in the build and fit-out stage at Magna Park and these will eventually take over from other DCs operated by John Lewis and its partners. Magna Park 2 (MN2) is due to go live this summer and will be fully operational by 2016. The 675,000sq ft automated site will process 250,000 SKUs from its single stock pool of apparel enabling customer orders to be handled cost effectively, little and often, based on demand.

The £97m investment in MN2 includes 6 floors of hanging garment automation from Dürkopp Fördertechnik (part of the KNAPP group), with a 96m bridge link with hanging conveyors connecting it to the existing DC.

Fashion accounts for a third of online orders at John Lewis and customers regularly order from this category along with shoes and bags, explains Rocos. Fulfilment is currently split between MN1 for the shoes and bags (as binnable items) and Park Royal London where the clothing is located. The relocation to the automated MN2 DC will not only allow John Lewis to fulfil more items direct to customers from its central DCs but also enable it to consolidate items purchased from multiple categories into one parcel and a single delivery.

Park Royal will subsequently be closed down.

The third, 638,000sq ft, building, which will also go live this year, holds larger items including furniture, electricals and home furnishings. A new ERP system also forms part of the expansion.

This feature first appeared in the second print issue of eDelivery Magazine (EDM02), which was published in spring 2015.

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