How does Schuh’s logistics operation work?
The Schuh logistics estate currently consists of two Scottish DCs, located a few miles apart from each other at Livingston and Bathgate, a mini DC at West Bromwich in the Midlands and 133 stores that are used as mini fulfilment centres.
Most new intakes are delivered to our Bathgate DC with returns, store to store transfers and clearance operations handled at the Livingston DC with both fulfilling online and store orders. Our mini DC at West Bromwich is used purely as an ecommerce fulfilment centre and is sent stock daily for sale online with a much later last order cut off time than we can achieve from Scotland. Stock in stores is populated for sale online and shipped from a store where stock may not be available in a DC or where the customer has chosen same day collection from a specific store.
The operation is focussed on three core goals:
- Providing great service to all of our logistics customers;
- Finding ways to add value by doing things better, more efficiently or more cost effectively;
- Ensuring resources are in place to support the company’s future growth aspirations.
They’re all pretty important but our most important KPIs are service related and customer focussed.
Service: We think of our customers as falling under three broad headings: 1) Direct consumers (online customers) and the Ecommerce Team, 2) The Retail Team (stores) and 3) the Buying & Merchandising Teams
For Direct consumers and the Ecommerce Team, we aim to provide every type of delivery service required and partner with fast and reliable delivery partners. New lines need to be available for photography and offered for sale online with the stock in a pick location on the day of receipt. Our main KPI is on time delivery which we measure using tracking data imported into our own Customer Journey Report.
For the Store Retail Team, we provide next-day delivery 6 days a week and aim to pick all orders and replenish sales on the same day through to 6pm daily for next day delivery. Our automation helps us pick and pack up to 12,000 items an hour. The main KPIs are on time delivery, delivery accuracy and we also measure sales next day that could only have been achieved as a result of us running replenishment picking in the afternoon through to 6pm. Picking this way is less efficient from a productivity point of view, compared to waiting until next day, as it involves multiple picks but we know that the additional sales achieved more than cover the extra man hours required.
For the Buying and Merchandising Team, service is based on same day turnaround on all new intakes with the stock offered for sale online same day (except where there’s a specific future launch date) and in all UK & IE stores next day. Our stores are electronically sent two or three return tasks each week in order to move dynamic and limited stock to locations that are selling it faster. This can be as much as 35% of outbound delivery volume. Stores scan and pack the stock on day one, it’s collected and returned on day two and processed and sent back out for delivery for day three (day four in German stores). This process is assisted by some very slick IT processes and automated sortation system and delivers some significant benefits in the form of lower overall investment in inventory than we might otherwise expect (we typically run on 12-14 weeks stock cover) and a lower percentage of markdown incurred.
We also have a clearance operation where fragmented lines and former display shoes can be QC checked, graded and if appropriate be listed for sale, with a discount, as slightly imperfect, with a photo and description of the imperfection on a special area of our website. This provides a useful way of achieving the best possible terminal selling price for this type of stock and also helps keep our inventory fairly clean.
Added Value: In addition to trying to ensure that the logistics operation is leveraged to help support the sales teams and to provide what’s needed for all of its users we’ve also worked hard over the years to find ways to add value and positively impact operating income as a result of initiatives to improve productivity, processes or cost control.
Since 2014 we have improved productivity by 29% while still expanding the size of the logistics workforce. This has been achieved as a result of investment in facilities (new DC) automation (new sorter) and development of our in house Warehouse Management System as well as a number of operational and shipping initiatives.
When it comes to choosing suppliers and delivery partners, service and quality are always highest on our list of requirements but we also benchmark everything we purchase, whether its goods or services, to ensure that we are getting the best possible value. We have built really strong relationships with a number of key third party partners over the years and we believe that positive supplier relationships massively add value to our operation.
Future Growth: Our Bathgate DC is big enough to comfortably support the planned growth of the business over the next 10 years. When we acquired it we planned to max out use of the available ground floor space over the first few years before increasing storage density by expanding upwards and utilising the height of the building fully. We’re now getting closer to optimising use of the ground floor footprint and during the next two years we will be adding an automatic storage and retrieval system (ASRS) which will offer us high density storage, faster stock put away and retrieval. We’ve chosen this route ahead of traditional mezzanine systems party due to its speed, and storage efficiency but also because it can be added to and expanded gradually each year in line with growth, rather than making a huge investment up front ahead of when its full capacity would be fully utilised, and this use of capital suits our business model.
How do you maintain efficiency of back end processes in line and ahead of online and omnichannel growth? What challenges does this bring?
Our logistics staffing model is linked to a projected sales model which factors in promotional activity, new product launches, average selling prices, current performance etc… for online and omnichannel so we have a pretty good idea of how our weekly workload will look in advance. It changes periodically in line with trading performance and forward stock commitments and we can then ensure we have the right resources in place to handle expected volumes and enough flexibility to be able to handle any upside if there is any. All of our internal processes have specific KPIs in terms of productivity ranging from high productivity activities like goods receipt and store order fulfilment, mid-range activities including online order fulfilment and store-to-store transfers through to more labour-intensive activities such as clearing ends of lines (which requires some QC and often some additional photography for imperfect items). We’re able to measure and report on all of them in terms of PPH (pairs per hour) which helps make the impact of any new operational initiatives or process improvements very visible and quantifiable.
The biggest challenges are usually unexpected ones, such as a large new delivery not arriving when expected or having to re-label a big delivery that has arrived with incorrect box end labelling, but we’re usually able to recover from these sorts of things fairly quickly by re-deploying staff from other activities. Like many retailers we experienced dangerous local road conditions due to the snow back at the start of the year which meant we lost a couple of days but fortunately our online admin allows us to change our delivery promise in real time so at least customers were given a clear indication of revised expected delivery dates before making their purchase and we were able to deliver on time within the revised delivery window.
Can you share details of any IT or Operational projects which have been undertaken recently?
We’ve been working hard at refining and improving many internal processes, with the help of some smart in-house IT, but there are three recent projects that are worth noting.
We have upgraded our label printers in all three of our DCs and in each of our stores (50% of orders are fulfilled from our store estate). We’ve changed from printing using laser printers to much smaller and faster Toshiba Duplex thermal printers which print on both sides of the label / dispatch note. The saving in media (paperwork but mainly toner) is significant in the region of £150k pa which has not only covered the cost of capital in year one but also allowed us to process orders more quickly, avoid the admin associated with ordering and recycling toner cartridges and leave a smaller environmental footprint.
We’ve also introduced 20 large screen monitors across our two Scottish DCs as part of a two part initiative to increase staff engagement and try and make what can be quite a repetitive workload as interesting as possible for our staff. The dashboards show the main KPIs for the work completed each day and work outstanding as well as how the company is trading, what is selling, staff messages and recognition of personal records achieved for various pick and pack activities. Phase two will involve an element of ‘Gamification’ where we’ll aim to make it possible for staff to be recognised, individually and in teams when they hit certain milestones in their career with us, for example, picking or packing defined volumes, processing returns, receiving new delivery intakes or completing stock moves.
We’re taking our time with phase two so that we come up with interesting metrics, and visualisations, that are fun to achieve without adding unwelcome pressure and where any rewards are funded by gains made.
We are greatly helped by having a single, real time, view of our inventory across all of our channels and have been fulfilling orders and shipping from our store estate for well over 15 years now but during the last twelve months we’ve made some further ‘streamlining’ refinements to our web population rules that have helped us ensure that we not only offer the right delivery options at checkout (express buy and collect and standard delivery for stock in stores and next day & nominated day services for stock in DCs), but that we also have algorithms in place for very dynamic or scarce lines that ensure that we minimise ‘out of stock’ orders bringing the percentage down to less than 0.13%.
We’ve been recycling cardboard, paper and plastics for many years but this year we are pleased to be able to say that we now send zero waste to landfill. In addition to splitting out recyclables we now compact any non-recyclable waste which is then used as biofuel. Apart from the environmental impact, it has also cut down our waste collections and reduced landfill taxes. We’re currently working on further reducing the environmental impact of our packaging and will be making some positive changes in that respect very soon.
What plans do you have for the future?
A couple of important delivery projects have taken a back seat while our websites have been fully redesigned this year, but they will be going live in the coming months. First is the reinstatement of a same day, one-hour delivery service from our major regional stores. Until February 2018, we were partnered with Shutl but the company has ceased offering this service. Although customer demand for this service was relatively low and heavily centred towards central London we think this is still an important service to offer and we will be working with an improved and wider offer with On the dot shortly.
The second development is the launch of a self-service returns portal on our website giving customers an enhanced choice of ways to return unwanted items. These will include our store network, convenient third party locations, 24-hour lockers, Asda supermarkets and a collection from home option which we don’t currently offer.
Commercially it was the right thing to do to focus on and prioritize our website design but these are both things that we think our customers will appreciate and which we believe we should offer in order to compete at the highest level with other IRUK500 retailers.
A Leader in the IRUK500
Schuh offers delivery over 7 days with a late order cut off time, same-day express click and collect, and a choice of third party click & collect locations. In addition to the standard order progress, dispatch and tracking communication that is provided, all customers also receive messaging direct from the carrier about their expected delivery window, updates on any potential delays during the delivery day and have some additional control over their delivery in the form of ‘in-flight’ delivery options.
Schuh has invested a lot of time and effort to ensure that it is working with some of the best performing and most reliable delivery partners in the business. It imports live tracking data from delivery partners to populate a Customer Journey Report which measures actual delivery performance against its delivery promise across all services.
The retailer’s standard delivery service, which comes with a 2-3 day delivery promise, is running at over 99% on time so far this year with circa 70% delivered next working day. Schuh benchmarks itself against the IMRG Delivery Index and it typically aims to exceed the national average by 8-10%.