“Closing Asda’s home shopping depot’s in Watford and Croydon was part of the strategy to migrate to a more profitable store picking model.”
To build the capability to pick, pack and deliver customer orders from the retailer’s existing store base and migrate the operation (systems, processes and people) from the current depot-based fulfilment operation to the new store operation.
Asda launched a home shopping operation in January 1999 based on telephone orders from customers with fulfilment from a dedicated depot.
The strategy was based on the assumptions that the depot operation would be more efficient than an equivalent store operation and that they would be able to handle a greater volume of orders.
After 18 months of operation, it was clear that picking from depots was an inhibitior to sales and profit growth – demonstrated by Tesco’s rapid rollout of store-based fulfilment. This was primarily a result of the high cost of building depots and the fixed costs of operating them.
In August 2000, Iain Spence was asked by the Chief Executive to refocus the home shopping business’ operations and systems to turn the operating losses into profits.
The broad phases adopted in tackling the profitability issues were:
Phase 1 : Financial Analysis
A detailed analysis was prepared of the depot operation and comparison to a store-based alternative. The key sensitivities were established and compared between the two models – it became clear very quickly that store-based picking was the only commercially viable solution for grocery home delivery.
Having established the need to convert from depots to stores, we began the definition of the future vision, in terms of business operations and technology to support it.
Phase 3: Migration Planning
Having determined what the future business and technology would look like, we planned at a high level the projects required to deliver this vision. Broadly they comprised:
- Stabilisation of current depot systems – this was necessary as a short-term tactical initative in order to keep the depot systems operational during the migration period, since they were originally built only as a trial
- Creation of a multi-channel sales architecture – see here for the case study on this
- Trial of a manual picking operation from an existing store (see below)
- Technology defintion, selection and development to support in-store picking
- Multi-store pilot for store picking
- Closure of depots
- Store roll-out
Phase 3: Store Picking Trial
This phase was to prove the concept and help define the business processes required to optimally run the operation from store. Minimal systems development was required since it would be throw-away.
Orders were printed in store and colleagues picked products from paper-based picking sheets, product was then run through the tills and despatched on delivery vans. It was clear from this trial that the assumptions in our financial analysis were robust and that we had the makings of a profitable home delivery business.
Phase 4: Technology Definition, Selection and Development
Having proven the concept, we began detailed definition of the system functional and technical requirements. Having developed our requirements, and prepared a package selection scoresheet, we carried out a market analysis to identify the potential providers of packaged picking and home delivery solutions. We then performed a thorough product evaluation including high level software testing on our short-listed products.
We compared our favoured packaged solution with the potential for in-house development and selected the package route on commercial grounds. Having selected our picking system from Exel Logistics, we began the task of defining the required customisation and integration with existing mutli-channel sales systems.
The complete phase of product selection., customisation and systems integration was completed within a 10-week period – an impressive feat!
Phase 5 : Multi-store Pilot
With the right technology in place to support a full scale store picking operation, it was time to test it in real use. First in one store to iron out any glitches, then quickly up to 20 stores over an 8 week period.
The key outputs from this phase were a proven business case for the operation, a robust set of processes and supporting training materials and a proven implementation process. The business was now ready for roll-out.
Phase 6 : Depot Closure
This phase of the operation required significant planning in order to prevent major adverse customer reaction. Managing change of this nature is never easy and we did everything possible to redeploy colleagues into other roles within Asda’s business.
Despite this, we received a certain amount of adverse PR – mainly from the business press claiming a U-turn in strategy. From this case study you can see that this was unjustified as substantial effort was required over a signifcant period in order to be prepared for the switch to store fulfilment.
Phase 7 : Roll-out
The final phase – adding new stores to the operation is now simply a matter of recruiting and training colleagues, installing store hardware, defining the delivery areas on the central systems and the time slots for delivery. The product range is then available automatically for customers in that delivery area – they may then shop with Asda @ Home and receive their delivery the following day!
Over a 12 month period:
- Complete re-architecture of the home shopping central systems
- Definition, customisation, integration and deployment of store picking and delivery systems
- Proof of concept trial, pilot to prove implementation and roll-out to many stores
Having achieved this, Asda set about its plan to offer home delivery to 14 million households in the UK by end of 2002.