human resouce management
Table of Contents
Introduction 8 UK Shoppers divorce from the big four? 8 Research Topic 10 Background to Research Area 12 Research Aims and Objectives 12 Dissertation Structure 13 Literature Review 13 Methodology 13 Analysis 13 Conclusion 13 Literature Review 14 Introduction 14 The UK Supermarket Landscape 14 The Significance of Distribution Centres 15 Product Availability 17 Psychic stock – A Discount Retail Necessity? 17 Abundance of grocery retailers 19 Geographic Considerations to growth 20 The impact of increased consumer demand for Fresh produce 21 Perishability, Seasonality and ‘best before’ dates 21 Efficient Working Practices 22 Growth hampering efficiencies? 22 Internal Constraints 23 Sustainable Growth? 24 Technological advancements for Distribution centre efficiency 25 Order Picking 25 RFID 26 Stock Loss and it’s damaging effects to Supply Chain Management 27 Cost- Benefit Trade off 27 Logistical considerations 28 The Final Hurdle 28 Introduction 51 Aims and objectives revisited 51 To discover the changing consumer behaviours and their impacts upon grocery distribution. 51 To study the importance of maintaining own brand product availability, where substitutes generally do not exist 51 To examine the role of distribution centres, warehouse management and the influence technology can play to ease efficiencies, crucial in the discount retail industry 52 To investigate geographical patterns of growth within the UK and how this affects warehousing operations within the discount retail industry 53 To determine the effect of delivery restrictions on business, society and product availability 53 Limitations 54 Future Research 54 Summary 55
Case Study Lidl: Maintaining sustainable growth pathways for the future, the use of technology and warehouse management to optimise supply and distribution in a rapidly expanding industry.
1. Introduction
This dissertation aims to introduce the rapid expansion of the discount retailers in the already saturated grocery market within the UK. The UK supermarket landscape will be discussed in depth before the major research objectives that will be later expanded on as the study progresses are introduced to the reader.
UK Shoppers divorce from the big four?
Morrisons’ acquisition of Safeway in 2004 had provided a stable oligopoly of four major players, known commonly as the ‘big four’, comprising of Tesco, Sainsbury, Morrison’s and Asda, of whom have collectively enjoyed the majority share of the United Kingdoms’ food retail industry (Butler & Wood, 2014). Whilst the market shares of these powerful four retailers remain unquestionable, Lidl and Aldi have taken this market by storm and have become a major threat. They have occupied significant market share in recent years capturing a combined market share of 8.6% by the end of 2014 (Martin, 2014).
Counter to traditional strategic approaches used within the grocery industry, the discounters have offered a limited product range; driving economies of scale within product sourcing and pushing their cheaper own brand produce onto the consumer. With limited product range, the discounters can enjoy an enormous power in supplier selection to ensure only the very best variation of particular produce can be chosen for their stores throughout Europe. This has become increasingly recognised in recent times as the discounters’ image as a ‘cheap’ alternative has started to disappear with the key players stressing the quality of their products, targeting the growing middle class and putting significant strain on the other grocery retailers (Felsted, 2014). Whilst grocery shares in figure 1.1 may appear minimal in comparison to the major players, what must not be ignored is the growth shown by the two major discounters compared to the declining shares seen by the majority of other retailers.
It was considered that up until the recession, the discounters were not seen as a major threat to the food retail industry (Thomasson & Davey, 2014). This clearly indicates that the lower priced produce has stemmed an initial attraction towards the discounters as many fell towards financial hardship. The perception of quality within the grocery retailing industry stems from the availability ‘better value’ products that are indeed considered at a good standard (Semeijn, van Riel & Ambrosini, 2004). As consumer behaviour continues to switch towards the discount retailers, it can be argued that they are indeed offering this quality and genuine value within their products. Despite an initial belief within the UK that own brand produce were consumed from lower income customers, a transition has begun whereby higher income consumers are embracing these private
label goods in search of genuine value (Lincoln & Thomassen, 2008). With the discounters specializing in this own label produce, an enormous window of opportunity has opened.
Given the rise of Aldi and Lidl, this research is premised on the rapid market presence and growth of the only two major discount retailers operating within the United Kingdom. The capabilities of meeting demand driven chains in the UK grocery market tend to be significantly shaped by the capabilities and capacity for distribution (Christopher, 2012).
Much of the peer reviewed academic literature is dominated by studies that focus on efficiency, demand efficacy and Supply Chain Management (SCM) practises to improve bottom line growth. Wide aisles, outsized bar coding and limited Stock Keeping Units (SKU) 1 become undeniably noticeable from a singular customer experience within a discount retail store. Whilst a customer within these stores may think nothing of these key features within
a discount retailer’s store; these characteristics add to the efficient business model, aimed at reducing the customer’s time in store. With less choice comes faster consumer decision making and staff are able to process the consumer purchase at the point of sale at rapid speed with enlarged product barcoding. These costly savings are reflected in the low prices offered in store and are an integral part of the hard-discount business model.
The visible aspects of efficient working practices are just the ‘tip of the iceberg’; fuelling the fierce ‘price-war’ discussed in recent media requires this culture of efficiency to transcend deep into the different business functions and unquestionably through the Lidl supply chain (Felsted, 2014). In a steady yet growing industry, figure 1.2 suggests the United Kingdom’s acceptance of this business model, outlining the phenomenal increase in
turnover enjoyed by the discounters. Strong financial figures indicate continued success for the discount retailers as the supermarket landscape continues to evolve.
This paper calls into question Lidl’s role in Britain’s supermarket revolution, questioning the sustainability of the accelerated growth currently experienced. Technological advancements seen within the warehousing and distribution industry are assessed from previous literature with exploratory research undertaken to question the impact of this growth on Lidl’s operations. The Economic climate and changing consumer behaviour has been attributed to this meteoric swing towards the ‘discounters’ and the growth shows no signs of stopping (Financial Times, 2015). Lidl have implemented a successful business model into the UK grocery-market, which has been widely accepted by consumers. Ultimately, the sustainability of recent success hinges on the ability to supply and meeting increasing customer demand through product availability in store. The research explores the technological advancements that have positively
contributed towards the organisations downstream supply chain whilst exploring necessary future change that can allow for this continued, unrelenting growth.
1.2 Background to Research Area
The author chose to explore Lidl by means of a Case study having undertaken a year-long placement with the organisation as part of an academic placement. The placement ran parallel with periods of unprecedented growth within the company, with sales turnover reaching record levels. Having spent time in various departments, most noticeably three months working within Runcorn’s Regional Distribution Centre (RDC) as a Logistics Supervisor, warehouse operations were witnessed first-hand. A fascination began, along with a need to explore this area in further detail, notably; the importance of the distribution centres within an expanding downstream supply and the technological advancements that can allow sustainable efficiencies.
Remembering the recent emergence of the discount retailers in the United Kingdom the author acknowledged a clear gap in the literature, particularly in regards to their supply chain operations. Comparisons were drawn from SCM of other firms, highlighting the key features of successful operations.
1.3 Research Aims and Objectives
· To discover the changing consumer behaviours and their impacts upon grocery distribution.
· To study the importance of maintaining own brand product availability, where substitutes generally do not exist.
· To examine the role of distribution centres, warehouse management and the influence technology can play to ease efficiencies, crucial in the discount retail industry.
· To investigate geographical patterns of growth within the UK and how this affects warehousing operations.
· To determine the effect of delivery restrictions on business, society and product availability.
This chapter of the research extensively analyses secondary data by means of a literature review, exploring the disciplines of warehousing and logistics within the grocery retail supply chain. In essence this preliminary research underpinned the basis for the research questions.
This particular chapter offers both description and justification of the research methods chosen by the author. Saunders and Lewis (2012) ‘Research Onion’ is used to discuss the various processes that needed to be taken into consideration throughout the research project to ensure reliable, non- biased data is collected in an ethically aware manner.
Having undertaken the primary research by means of semi-structured interviews, the findings are presented and analysed for the reader. The academic theories discussed in the Literature are at this point contextualised to the case study and the working practises of Lidl UK GmbH.
The research project concludes with a thorough reflection, contemplating the research aims and objectives and comparing these with the acquired outcomes. Further areas of research that have arisen from this project will be discussed and the key limitations further mentioned that may have inhibited the further progression of the research.
Collins Dictionary (2015) defines the big four as a small powerful group of companies, as seen in the UK grocery market, whereby Tesco, Sainsbury’s, Morrison’s and Asda occupy significant market share and have been commonly referred to as ‘The Big Four’ supermarkets (The Economist, 2014). The current grocery market landscape has been subject to recent change with the relatively new addition of ‘The Discounters’ who have stolen significant market share from the ‘Big Four’ (Mattinson, 2014). This has prompted speculation of a very genuine ‘price war’ amongst the major discounters, who appear to be scrambling to regain lost market share, compromising their profit margins as a result (Felsted & Aglionby, 2015).
Whilst a Discount retailer is hard to define and no such definition has been found in the literature reviewed, the Institute of Grocery Distribution (IGD) identifies a discount retailer from the following characteristics identified in figure 2.1.
This research takes a supply chain perspective. According to Stevenson and Spring (2007) a Supply Chain is defined as:
“The network of organisations that are involved, through upstream and downstream linkages, in the different processes and activities that produce value in the form of products and services in the hands of the ultimate customer.” (Stevenson and Spring, 2007).
Given this research focuses primarily on the multiple issues with respect to the supply and demand of food, it is necessary to look to upstream activities directly connected with downstream retail stages of a given chain. The way in which food products are stored and distributed for final retail differs markedly for discount retailers such as Lidl and Aldi and again for growing online companies such as Ocado. Efficiency and human capital productivity is seen as a prominent feature within discount retail (Reynolds et al., 2005), but other grocery platforms have attained success by alternative means.
Ocado, an e-retailer who have offered incredibly efficient distribution systems having implemented the most advanced technological advancements along their business processes (de Kervenoael, Elms and Hallsworth, 2014) and recorded their first profit early in 2015 (Felsted, 2015). In stark contrast to the technology focused Ocado, two major UK discounters are yet to offer an e-commerce platform, questioning the level of technological adoption within the industry and through their core operations (Denton, 2015).
The Significance of Distribution Centres
Distribution centres are crucial for the majority of food- retailers’ relatively short channels of distribution where stock is received, sorted and distributed to stores (Lewis and Trevitt, 1996). Upon receipt of the stock into the warehouse, Distribution Centre operations ensure the fulfilment of store orders and manage the shipping process (Ma, Yin and Liu, 2011).
Figure 2.2 shows the basic working practises within most Distribution Centre whereby stock arrives at the warehouse before being stored by the Goods-in department. Once a store order has been placed, a picker will manually pick the products to complete the order for the transport department to ensure it is delivered to store. Whilst is clearly labour intensive, Ocado’s emergence has shown other an alternative route, whereby technology orientated strategies and implementations such as RFID tagging, and vast automated conveyor belts allow smooth order picking with little human involvement (Ocado, 2012). The various stages within the internal operations of supply must ensure collaboration throughout the chain and must not compete amongst themselves; the many processes undertaken in a short period of time within the Distribution Centre must ensure effective Warehouse Management to allow full vertical integration (Christopher, 2012).
This dissertation research project seeks to address the gap in the literature concerning the use of the stage of distribution and warehouse management in improving competitive market presence and sustained
economic growth in a volatile food market arena. Higginson and Bookbinder suggest the role and importance of the Distribution Centre are somewhat of a forgotten area, albeit an integral kink in the chain (Higginson & Bookbinder, 2005).
Ettouzani, Yates & Mena (2012) highlight the importance of the distribution centre within a firm’s supply chain when fulfilling store orders. They stress that short term capacity is limited, noting the potential issues that increased sales can bring (e.g. increased weekend sales volumes), through increased ‘congestion’ and mis-picking. Balancing labour productivity with space utilisation within food-retail distribution holds its own difficulty. There is a fine balance between stock-holding levels and efficient working practices with each performance measure seen to have negative implications for the other (Manikas & Terry, 2009).
Psychic stock – A Discount Retail Necessity?
Popular advertising campaigns have previously compared one branded product against the discounters own brand product, pushing the customer towards the non-branded alternative with mentions of quality and most notably price (see figure 2.3). Stocking just one ‘brand equivalent’ leads to savings in storage, transportation and can lead to purchasing benefits via economies of scale, through increased purchasing quantities (Dawson, 2013). Whist this is all undertaken in a cost reducing exercise, this could be seen to add further strain to the supply chain when considering the importance of product availability (Deleersnyder, Dekimpe, Steenkamp & Koll, 2007). This is compared to rival superstore grocers who have long battled amongst themselves, where intense rivalry led to expanding product ranges aiming to exploit niche markets with innovative products, winning customers with superior choice (Hackney, Grant and Birtwistle, 2006).
Psychic stock is considered a key determinant of sales revenue and product availability is vital to ensure healthy turnover (Dubelaar, Chow & Larson, 2001). Larson and DeMarais (1999) refer to this ‘psychic stock’ as the displayed inventory that stimulates demand. Smith and Achabal (1998) argue that whilst fixtures do not necessarily need to be full all times, adequate stock holding should always allow satisfactory presentation, stressing the importance of product availability.
Empirical Studies highlighted by Campo, Gijsbrechts & Nisol (2000) have shown that the availability of substitute products will have a negative correlation to store switching in the majority of instances. Remembering the strategies previously discussed whereby minimal SKU’s are held by the discounters; these studies may not be relevant to the discount-retail industry and the combined implications of non-availability and minimal substitute products could well lead to costly consumer store-switching.
Other studies highlighted by Campo, Gijsbrechts & Nisol (2000) such as those undertaken by Corstjens and Corstjens in 1995 recognise and identify the three major consumer responses to ‘out of stocks’ being product substitution, no purchase being made at all or the customer using a different store to purchase the product. This can often result in permanent store switching with damaging financial implications (Corsten &
Gruen, 2003), becoming especially relevant within the UK given the rich availability of grocery stores.
Abundance of grocery retailers
The United Kingdom has an abundance of food retail outlets illustrated in figure 2.4 showing the variety of grocery channels, whereby Superstores occupy the vast majority. Many regions possess a very heavy concentration of grocery channels in many different forms, highlighting the enormous amount of choice available in terms of places to shop for consumers (Clarke, Kirkup & Oppewal, 2012).
With such an expansive choice of different grocery outlets available to the UK Citizens, customer retention is paramount to spur future success as well as capturing new markets. The discounters have seized the opportunity at grasping a hold on the ever expansive middle-class and this has heavily contributed to their recent success (Felsted, 2014). Further movement towards the middle-class is seen as a viable option as consumer behaviours continue to develop (Thompson, Clarke, Clarke and Stillwell, 2012). This becomes a focal point of consideration for SCM approaches and strategic direction at the board level, with Lidl UK GmbH
Managing Director openly targeting the ‘Maidstone Mums’ 2 of the UK (Campbell, 2013). Attracting new customers as well as retaining the existing customer base reiterates the importance of the internal supply chain in ensuring product availability to drive turnover and build customer loyalty through strong customer relations (Zineldin, 2006).
2.3 Geographic Considerations to growth
The United Kingdom economy has historically grown at different rates within different locations and the north/south divide is by no means a new phenomenon (Hacking, Muller and Buchan, 2011). Different locations possess strong differences in social class, which is known to influence consumer decision making in regards to consumer behaviour (Hawkins & Mothersbaugh, 2009). Having successfully targeted the middle class (Glotz, 2014), it would become apparent that the growth rates experienced within the organisation may have hit different regions harder than others, potentially straining resources as capacity utilisation increases (Hindi, 1998).
Cooper (2014) has reported the major Discounters intention of acquiring new Distribution Centres across the UK. Chan, Kumar and Choy (2007) highlight the difficulty this can bring, with the consideration of present and future business perspective vital when constructing a countrywide network of supply. Hindi (1998) stresses the aim for minimal costs within the process of Distribution Centre construction, with capacity constraints and location noted as the major determinants. Technological advancements have aided the search for potential DC locations for many years, given projected growth rates, with advanced algorithms able to offer both minimal costs and carbon footprints (Pishvaee, Torabi & Razmi, 2012). Has the exponential market growth of discount retailing put strains on particular regions showing extraordinary levels of growth?
2 Maidstone Mum - Marketing term used by Lidl Managing Director Ronny Gottschlich to describe residents of 'Middle England' who are leaving the big four supermarkets to shop at the discounters Aldi and Lidl.
2.4 The impact of increased consumer demand for Fresh produce
Perishability, Seasonality and ‘best before’ dates
As well as increased turnover, these major discounters are experiencing a shift towards fresh (date sensitive) produce (Felsted², 2014). Increased levels of trust towards the discounters can be seen as inspiring a demand for fresh and organic foods (Gottschalk & Leistner, 2013). This provides new challenges to retailers, whereby SCM must ensure date sensitive goods carrying short shelf lives have optimal time in store, ensuring mimimal product wastage through insufficient time on the shelf (Mena, Adenso-Diaz and Yurt, 2011). Enhanced chill chain integrity disciplines and associated costs such as temperature maintenance that follow a transitional shift away from predominant ambient retail are discussed by Bourlakis & Weightman (2004), also suggesting a more agile supply chain would better complement the distribution of date sensitive produce. Christopher (2000) believed that an agile supply chain goes beyond speed of supply, ensuring ultimate manoeuvrability and flexibility, also suited to volatile demand fluctuations such as those currently experienced by discount retailers.
This becomes a common theme with Christopher (1998) discussing the idea of substituting inventory with information to increase responsiveness to supply within distribution centre operations, highlighting the potential importance that technology can hold in modern lean supply chains. Baker (2004) agrees, recognizing the sizeable contribution automated machines have made to operating costs and efficiency along other food retailers supply chain but instead suggests that holding higher levels of inventory could potentially lead to more agile supply. In a more recent edition published by Christopher (2012) the importance of inventory substitution remains; he discusses the modern day information complexities that can cause data inaccuracy and the misinterpretations that can result in any given supply chain. To ensure supply can meet demand, a transparency is
seen to be necessary and the advancements in available technology after his initial considerations in 1998 are considered adequate to do so.
Having previously discussed the capacity constraints within any given Distribution Centre, the combination of accelerated growth and a transitional consumer switch to fresh produce will no doubt lead to further storage implications. Accommodating for fresh produce and meeting strict chill chain procedures could lead to cannibalisation of ambient storage space; this spurs a desire to explore successful technologies promoting lean Distribution Centre operations. A ‘Just in Time’ (JIT) approach, reducing the time that products are held in the distribution centre would ultimately reduce the stock holding at any one time, increasing the available storage space but could hamper product availability if mismanaged (Ward and Zhou, 2006).
2.5 Efficient Working Practices
Growth hampering efficiencies?
The recent volatility of the UK food retail industry has seen the apparent ‘Rise of the Discount Retailers’ stealing market share from the infamous Big Four; Tesco, Sainsbury’s, Asda and Morrison’s (Don, 2014). Growth rates have far exceeded expected levels, with the key discounters in this market reaching in excess of 20% (Farrell, 2015). Growth levels of such proportions are sure to test the infrastructure of the key players in this market and the fixed short term capital at their disposal. Contextualising this to the discounters supply chain, the marginal returns to labour can be considered amongst the common economic Theory of Diminishing Returns (Stigler, 1939). Has productivity and efficiency decreased as a result of this growth?
Warehouse operations can be likened to the labour intensive manufacturing industry, commonly associated with eventual diminishing returns from additional units of labour, there comes a point when the marginal returns to labour input becomes negative (Rasmussen, 2012).
Efficient logistic processes have been cited to lead towards sustainable growth and long-term profitability (Arlbjørn, 2008). Whilst this may be true, productivity of human capital is seen as essential methods ensuring competitive advantage (Campbell, Coff and Kryscynski, 2012) and is especially relevant for the discount retailers.
Excessive growth rates with constant capital, such as size and number of Distribution Centres, could theoretically reduce the marginal product of labour and ultimately lead to the increased cost of supply. Inefficiencies spurred by overcrowding that can lead to diminishing marginal returns are discussed by Selim (2012) when investigating labour productivity within the manufacturing and agriculture industries and can easily become transferable to labour intensive warehouse operations.
Fulfilling store orders through successful delivery is ultimately considered the most important customer service objective of a distribution centre when servicing stores (Ellram, La Londe & Margaret Weber, 1999). To do this successfully and to ensure on-time delivery, which is considered the greatest benefit of effective SCM (Fawcett, Magnan & McCarter, 2008), retailers must be aware of the internal constraints within their downstream supply; otherwise preventing collaboration of different departments to allow store replenishment (Simatupang, Wright & Sridharan, 2004).
Supply chain performance is often measured through quantitative analysis as discussed by Rahman (2002) who adopts the viewpoint whereby qualitative analysis through careful weakness consideration, communication and collaboration is an essential process in supply chain growth. Goldratt’s Theory of constraints can be applied to all food retail supply chains to allow further growth, with the five steps of constraint alleviation listed below in figure 2.5 (Goldratt, 1990).
Modern day SCM modifies the ‘cost centre’ belief of old with Kaihara (2001) believing that SCM is a key source of instant operational improvement and is ultimately orientated on Goldratt’s theory. He expands that strategic management processes are aimed at reaping financial reward through efficiency that Devaraj, Krajewski & Wei (2007) believe can lead to competitive advantage, vital in the highly competitive food retail industry.
Sustainable growth can be seen as creating profit for an organisations owners and shareholders whilst preserving long term business opportunity (Savitz, 2013). Increase in turnover and increasing market shares are undoubtedly the ideal in the competitive food retail industry, but careful consideration must be taken to the sustainability of this growth to avoid eventual downfall (Fisk, 2010). Holliday (2001) stresses the importance of Sustainable growth within any organisation and highlights constant productivity improvement as a key driver. Considerable investments in distribution systems allow steady flow of products into stores and
implementation of new distribution centres can ease the process of supply but carry significant sunk costs (Ellickson, 2007).
The search undertaken by major UK Discount Retailers operating within the UK for new Distribution Centres potentially indicates that the existing sites are nearing full capacity and could be experiencing decreased levels of productivity. Elbers, Gunning and Kinsey (2007) discuss the sustained investment in capital needed to ensure continued organisational growth. This work is complementary to common economic theories citing the need for continuous infrastructural improvements (Solow, 1956), a theory still applied today in many industries (Brodzicki, 2012). Distribution centre operations are seen as a primary way of reducing costs and yet remaining responsive to consumer demand (Baker, 2004), has this vast increase in growth led to discount retailers adjusting their methods to efficiently supply the revenue driving stores?
2.6 Technological advancements for Distribution centre efficiency
Order picking has been described as the most important process within any distribution centre (Henn, 2012) with product location seen as a key determinant in optimization of picker routes, requiring SCM to consider the ‘travelling salesman problem’ to promote efficient picking (Renaud and Ruiz, 2007). The Travelling salesman problem can best be described as the method in which the most cost effective and efficient way that a picker can travel between products when fulfilling a stores order (Hoffman, Padberg and Rinaldi, 2013). Travelling time is seen as the most extensive exercise when fulfilling picking obligations by Matusiak, de Koster, Kroon & Saarinen (2014) who also recognises the modern technological advancements available to increase efficiency and reduce lane congestion within the modern day warehouse; contributing to the diminishing law of returns experienced through additional picker application (Zhang, Batta & Nagi, 2009).
With warehouse design discussed as one method to increase picking efficiencies, picking technologies have been identified as the other key method of ensuring productivity gains (Eisenstein, 2008). Pick by Voice (PBV) and pick by light are two technologies identified by Connolly (2008) and whilst their implementation within the UK grocery market is unclear, their apparent benefits seem to offer resolution to common warehousing problems. Whilst promoting efficient working practises, Connolly discusses other gains within picking accuracy and stock control that these technologies can bring towards tighter inventory control.
Radio Frequency Identification tracking (RFID) technology is not a completely new phenomenon and involves a tag transmitting radio signals to a primary RFID reader linked to a computer system, that reads and stores various assortments of data in regards to the tags location (Zhu, Mukhopadhyay and Kurata, 2012). The introduction of RFID was generally seen as a replacement of older more traditional methods of inventory control such as bar-coding and whilst the benefits are questioned, the majority of literature reviewed recognises benefits from the systems implementation (Chan, Choi & Hui, 2012). Narsing (2011) identifies cost reduction, elimination of stock handling errors, increasing product visibility and more accurate inventory holding figures as benefits of RFID implementation allowing for enhanced information system reliability.
Kärkkäinen (2003) discusses the undoubted efficiency gains this technology can bring to the distribution of fresh/ date sensitive produce such as enhanced inventory holdings, ensuring minimal wastage. Common processes within Distribution Centres such as the loading/ unloading of stock can be heightened with the technologies application with decreasing risks of contamination (Shulman, 2001). Temperature control measures in place to protect the chill-chain are extremely tight; improved efficiency has arguably allowed date sensitive stock to be sorted faster and the real-time data collection able to collect accurate temperature recordings.
The only commonly discussed negativities in regards to this technology at the time of its relative arrival approximately a decade ago was the initial sunk costs associated. (Prater, Frazier and Reyes, 2005) predicted that the future for RFID was bright and that lower costs would associate advancements in technology, suggesting that its widespread implementation will lead to lower sunk costs and universal adoption.
Stock Loss and it’s damaging effects to Supply Chain Management The three main factors in inventory discrepancies have been identified as shrinkage, misplacement and transactional errors (Atali, Lee & Özer, 2005) Shrinkage, or stock loss, is a common occurrence in modern day distribution centres (Cannella, Framinan, Bruccoleri, Barbosa-Póvoa & Relvas, 2015), with implications clearly affecting revenue but also leading to enhanced costs through time wasting, and inefficient practices locating stock (Kang & Gershwin, 2005). Efficient working practices are at the very heart of the success of the discount retailers’ ability to ensure low prices (Wortmann, 2004).
The role of RFID has been bought into question as a method of bringing about tighter inventory control (Vijayaraman & Osyk, 2006). Hellström (2003) agrees, suggesting further efficiency gains through successful implementation can lead to more accurate monitoring of stock, whilst deterring theft through prevention and product traceability (Fan, Chang, Gu, Yi & Deng, 2014).
In literature reviewed the cost-benefit trade off of RFID technology became extremely apparent. De Kok and van Woensel’s model includes both the costly inventory auditing processes and existing shrinkage as factors when deciding whether RFID can be considered beneficial, stating that a 100 percent accurate system will remove the need for inventory checks (De Kok, van Donselaar and van Woensel, 2008). De Souza et al (2011), however, recognises the reduced need for manual inventory reviews but
argues that potential deterioration of stock and misrepresentations of stock-holdings could affect the ability to fulfil store orders; ruling out the complete redundancy of these checks and their associated costs.
Increased inventory accuracy can further combat the ‘out of stock’ problem, earlier identified as a hindrance on turnover growth. Further studies have clearly outlined the benefits of RFID within fresh product groups, whereby a live trial showed results of 1.7% saving on actual turnover through reduced shrinkage, compared to older traditional measures (Bertolini, Ferretti, Vignali, Volpi., 2013).
Baker (2004) reiterates the commonly accepted ideology of minimised inventory holdings within warehousing, calling for agility to allow the flow of goods to quickly pass through the supply chain. With the role of the modern day distribution centre operating to distribute the flow of goods rather than act as a holding centre, holding time must be minimised to avoid costly storage costs (Braglia, Castellano & Frosolini, 2014). Exploring the internal supply chain of the discount retailers would entail a logistical perspective within distribution centre operations that ensure the products reach the hands of the customers as Stevenson and Spring (2007) suggest is the final kink in the supply chain.
Metz (2012) addresses the implications of further population growth in the UK, such as increased travel demand; most noticeably for freight transport, a necessity in the modern era to supply the ever growing demand for consumer goods (Arvidsson, Woxenius and Lammgard, 2013). It has been stated that sustainable urban mobility must consider the ‘ease, convenience, affordability and accessibility’ of travel, ensuring minimal environmental impact or social disruption (Lam and Head, 2012).
The discounters have committed to store expansion plans which could see their number of stores double over the next 8 years (Rickard, 2014). With a significant amount of UK retailers already operating within urban areas to attract the significant customer base residing in these heavily populated areas, retailers face a final growing challenge to ensure psychic stock is present within their stores. Evening delivery restrictions aimed at reducing noise pollution in residential locations are seen as a further obstacle, whereby store orders must not only be fulfilled by the Distribution Centres, but must meet strict regulations on when the stock can be delivered (Ballantyne, Lindholm & Whiteing, 2013).
Quak (2008) questions the sustainability of these restriction windows and claims that these restrictions only add to further congestion in busy periods, where retailers must ensure the flow of goods in rush hour traffic if necessary; costing more for the retailer, being environmentally unfriendly and increasing the already problematic urban congestion. Given the growth of the discount retail industry, has this obstacle further complicated the already challenging prospect of fulfilling increased store orders?
Urban Logistics Is an essential part of our everyday lives, with retail outlets being supplied with goods and products necessary to meet the ever growing consumer demands (Anderson, Allen & Browne, 2005). The benefits of night time deliveries include:
· Reduced travel times, where deliveries are made when congestion levels are significantly less.
· Reduced co2 emissions.
· Reduced congestion levels during busy periods.
(Quietcities, 2015) Whilst night time deliveries offer undoubted increases in efficiencies and
remove time constraints placed upon warehouse operations, local authorities have leaned towards delivery restrictions as a preferred
deterrent of noise pollution as opposed to searching for sustainable solutions to be made (Quak, 2008). Literature reviewed indicates that the retailers would benefit from the option of ‘out of hours’ deliveries, relieving the strain within distribution operations and bringing huge benefits to society (Quietcities, 2015).
Technological advancements in freight transport and distribution equipment have offered the UK retailers a feasible solution to these restrictions whereby quieter equipment can be used to fulfil deliveries overnight. Potential curfew relaxations, as seen during the 2012 Olympic Game’s ‘Quiet Driver Delivery Scheme’ (Department for Transport, 2014), have been speculated on the premise of noise elimination and minimal noise pollution resulting from deliveries. This scheme allowed for overnight deliveries to help combat the increased congestion felt in the inner city centre and showed alternative measures available for retailers, instigating a method of combatting the restrictive delivery windows. It is widely believed that the benefits of the scheme outweighed the costs and with co- operation of local authorities, these restrictions can be relaxed to ease the distribution of stock, thus increasing the availability of produce in stores (Browne, Allen, Wainwright, Palmer & Williams, 2014).