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PART TWO CASE STUDIES JOHN LEWIS PARTNERSHIP: SEMI-AUTOMATED NATIONAL DISTRIBUTION CENTRE

Peter Baker Cranfield School of Management

BACKGROUND

John Lewis Partnership is one of the UK’s top 10 retail businesses and has a distinctive ownership structure, being the country’s largest employee cooperative. All 70,000 permanent staff are partners in the business and own 28 John Lewis department stores, two John Lewis At Home stores, 234 Waitrose supermarkets and various other businesses. The partners share in the benefits and profits of the business.

The John Lewis department stores sell high-quality goods under a slogan of ‘never knowingly undersold’ – which the company has used for over 75 years. The stores typically stock more than 350,000 product lines, ranging from fashion to furnishings and household goods.

The company has had strong sales even through the recession of 2008/10 and plans to open more stores in the UK in the coming years. The John Lewis stores have been supplied from six distribution centres (DCs), each handling distinct groups of products, identified either by size (e.g. small and medium-size item DCs) or by category (e.g. jewellery/garments, outdoor/lighting, white goods and furniture DCs). In addition, there is a central returns centre. The DCs deliver goods either directly to the stores or to service centres, which tend to act as stockrooms and home delivery points for individual stores or for groups of stores.

The Partnership’s growth necessitated further warehousing capacity and it was decided that the best way to complement the existing distribution infrastructure was to introduce a new semi- automated national distribution centre (SANDC) to handle small-sized items, employing the latest technology so as to improve efficiency and accuracy. The SANDC is located at Magna Park in Milton Keynes, near the centre of the UK, and commenced operations in 2009.

The SANDC is a £46 million capital investment. It is 60,393 square metres in floor area with a height of 15 metres. There are 33 receiving docks and 46 despatch docks. The SANDC is designed to operate two shifts per day after ramp-up with potential to increase to three shifts per day at peak in future years. It is planned to hold 87,000 SKUs.

The SANDC is designed to enable item-level picking and thus reduce the need for back-of-store facilities. In addition, the SANDC can assemble goods in the planogram (i.e. layout sequence) of each individual store so that items can easily be placed on the store shelves. The business case is thus based on substantial store economies, as well as warehouse operational economies.

The warehouse is designed to be environmentally friendly with such features as:

Solar panels

Storm water collection

15% roof lights

Automated lighting control systems

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RECEIVING Most goods are received packed in cartons on pallets. These are moved by reach truck onto a lift which raises each pallet to the appropriate handling height so that the goods can be extracted, checked and placed into plastic tote bins. There are a total of 52 decant workstations on raised platforms. Any new product lines are weighed, scanned for their cubic measurements and photographed at this stage. The tote bins are then normally transported by conveyor directly to the ‘miniload’ automated storage and retrieval system (AS/RS) or order storage and retrieval (OSR) storage areas (see below). In total, there are over 10 kilometres of conveyor connecting the different operations.

Some goods are received in tote bins, in the correct quantities, and pre-advised electronically by the supplier using an advance shipping notification (ASN). The pallets containing the tote bins are moved by a powered pallet truck (PPT) to depalletising robots which unload the pallets and place the tote bins onto a conveyor, for transport to the AS/RS or OSR.

Goods that are not required for picking in the immediate future are moved on pallets (or tote bins placed on pallets first) and transported by reach truck to the narrow-aisle storage area. Any pallets that have not been given a licence plate number (LPN) by the

supplier are provided with one at goods receiving for subsequent identification. All receiving operations are conducted with the aid of radio data terminals.

STORAGE The narrow-aisle storage area comprises 26×1.75m aisles, operated by wire-guided narrow-aisle turret trucks. ‘Bus-bars’ are fitted to some aisles for battery recharging so that the trucks can operate continuously over multi-shifts. There are a total of 22,500 pallet locations. When the goods are required for replenishment to the tote bin storage areas, they are moved to the tote bin filling platform (or directly to the bin storage area if they are already in tote bins). This narrow-aisle bulk storage area is thus used for replenishing the tote bins storage areas described below. There is also a separate hazardous narrow-aisle area with mesh protection.

The AS/RS is used to store tote bins of fast- and slow-moving lines. There are 13 cranes (one per aisle) capable of moving two bins at a time. The storage system is double-deep. The throughput rate of the cranes is 125 bins per crane per hour (both in and out). The tote bins are then placed onto a conveyor for movement to the picking operation.

Medium-moving lines are placed in the OSR storage area, which has 20 aisles. This area is similar to the AS/RS store, except that there is a shuttle car at each of the 16 levels of single- deep racking in every aisle. These remove tote bins, one at a time, to an automated lift at the end of the aisle, which then transfers them to a conveyor. These bins can be put away at a rate of 265 bins per aisle per hour (plus the same for retrieval), thus offering a greater throughput rate per aisle than the AS/RS. The OSR storage area is used for medium-moving lines as these require greater movements than the fast-moving lines (which are normally depleted in one picking movement) or the slow-moving lines (which are not required very often).

The AS/RS and OSR areas can store a total of 240,000 tote bins.

ORDER PICKING The tote bins are moved by conveyor to the bin-to-bin picking area. There are 33 picking stations in this area. Each picking station comprises 12 tote bins on a lower level conveyor, representing the stores that need to be picked. On a higher level conveyor the tote bins are brought to two locations in front of the picker. Instructions are given to the picker by a pick-to-

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light system. The total number of items to be removed from an upper bin is displayed next to that bin. At the same time, the requirements for each of the lower bins (representing the stores) are also displayed. The picker completes each requirement for that product line and then presses a button next to each display to indicate that the task has been completed. The upper level bin is then returned to the AS/RS or OSR storage area, and the picker starts to pick from the second upper bin. By the time this pick is complete, a further bin will have been moved into the upper position vacated by the first bin. Rates in excess of 650 picks-and-puts are achieved per picker per hour with this

system. When picking to the store bins is complete, these bins are moved away by the conveyor system.

DESPATCH The picked bins are transported by conveyor to an OSR despatch buffer store and then called forward as required to automated dolly loading machines, which place 10 tote bins on each dolly (i.e. wheeled platform for transit). The dollies are assembled in groups of three by the machine, ready for movement to marshalling (or directly onto the vehicle) by a PPT. The vehicles then transport the bins either directly to the stores or to the service centres that serve the stores.

DIRECT TO CUSTOMER The direct delivery operation holds its own inventory so that it can control stock availability via the website, and call centre, to customers. Deliveries may be directly to customers’ homes or to the retail stores for collection (known as ‘click and collect’ service). This operation is located in a specific area of the warehouse and has its own OSR storage and picking system. Additional goods may be brought from the narrow-aisle racking, from other sites and occasionally (if needed) from the retail store AS/RS and OSR storage systems. There are 48 packing stations so that products are delivered in John Lewis packages.1

GIFT LISTS John Lewis operates a service to its customers known as Gift Lists. The most common use of this service is for customers to place a wedding list on the John Lewis website or in store. Previously, goods were taken from store shelves and held at stores (or the nearby service centres) until the day of the wedding. This reduced on-shelf availability, led to inaccurate store stock levels and took up valuable space. All Gift Lists are now assembled at the SANDC. Required products are reserved on the system until time for picking and are then packed into Gift List presentation cartons. Gift Lists are then loaded into roll cage pallets for transport to the service centre on the due day, ready for delivery.

WAREHOUSE MANAGEMENT SYSTEM It was decided to use the warehouse management system (WMS) of the main materials handling supplier (i.e. Knapp’s KiSoft) so as to have clear responsibility for the total warehouse software system. This software manages all warehouse movements and locations, as well as Knapp’s OSR and other manufacturers’ automated equipment, and controls all warehouse processes, including, for example, narrow-aisle put-away and retrieval by on-board radio data terminals.

There is a team of maintenance engineers on site throughout the operational hours, monitoring the automated equipment, via visual diagnostic computer screens and CCTV.

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STAFFING CONSIDERATIONS The operation has been designed to be an appropriate mix of manual and automated operations. Ergonomic considerations include a clean and bright environment, an automated control of maximum tote weight of 25kg, pallet height adjustment in the tote filling area to avoid bending, waist height picking, staff rotation and other features.

THE FUTURE The company is continuing to expand but in different directions to that originally anticipated. The SANDC was designed for 2013 store volumes but growth is now being generated increasingly by the home shopping and small store channels.

Research has shown that there is very often a service level dip at the start of major automated warehouse operations.2 The SANDC implementation was planned in detail and allowed sufficient time for testing the equipment and information technology, resolving equipment and software issues and ramping up to full operation. However, this case study shows that even after a successful implementation there are still continual challenges to be faced to maintain an effective ‘business-as-usual’ operation to serve constantly changing markets.

QUESTIONS With the changing demand patterns, fewer full bins are being required and a greater proportion of goods need to be picked at the picking stations. What alternatives may be considered to accommodate this?

Should home shopping continue to have its own dedicated area within the SANDC, with its own inventory and OSR equipment? How flexible is a SANDC to such changes in demand patterns, and what are likely to be the key implementation issues for any future operational change?

Continuous improvement is being sought in all operations. How can the present SANDC operation be improved still further in terms of efficiency, service levels, ergonomics and sustainability? What areas may be worthy of examination?

NOTES

1. Baker, P. & Halim, Z. (2007) An exploration of warehouse automation implementations: cost, service and flexibility issues, Supply Chain Management: An International Journal, 12(2), 129–138.

2. This case was written by Peter Baker, Centre for Logistics and Supply Chain Management, Cranfield School of Management. It is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation. This case was made possible by the cooperation of John Lewis Partnership. Copyright © 2010 Peter Baker, Cranfield University.

Peter Baker (2011) John Lewis Partnership: Semi-Automated National Distribution Centre © Peter Baker. Reproduced by kind permission of Peter Baker, Cranfield School of Management.