As the renowned UK-based retail company John Lewis discovered, switching from high street retailing to an omnichannel model can soon load a supply chain with inefficiencies, necessitating a reorganisation.
John Lewis’ decision to redesign its network was reported in a 2014 article in Supply Chain Quarterly and came on the back of impressive growth in the company’s ecommerce venture, which represented a significant diversification step for a retailer with a venerable high street history.
Why John Lewis Redesigned its Distribution Network
As a result of John Lewis’ initial omnichannel network design, the company separated its warehousing into two categories. There were distribution centres from where inventory would be shipped to the retail stores and to separate fulfilment centres for home delivery.
However, as part of John Lewis’ business strategy, online customers were given a choice of receiving home delivery or collecting their ordered items from John Lewis stores or other retail facilities owned by the John Lewis Partnership, such as Waitrose supermarkets.
As the popularity of the “click and collect” service grew, John Lewis found it was frequently shipping goods from its distribution centers to its home delivery fulfilment centres, only to have the goods shipped back to the distribution centres and from there, on to retail stores from where customers would collect their online orders.
Obviously, sending finished goods almost to their end delivery point, then returning them to DCs and sending them out again to local stores, was inefficient and costly. Hence John Lewis decided to undergo a phased distribution network redesign.
How John Lewis’ Network is Changing
The company is today in the middle of its network change process. John Lewis is creating an efficient and cost-effective network design through the following change initiatives:
- Reducing the number of distribution centres from twelve, down to six
- Merging store fulfilment with home delivery fulfilment by utilizing hybrid DCs, instead of maintaining DCs and separate home delivery fulfilment centres
- Switching from full-case to single-item store replenishment (one item sold in-store/one item picked and shipped to store)
- Reducing in-store storage space and expanding the sales floor (increasing product availability by adding more lines in-store)
- Co-locating storage facilities for items stored in bins and hanging garments, allowing online orders of mixed products to be consolidated before transportation.
- Utilizing automation for single-item picking
- Reducing buffer-stock at retail outlets
Essentially, John Lewis is in the process of a transition to a mostly demand-driven supply chain—something which is considered feasible in the UK, since all retail stores can be replenished from the new DC locations within 12 hours. At the same time, response times for online “click and collect” orders will be reduced.
What You Can Learn from the John Lewis Experience
As a case study, the John Lewis distribution network redesign shows how changes in market forces can very quickly make a network obsolete, as happened when click and collect became more popular than home delivery for John Lewis’ online shoppers.
It also highlights how a redesign, when executed to a well-thought-out strategy, can make use of synergies and go a long way to paying back even a significant capital investment.
John Lewis initially elected to undergo a distribution network redesign to iron out some significant supply chain inefficiencies. However, by leveraging the necessary changes, it’s a company that’s now on the way to a model of streamlined, demand-driven distribution that will keep it ahead of its competitors in omnichannel retail sales.
As a takeaway here, consider this: A distribution network redesign is unlikely to be anything but a costly exercise. However, the costs of persevering with a stagnant and inadequate network, built for a business model that was all the rage ten-years ago, are likely to have a far detrimental impact on long-term supply chain profitability … Don’t let your organisation be the frog that slowly boiled to death. Keep a regular check on the adequacy of your distribution network and bite the bullet when it’s clear that changes are required.
