Head of Operations John Munnelly has been with John Lewis for over a decade, having previously been in charge of Sainsbury’s automated distribution centres. He was asked to support John Lewis’ supply chain through the vast change they were embarking on in 2005, when they wanted to introduce 10 new department stores over a 10 year period. This led to the introduction of the Magna Park campus, a distribution centre which would prove game-changing for the retail giant and which is still a best in class example when it comes to automation. We asked Munnelly to tell us about Magna Park and what lessons smaller-budget retailers can take from John Lewis’ journey.
MAGNA PARK’S BEGINNINGS
Magna Park was originally built larger than theoretically needed, in order to build some flexibility into it. All the design data and forecast data we were using suggested we would only need a building of around 400,000 square feet. But given the uncertainty of the online business, we decided to build a much bigger facility with the view that if [the online business] never materialised, we had a legacy network we could collapse into it. I have a saying that flexibility is important but expensive — if we hadn’t adopted that flexible, agile approach in the early days we would have potentially built a white elephant only capable of fulfilling fulfilment capabilities to department stores but with no online capability.
So the facility was built at 700,000 square feet back when it went live in 2009 and currently stands at 2.1 million square feet, spread over 64 acres of land with two buildings connected by a 100m link bridge. We cover around 70% of John Lewis’ online demand from this building and all of the shop replenishment for around 260,000 different products, so it’s grown immensely from its original scope of just serving replenishment into department stores.
WHAT AUTOMATION MEANS FOR JOHN LEWIS
Our attitude to mechanisation contrasts completely with how much space we needed — we decided to go with a more modular approach. Instead of going with what the crystal ball was saying for the next 7 years, we decided to install the automation we needed for the next 3 years and thereafter added additional components depending on demand that was coming from high streets, online shopping, or both. This enables us to continue to adapt to the way demand changes, but it was a risky decision. This, because adding mechanisms every year as growth comes in is a challenge in itself, rather than building something with a 3-5 year horizon.
This means that our facility is very much semi-automated. We do have some completely automated functions but we have a workforce of around 600 full-time John Lewis Partners* and even with the level of investment in mechanisation over the last 7-8 years, we’re still very reliant on a large amount of contingent labour. When we get to the crazy weekends (Black Friday, Cyber Week, Christmas), we’re facing a volume of nine times as many packages as usual. As such, additional investment in automation to cover these time periods makes no commercial sense, since these machines would then lie idle for 35 weeks of the year when we don’t have that amount of demand, so the flexible option is to deploy labour intensive, less capital intense semi automated solutions.
THE ADVANTAGES OF SEMI-AUTOMATION
The Magna Park facility has been one of the main reasons we’ve been able to expand our click and collect offer, which has always been the jewel in our customer service crown. The current proposition is order before 8pm that evening and ready for collection from 2pm the next day anywhere between Poole and Aberdeen — customers love the convenience. We look after 70% of the online business from Magna Park and half of our e-commerce business is click and collect, of which 70% is Waitrose supermarket-based click and collect (which drives footfall to our supermarkets) and the other 30% is from the John Lewis department stores.
Besides this, one clear advantage of semi-automation is efficiency. We did some rough calculations about what we’d have needed if we’d continued to build manual facilities to accommodate the growth we’ve seen in our department store base and our online business. It’s pretty astonishing: we’d have needed 10 times as many people as the number we currently employ and many millions of square feet more than what we currently have. The facility is currently 20m high and all of the storage is very dense, in contrast to a traditional manual solution where you’d have a manual pallet racking solution — it’s very different to that. So obviously space is a big advantage, efficiency is key, the one that’s looming at us at the moment is the shortage of labour. Thankfully, we’ve already started to buck that trend by making the facility as mechanised as it currently is, and that’s one we’re considering in all our plans moving forward.
It’s also made life happier for our workers. There’s a myth that automation potentially leads to people losing jobs. All we’ve seen at Magna Park, we’ve not made any redundancies on the back of automation, we’ve only ever introduced more Partner roles as we’ve grown. Those Partner roles are becoming much more interesting, much more technically challenging, whether that’s system roles, roles in IT, or in engineering. We believe they’re better jobs for the Partners that we’ve got.
There are other key advantages: one big one is consolidating customer orders. If you have a number of quite disparate customer distribution centres that store products and your customer orders just 2-3 items, each item may be located in an entirely different customer distribution centre and therefore the disadvantage of having to send 2-3 packages to a customer is a key factor. Whereas at Magna Park it’s one large national distribution centre where we can collate the majority of customer orders.
Secondly, we’re in the quite lucrative position of having a single pool of stock. Many multichannel retailers that have a high street business and an online business have two pools of stock, maybe in two different distribution centres. One of these serves the department store and the other that serves customers. And this often means having to buy new stock to keep the availability levels in both of those pots primed which results in more work and capital tied up in stock. In contrast, at Magna Park we have one single pool of stock and we access all of these 260,000 products on a first come, first served basis, whether that’s for online, for customers orders, or for shop replenishment. This has enabled us to invest less money in stock and we don’t have two pools of availability competing with each other.
WHAT CAN YOU LEARN FROM MAGNA PARK?
The original investment in automation was around 25 million euros and to date we’ve invested around 150 million euros in mechanisation. This said I think a lot of what we’ve learned via Magna Park are lessons that smaller-budget retailers can benefit from, too. Many businesses can look at huge automation facilities and think where the hell can I start with that? But automation has moved on immensely over the last few years and I always suggest taking a microcosm of how we’ve approached Magna Park in terms of its modular nature. There are capabilities and solutions out there that almost plug and play.
A good example would be to use a packing machine approach. If you think of the component costs in terms of fulfilling customer orders — the actual process of placing goods into a box, sealing a box, selotaping a box, putting a label on the box and then putting the box onto a carrier vehicle, there’s lots of non-value added costs within that. A packing machine ranges from anything between £200,000 to £1,000,000, depending on the level of speed, technology and performance you’re looking for, but that cost can be easily paid back within a 9-12 month period and that again is a good example of a starter, almost an entry level system that many businesses venturing into e-commerce hitting critical mass — you can keep one of those machines busy for 12 months and the payback will be very lucrative.
I also think retailers need to increasingly structure their supply chain around fluctuations in demand, like Black Friday. This isn’t just about supply and demand. Retailers need to control the narrative about what these events are and try to wean the customers off believing it only happens on that one day of the year and appreciate that that event is no longer just one day, it might be one week, two weeks.
Even Amazon start to discount Black Friday deals well in advance of that weekend. In line with that aspect, businesses have to adapt their solutions to be able to accommodate those audiences because customers can be quite fickle these days and if you can’t cover their demands they’ll find a business that can. So I think it’s an imperative that companies structure themselves accordingly.
*This piece refers to “Partners”— which means the retailer’s employees. According to The Guardian “All of John Lewis’s permanent staff are partners and they ultimately own the retailer’s…stores and…supermarkets.”
Interested in learning more about Supply Chain Optimisation? Take a look at the program of Savant Supply Chain Congress in Amsterdam on the 8th and 9th of May!