WAREHOUSE AUTOMATION HELPS SLASH TESCO COSTS

DENISE POWER

LOS ANGELES -- Bent on slashing its $2 billion annual supply-chain costs by half within two years' time, U.K. retailer Tesco is investing aggressively in high-productivity, high-efficiency distribution initiatives, including automated "pick-to-zero" technologies.

The company has spent $8 million to equip one fresh-foods warehouse with automated sortation equipment, scanning and product-tracking systems that process 12,000 cases an hour in a "pick-to-zero" -- or no-stockholding -- environment. The remaining eight fresh-foods warehouses are in line for conversion to the same technologies, at a rate of two per year.

"It is obvious that the efficiency of the supply chain is critical to the success of the company," said Paul Bateman, director of distribution for the $22.8 billion retailer based in Cheshunt, England. "Key to retail success is stock availability of fresh product, delivered efficiently and effectively."

Bateman spoke at last month's MarkeTechnics conference here, sponsored by the Food Marketing Institute, Washington.

Retailers who traditionally have focused efforts on their portion of the supply chain -- without regard for the larger picture -- might be wise to rethink that position, he suggested.

"For many years the focus has been on secondary distribution -- centralized distribution to regional warehouses for delivery to stores," he noted. "The efficiency of the primary movement of goods from supplier to the regional center had little interest to the retailer. This was the supplier's problem.

"All this has now changed," Bateman said. "The focus on total supply-chain costs and partnership relationships between supplier and retailer has brought the parties together with common goals and shared information."

The overriding objective now, he said, is to reduce inventory levels at all points in the supply chain by maximizing opportunities to cross dock merchandise or move it through the warehouse rapidly using "pick-to-zero" sortation. When warehousing products is unavoidable -- for goods with a longer shelf life, for example -- Tesco aims to store inventory no more than one or two days.

Bateman described in detail how picking orders by product line, rather than by store, has sped processing in its nine fresh-foods warehouses, and how the recent automation of "pick-by-line" in one facility has sold the company on rolling it out to the remaining eight.

Each of Tesco's fresh-food warehouses occupies about 300,000 square feet, partitioned into four temperature zones, and processes 50 million cases per year. In total, the company's 20 distribution centers process 1 billion cases per year and service 588 stores.

In manual pick-by-line product handling, used by eight of Tesco's fresh-foods facilities, goods are held in a waiting area after they are received. The system must generate labels that the staff applies to each case.

With automated pick-by-line, Tesco makes use of the bar codes provided by suppliers, which eliminates the time and expense of generating and applying labels.

Tesco pursued the automation for its efficiency benefits but also saw a great improvement in accuracy, he added.

"We are getting in excess of 99.9% accuracy and I don't think anybody yet has found a mis-scanned case.

"With the manual pick-by-line we have a 0.2% error rate, compared with a 0.01% error rate on automated pick-by-line. That's a fantastic difference," he added.