In December of 2019, the global grocery retailer Ahold Delhaize announced it was investing $480 million to transform and expand its US supply chain operations to support a strategy to transition the supply chain network into a fully-integrated, self-distribution model. My colleague Steve Banker published an informative article in 2020 about this extensive initiative Ahold Delhaize’s Supply Chain Transformation (forbes.com). Chris Lewis, EVP Supply Chain at Ahold Delhaize Retail Business Services, and Mike Khodl, VP, Differentiated Technologies at Dematic, participated in an ARC Advisory Group event discussing this transformation. As part of the initiative, Ahold Delhaize is partnering with Americold and Dematic for the build out of two fully automated frozen facilities. Mike and Chris together communicated substantial informative details on the function and role of these facilities during the session.
The Ahold Delhaize USA transformation is large in scale and scope with the goals of improving service and reducing delivered costs. As such, they identified automation as a key tenet of the future to drive efficiency from one end of the supply chain to the other. The fully automated frozen facilities are expected to drive significant costs out of the supply chain and at the retail stores they support by building smarter pallets, improving cube in trucks, and streamlining downstream tasks.
Intelligent Store Replenishment
The frozen facility solution incorporates a dynamic order assembly process that supports the broader initiative by streamlining downstream processes within the supply chain. The process starts with the objective of fulfilling a “store, aisle, and shelf friendly” delivery to a downstream store or fulfillment center. This process utilizes store-specific planograms, which differ according to location. These planograms are used as an input to determine the inventory to be assembled on a pallet that needs to go on the trailer, to be delivered to a certain store, all in the right sequence. Picking automation is used to depalletize SKUs for shipment, while Dematic’s shuttle system is used to efficiently sequence items from their prior pallet storage arrangement to their desired order. In addition, the company’s pack optimization software ingests the SKUs associated with a particular store order and builds a puzzle of a particular pallet or series of pallets that belong to that store. The software then sends the requirements to the automated mixed case palletizing that assembles the outbound, store-friendly pallet.
Sources of Efficiency
The solution is expected to deliver efficiencies within the DCs (process itself is more efficient and more responsive to store replenishment requirements), through improved trailer cubing (estimated at a 15 percent improvement that will reduce 3 million miles of travel per year), and more efficient processes within the stores due to a replenishment pallet organized for sequential unloading according to the structure and item proximity within the specific store’s layout. This will allow store restocking to unload items from the pallet in the order in which these workers progress down the aisle.
Ahold Delhaize engaged in strategic network design to properly locate its warehouses to minimize travel to and from these facilities. These relocation and expansion efforts, in addition to the automated end-to-end solution within the frozen warehouses, are expected to significantly improve service and reduce costs at a time of rapid change toward omni-channel fulfillment within the grocery industry. In the first three quarters of 2020, Ahold Delhaize USA reported a 115 percent increase in online sales.