Logistics Viewpoints

A complete analysis of logistics trends, technologies, and services

Efficient Frozen Food Distribution: Inside the Build-out of Two Automated Facilities

Warehouse Automation | By •

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.

Final Word

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.

A Brilliant New Retail Format Supported by Last-Mile Logistics

Retail | By •

In South Korea, Tesco has a chain called Home plus that has become the second largest retail chain in the nation. The 115-store chain consists of big discount hypermarkets similar to Walmart in merchandise, but also similar to mini-malls in that they feature numerous independently-operated smaller stores like travel agencies, fast food, and bookstores that lease the space from Tesco.

What caught my attention, however, is Home plus’s e-commerce initiative. Weekly grocery shopping is a burden for many urban-living, hard-working South Koreans. Also, what busy consumer would not value spending waiting time, such as waiting for a subway in a station, in productive ways?

The solution? Create virtual stores in the subways, as the video below shows.

These stores are currently located in Seoul’s subway stations. Seoul is South Korea’s largest city. The subway station has pictures of shelves stocked with food and other consumer goods customers would typically see in an actual store. Shoppers point their smartphones at the QR codes, click, and add items to their online shopping basket. Their goods are delivered after they get home. The Home plus online store is now the number one e-commerce site for groceries in South Korea.

Of course, supporting a virtual store requires a home delivery supply chain. The video says the e-commerce initiative allows Home plus to gain market share without building stores. But in crowded metropolitan areas, last-mile logistics is a challenge; it also requires an infrastructure, including pickers, trucks, and drivers.

I don’t know how Tesco has structured its logistics operations to support this model – whether it is picking in stores, in backrooms, or special e-commerce warehouses. And I don’t know what kind of IT the company is using. But Tesco’s capabilities would certainly be enhanced if it were using routing software (preplanned and dynamic), GPS tracking, and mobile devices for payment and signature capture.

This is the most innovative idea in retailing I’ve seen in a long time. You have a captured audience, and the virtual storefront also serves as a form of advertising. But the back-end logistics needed to support this, while not innovative, is very challenging. South Korea is a perfect launching pad for this type of operation. South Korea has more than 10 million smartphone users in a population of less than 50 million people; it has a dense metropolitan area supported by subways; and its people are time constrained. Nevertheless, this brilliant new format will almost certainly be copied by retailers in Europe and North America in the not too distant future.

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