Flexible Supply Chains at Safeway
By Mark Aylwin, Supply Chain Director, Safeway Stores, Hayes, UK
Gonzales: The flexible supply chain
By 1999, Safeway had reached a crossroads. We no longer had the scale to compete with the global players that by now dominated the UK market. Under the direction of Carlos Criado Perez, our new CEO who joined us from Wal-Mart, we took the decision to radically alter our marketing strategy.
This new strategy saw us move from standard national promotions to deep discounted local promotions, with advertising media moving from TV and radio to flyers, hand-delivered to the homes of eight million customers by Safeway people.
Known as the ’Gonzales’ project (to reinforce the new, fleet-of-foot approach being adopted by the company) the new strategy captured the imagination of consumers and led to us encouraging one million new customers to shop with us and increasing volumes by two million cases a week.
With deals such as two litres of lemonade for 9p, six jam tarts for 5p and baked beans at 4p, Safeway were just about to experience unprecedented volume uplifts. The supply chain was poised to move from a support area to a front-line operation.
Gonzales Project Aim
The aim of Gonzales has been to create a retailing mechanism that increases sales in a manner that competitors cannot easily replicate.
Through the speed and timings of its promotions – plus the fact that at any given time neighbouring stores could be operating completely different promotions – Gonzales has been designed to prevent competitors from launching specific responses. In effect, we operate guerrilla tactics rather than face our competitors in a head-to-head price war.
To facilitate the unique Gonzales feature of localised but high volume promotions, stores have been grouped into ‘clusters’ throughout the UK. To maintain the element of surprise and competitive advantage, a store within a cluster will not necessarily be located near to any other stores within the same cluster and the mix of stores within a cluster changes frequently.
Leaflets delivered weekly to between six and 11 million homes around the country form the public face of the project. In addition to the ‘hero’ lines showcased on the front page, many other products are also highlighted within the publication to help promote additional sales. The in-house systems developed by Safeway’s Supply Division to manage the physical supply of Gonzales products also directly drive the production of the flyers, thereby ensuring consistency throughout the supply chain and ensuring excellent availability.
Challenges and Solutions
The Gonzales concept has meant that Safeway now operates with some of the shortest promotional lead-times in the industry. This presented a series of major challenges throughout the supply chain. Safeway needed to re-engineer the supply chain in less that ten weeks to make it the most dynamic in the industry.
The re-engineering affected all elements of the chain from the suppliers through to our stores. The lead-time for promotions was reduced from 12 weeks to less than four. In fact, the most time- consuming element is the design and printing of the promotional leaflets. This obviously transferred a great deal of pressure to our suppliers so we had to improve our forecasting and replenishment systems.
The key to success was increased collaboration, and the primary tool to support communication is Safeway’s secure intranet service - the Supplier Information Service. An upgrade to the existing system provides a wide variety of real time stock and sales information to Safeway’s suppliers worldwide.
The dramatic increase in volume prompted a review of our depot operation. A 20% increase in volume would normally require the building of new sites but as this volume increase was almost overnight, we did not have the time. Instead we aimed for flexibility and efficiency.
Initially we set up a number of satellite sites on short-term contracts, while we developed more effective modes of handling and distributing the product.
The introduction of cross-docking was key to handling more volume in the same space. Full truckloads could now enter a regional distribution centre (RDC) and leave as full pallet deliveries to stores without being racked or case picked. Cross- docking depends upon meeting a complex series of just-in-time targets. Up to 30% of all Gonzales products are handled in this way.
In addition, a ‘green lane’ receiving system was initiated at RDCs to permit the rapid acceptance of entire truckloads, thus dispensing with the normal checking process and facilitating rapid turnaround of supplier deliveries.
To enable the stores to cope with the volumes, we introduced ‘wave’ deliveries. The high volume stores now receive a continual stream of dedicated deliveries. These are dynamic schedules to ensure we do not build in any unnecessary vehicle movements if volume should drop.
As the volume changes on an almost daily basis, we developed ‘dial-a-volume’, an automated process that ensures RDCs are not drowning in unpickable volumes. The system puts a cap on volumes but protects the stock required for sales, safety margins and presentation elements.
The variation in daily volumes also led to inefficiencies in the scheduling of vehicles. Safeway operated a number of disparate systems. The development of our integrated transport system (ITS) has meant that we are able to dynamically schedule vehicles to cope with the fluctuations in demand. ITS also enables us to
build primary transport into our scheduling, allowing us to efficiently backhaul deliveries, when supplier fleets are under pressure through increased volume
Best in Availability
Availability of product is the key to success of any promotion. To drive this culture within the business we operate a daily ’War Room’. At 12.00 each day we get our first look at real-time sales, so we can judge the success of each promotion. The meeting also reviews feedback from stores on stock levels, availability and in-store presentation, and takes action accordingly. The ‘War Room’ is the cross-functional mechanism that ensures business-wide focus on the Gonzales project.
The Gonzales forecasting system continually upgrades the quality and shape of daily product level forecasts over the promotional week. An enhanced sales forecast reactivity process was developed to cope with the short timeframe over which each Gonzales promotion runs. Daily shapes are derived from the most appropriate historical data and are changed proactively to manage demand during periods such as bank holidays.
In-store we have introduced new technology to speed up the supply chain. If stores see an additional sales opportunity, they can use the emergency order facility to get stock into their store within as little as four hours.
Likewise to enable to stores to order with confidence we also developed a state-of-the-art return logistics function. Any overstock can be picked up and moved to the next set of stores scheduled to run that promotion.
Gonzales has attracted over a million new customers into Safeway stores. In the last three years we have seen sales increase by 14% and profit grow by 37%. This success could not have been achieved without an efficient and effective supply chain.
Over this period of growth, Safeway has reduced both transport and distribution costs, which at same time improved availability to stores and reduced shrinkage. This has been made possible partly through investment in cutting-edge
technologies to deliver continuous improvement but more importantly through the development of a culture that embraces change and that sees flexibility as fundamental to success.
As a result, Safeway has one of the fastest and most efficient supply chains in the world.
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