17 July 2003

Bosses at retailer Londis had to find a way of stocking shelves to meet customer demand for a growing range of products. Helen Riley reports

Pretend you're a retailer in charge of a local convenience store. You're smaller than Sainsbury's but bigger than a corner shop. In an average day, you may greet Mrs Jones, who dashes in with a toddler in tow and buys a pint of milk, apples, bananas, pasta and a pack of nappies. Later in the day, a couple of students swing by to buy a few bottles of premium lager and a selection of ready-made meals, quickly followed by a young professional woman who picks up speciality teabags, soya milk, feta cheese, ready-washed salad and a rather nice bottle of wine.

This is a typical working day for a Londis retailer - in which the "average" customer doesn't exist. Londis is one of the UK's fastest growing groups and one that has to carry a surprisingly broad range of products.

This is a relatively new development. Until the late 1990s, Londis customers generally made do with grocery basics. But shifting demographics, changing work patterns and a growing interest in food meant customers wanted a wider choice.

Purchasers at Londis realised that they had to find a way to ensure the disparate people who made up their customer base had a good chance of finding what they were looking for on the shelf.

John Taylor, trading director for the group, says: "We needed to ensure our shelves contained sufficient stocks of every product throughout trading hours. To do this, we had to look at delivery times, order management and deals with our suppliers. Efficient supply chains were essential."

Many large supermarket chains rely on sophisticated software packages to help forecast demand and generate orders, which are sent to various suppliers with a deadline attached. The supermarkets then await delivery. It's efficient but restricted with limited communication and little scope for sharing ideas.

Londis rejected these packages in favour of something different. It decided collaborating with key suppliers could reap benefits for both sides. In May 1999, Londis embarked on a pioneering pilot for collaboratively managed inventory (CMI).

To achieve this, it signed a deal with JDA International, a major software company with more than 1,000 retail and 2,500 manufacturing clients around the world. JDA offered its Advanced Warehouse Replenishment Package (formerly called E3TRIM) as the solution.

Using modems, trading partners can view data on the Londis computer network, such as its latest sales figures. Although the suppliers in the CMI project can link up with Londis, they don't use the software to deal with each other and their information remains secure. It means suppliers are then better able to forecast demand for their own goods and promotions.

Once the deal with JDA was signed, there was just one thing left to do - persuade sceptical suppliers that the system was fast, secure and didn't mean they would have to give away confidential information to competitors. In the end, the fact that Londis was a significant but low-profile group worked in its favour. Suppliers decided to come on board and try out the system, reckoning that if it failed, they didn't have much to lose.

A steering group of eight CMI suppliers was put together, aiming to improve service to stores, boost promotions, create strategic partnerships between trading partners, increase sales and profits, reduce lost sales, decrease inventory, returns and handling fees, and improve operational efficiency.

Don Brenchley, director of collaborative projects at JDA E3, says: "The development of the multi-supplier steering group to drive the project offered - for probably the first time in the UK - real-time shared open access to a common data source. Rather than developing self-contained, one-to-one relationships, the project works on a one-to-many basis. It offered improved product availability at the lowest price.

"We've also found that manufacturers often know things about customers' shopping habits through their own research that retailers don't know. Our system gives them a chance to swap useful information."

In effect, the collaboration offers joint ownership of the main sets of inventory data - sales forecasts, order forecasts and orders. It also integrates each partner's supply and demand planning processes, co-ordinating activities and creating and identifying opportunities to boost sales. Supply chain visibility is improved and there is greater trust between all parties.

The project has gone from strength to strength and currently has 19 suppliers, representing 20 per cent of Londis's sales volume and including big names such as Bass, Britvic, Kraft Foods, Carlsberg Tetley, Coca-Cola Enterprises, Interbrew, Danone and Nestlé Rowntree.

Benefits for trading partners have included lower inventory and shorter order-cycle times. An independent survey of the original CMI pilot in July 2000 showed an average improvement in inventory levels of 13.75 per cent and an average reduction in order-cycle time of 6.25 per cent.

Interbrew, for example, reported an inventory reduction of 15 per cent. Ian Bullivant, supply chain development manager at Interbrew says: "Greater communication and sharing of data has enabled our business to respond more easily to the demands of our customer."

Martyn Harvey, purchasing director for Londis, says: "From the Londis perspective, order-cycle times have reduced by between 40 per cent and 60 per cent. Trust between trading partners has developed and has led to the formation of more open, honest relationships."

Londis has seen inventory reductions of 10-20 per cent since the first steering group meeting and inventory management time has decreased by 90 per cent.

There have been other benefits for the trading partners, including higher in-stock availability, better control of promotions and more support for product launches.

Londis and its partners are better able to ensure the availability of promotional items in store. Inventory reductions open the door to increasing product variety and the chance to strike better deals - the benefits of which can be passed on to the consumer.

And what about Mrs Jones, those can't-cook, won't-cook students, and the young professional out to impress? Happily, the Londis CMI initiative means they are more likely than ever to find just what they are looking for on the shelves of their local store and are often able to take advantage of promotions and offers.

Londis is intending to broaden the community further, bringing on board supplementary trading partners later in the summer, including Arla, manufacturer of Anchor and Lurpak butter.

Londis is set to become the first group to benefit from web-enabled access for its system. It is carrying out a benchmarking project to evaluate its supply base to ensure it continues to deliver value for money.

Taylor says: "Some suppliers took a lot of convincing that this project would work. In fact, it worked so well that they've become advocates for the system and are keen to see it introduced by their other customers."

Helen Riley is a freelance journalist specialising in business issues

HISTORY OF LONDIS

National deals from local beginnings

Londis was formed in 1959 by a group of retailers from inner London to service grocers of London and District - hence the name. Today, around 2,200 stores in the UK come under the Londis umbrella. Its members receive benefits including marketing and retailing expertise.

The core Londis range covers more than 4,000 lines, including 350 own-brand items, delivered from distribution centres in Thamesmead, London, South Elmsall, Yorkshire, and Andover, Hampshire.

In addition, almost 200 suppliers deliver direct to the stores, giving retailers the chance to select products that will do well in the neighbourhood.

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