With the low price promise to our customers at the core of our business and the necessity to ensure the right product in the right place and at the right time, the Shoprite Group recognised early on and ahead of all of its competitors that a world-class supply chain will deliver significant strategic benefits and competitive advantage. Today our supply chain, with an extended network of distribution centres, vast fleet of trucks and sophisticated integrated information systems deliver on both cost savings and product availability.
Ongoing investment in property infrastructure, technology, vehicles and our people delivered various significant benefits to both our Group and our suppliers. We pride ourselves in running a state-of-the-art distribution operation and becoming the first South African retailer to receive the much acclaimed ISO 9002 accreditation for import and export handling.
Having a large network of distribution centres enables our business to stock up on supplies. This means that merchandise can be buffered, countering vendor out-of-stocks and volatile trading patterns, while offering an opportunity to buy-in against price increases. The desired result is inevitably to consistently enable customers to find the items on their shopping list – thereby keeping their custom and their loyalty. It also means that price increases do not have to be passed on to our customers immediately. Frequent on-demand store deliveries present the opportunity to re-engineer our retail outlets and improve space utilisation by dedicating the minimum area to storage and the maximum area to trading space.
In its most basic form the supply chain consists of strategically placed distribution centres linking the flow of product from vendors to stores with customer demand driving the movement of product. Merchandise is delivered to stores by a variety of trucks and trailers based at distribution centres throughout the country. The fleet is owned by the Group and operates 24 hours a day, seven days a week. A highly sophisticated transport route planning and scheduling system, optimises store deliveries and integrates the operations of the distribution centre and the transport division. This channel to market is not only environmentally friendly by reducing the number of trucks on the road, but the investment in central distribution empowers suppliers by allowing them access to a more efficient route to market than the costly traditional “direct-to-store” option where supplier vehicles drive extra mileage and waste time between individual store deliveries. Suppliers no longer need to tie-up their capital in expensive warehousing and vehicles that offer no financial return. Instead, they can focus their financial resources on product development and production related aspects. This principle guides our sustainability initiative for trading and this saved our suppliers approximately R132billion of which R40billion would have been spent on fuel alone. These savings ultimately affect our supplier product prices, which helps us to keep our low price promise.
Below we provide a graphic representation of each route to market and the multiplier effect can clearly be seen between the two delivery mechanisms:
To support the growing number of outlets, the supply chain infrastructure is continually being expanded.
A substantial portion of the Group’s investment in information technology and logistics infrastructure has been devoted to the upgrading and extension of the Group’s distribution centres in Centurion, Gauteng, Cape Town and Durban. Of these the largest is located in Centurion, between Johannesburg and Pretoria, where distribution facilities have more than doubled from 80,000m² to 180,000m². The main building of 114,500m² is the largest distribution centre under one roof on the continent. The facility serves as the distribution point for about 90% of ambient products delivered to stores in the Gauteng area and beyond. More than 1,100 suppliers deliver their products to the centre where they are stored, collated, and then distributed to retail stores on a high-frequency basis.
In Cape Town a 120,000m² development is in progress that will accommodate regional distribution.
This distribution node is scheduled to become operational before the end of 2017. It will consolidate the activities of five distribution centres spread throughout Cape Town and its environs and greatly improve efficiencies in the provisioning of stores in the area.
The facility in Canelands, Durban, contains a number of firsts for the group as well as worldwide. These include that the DC is the first perishable DC in the group designed to operate with 13m-high reach trucks under a clear operating height of 14.7m. This is significantly higher than existing facilities, which operate in the 6 - 8m range. The operators received extensive and intensive training to operate effectively and safely at this height.
The facility also covers 11,500 m² and there is room on the site to add a further 23,000m² of growth, which has been incorporated into the overall logistics-flow planning. The site furthermore utilises all the latest thinking in terms of environmental efficiency and operational sustainability.
The 4,500m² PE Freshmark facility utilises the same technology and can be expanded to provide up to 20,000m² of perishable distribution in a composite facility with a capability of up to 30,000m² of ambient storage.
With the help of our suppliers and backed by the most advanced information systems that provide us with real-time information 24/7, we are constantly reducing costs in the supply line to ensure an in-store price benefit.
Construction of all distribution centres is done in a responsible manner applying green building principles and working with environment-friendly approaches. Energy efficiency, treatment of waste water, and recycling facilities considerations are all considered in the design and construction phases.
We implemented procedures for the collection of recyclable waste to enable baling and selling thereof centrally. In our first year (2014) we baled and sold more than 100 tons of cardboard and 30 tons of plastic. The potential to increase this is promising and we have set significantly larger targets for each year. In following the “nil to landfill” approach, we commissioned a compacting facility at our Centurion DC where cardboard and plastic containers from all the stores in our Northern Region are processed for recycling.
The reclamation center at Centurion plays a significant part to increase the effectiveness of handling product returns, equipment management and waste management processes. This central point enables supplier collaboration as product damages are analysed and through collaboration with suppliers initiatives to enhance packaging and thereby reduce product damage are identified. The reclamation centre is also critical to our safety programme, for the removal of damaged stock at the earliest opportunity, to avoid possible contamination of other products and control waste.The reclamation centre further creates the possibility to back-haul recyclable materials from all our deliveries, thereby reducing the need for multiple reclamation centres, and improving the throughput of the main centre.
Innovation and sophisticated information systems are both key to the ever improving supply chain of our group.
Pioneering initiatives related to the reverse logistics component of the supply chain provide new opportunities and are fundamental in enhancing Shoprite’s sustainability profile. An example of innovation is a world first in the design and development of a three level-high banana-ripening facility serviced by robotic shuttles. Up to now, all banana-ripening facilities have been single level, which occupy significant floor space. The design team, however, engineered a unique solution that uses robotic shuttles, which is much safer and occupies one third of the original footprint.
Another example relates to infrastructure for food transportation: Infrastructure has traditionally been a major source of waste once the product is merchandised on the store’s shelf. In response, we introduced reusable equipment for moving products, including plastic totes, crates and roll-tainers. This change resulted in a large reduction of wooden pallets. Also, an added benefit of this equipment is the reduced effort required from employees, as lifting and carrying products is less, thereby increasing efficiency.