The electrical retail market has become a closely-fought battleground in recent years, with the main store chains, and increasingly supermarkets as well, doing combat both in the high street and online. Like all major players, DSG International, which in the UK operates the Currys and Currys.digital chains along with the Currys and Dixons websites, has to pay close attention to the supply chain in order to compete.
The company has invested £30m on improving its logistics performance in
the past three years, reducing its UK stock-holding points from 21 to just three, overhauling its home delivery network and improving both its trunking and store delivery operations. This has involved opening new distribution hubs in Newark, Notts and Bristol, and awarding a national distribution contract to DHL. The project was spearheaded by Jim Spittle, whose CV includes spells with Tesco, Kingfisher and Whitbread. He was appointed supply chain director to oversee the project and left the company at the end of September, having handed over to new supply chain director Jeremy Ross, an internal appointment.
Spittle says: "The electrical market is challenging and difficult. We asked ourselves how we could maximise efficiency to improve availability, while reducing our dependency on holding duplicate stock." That led the company towards centralising its distribution network and introducing the new facilities. But before it did so, it underwent a huge planning process to avoid disturbance
to the business, including the use of specialist software firm Manugistics' planning tools.
The programme involved closing a number of distribution centres, including facilities in Sheffield, Coventry, North London and Stevenage, the latter being the last to shut in June of this year. Now the project is complete, there are two warehouses in Newark on a campus-style development capable of handling 500 trailers a day: a new, partly-automated facility, which is 65,000m2 and serves the store network in the northern part of the UK and an existing 70,000m2 warehouse, which is used for home delivery items and returns.
The 23,000m2 Bristol centre, which opened last year, serves southern stores and holds stocks of faster-moving products, which make up around a third of the Currys range. The remainder of the products are trunked from Newark as and when they are needed. In addition, DSG still has 14 home delivery centres (HDCs) around the country, but unlike their 17 predecessors, they carry no stock. When customers place orders, either in store or online, the products are moved overnight from Newark, cross-docked locally and then delivered on the third day after the order is placed. The delivery routes are worked out at Newark.
"We have centralised planning of all activities and that has reduced our overheads and improved accuracy," Spittle explains. One of the major benefits of moving to the new model is the ability to cope with the ever-changing nature of the electrical market. Factors such as the weather can affect the sales of, for example, refrigerators, and major sporting events such as the recent Rugby World Cup can have a major impact on sales of TVs. There is also the need to keep the products on sale as up-to-date as possible in terms of technology and to try to get new launches out to the market quickly. Ross says: "With some items, such as larger TVs, iPods or X-Boxes, the products are regarded almost as if they were fashion accessories and, because of price deflation, they are much more affordable for people. That is part of the reason we have to be ahead of the game."
Availability is improved by the more centralised model because stock is sent out to the branches or HDCs only in accordance with demand, and it is easier for the company to identify and deal with ageing product lines. Overall inventory levels are reduced because there is no need for each site to carry stock. Another major advantage is improved buying terms with suppliers, who now have to deliver to fewer distribution points. Since making its changes, DSG has recorded improvements in customer satisfaction levels. It carries out exit surveys in the branches, as well as conducting telephone interviews with home delivery customers - one week 96% of customers said they would recommend Currys to a friend, or to a member of their family. As well as receiving training in the technical aspects of making an installation, home delivery staff are taught customer service skills. "If you are delivering into someone's home you have to understand how to react to things in front of the customer," Spittle says.
Home deliveries are made on DSG's fleet of more than 300 vehicles, but other transport is outsourced to DHL, which provides trunking services to the HDCs as well as making deliveries to the branches with a fleet of around 90 tractor units. Spittle says there are pros and cons to using a single supplier, but in this instance it works because of the need to maintain maximum efficiency throughout sharp peaks at various times of the year. "A company such as DHL has the depth, breadth and scope to respond to any challenges," he says.
There is also a mixed approach in terms of outsourcing warehouse operations. The Newark site is operated in-house, but the Bristol depot is run by DHL. The outsourcing relationship is controlled by KPIs and monthly review meetings, but DHL is also kept informed about DSG's overall goals. "They attend team meetings and are considered an integral part of our operations," Ross says. The new structure for logistics should last the company for some time, as there is expansion land available at both Newark and Bristol. However, it is determined to build on good practices brought in during the project and to continue to improve efficiency. It is currently formulating a new three-year plan. "We want to build on our success of the past couple of years. The last thing we want to do now is to take our foot off the gas," Ross says.
DSG's UK and Ireland operation is part of a wider group that spans 27 countries and includes 1,200 stores. There are different distribution arrangements for overseas operations, including a new 50,000m2 hub in Piacenza, Italy - this and the improvements in the UK will together save the group £20m a year. The company also holds regular meetings so that logistics best practice can be shared across different countries.
The UK and Ireland supply chain serves more than 750 stores. Around 170 of these are Currys.digital outlets, which formerly traded as Dixons in the UK - the Dixons name is still used as a website, as well as for Irish stores. The network also supplies some products for DSG's PC World chain, although most deliveries for that part of the business go through a separate distribution centre in Northampton.
One of the biggest challenges DSG faced in moving to its new structure was to manage change at the same time as maintaining a reliable supply of products. "It was a bit like replumbing the house with the water still running," Ross says. The stock-holdings and depot operations being switched were moved over to Newark and Bristol bit-by-bit in a complex transitional programme. This was undertaken against a backdrop of rising sales volumes. "We had a gradual programme of change and didn't have to deviate from any major part of the programme. We managed to finish on budget and without any disruption to the service," Spittle explains.
Half the people employed in the supply chain were affected by the changes in some way - either through their depot closing or changes to the way it operated - and it was essential for them to keep positive. News of the changes was communicated early to them, in August 2005, and where necessary they were encouraged to gain NVQ qualifications, or given funding to retrain so that they would be able to get a new job more easily. "Telling people that this sort of thing is going to happen is a difficult message to give and could have created all sorts of issues, but we got the best reaction anyone could hope for. People are the foundation of our business and without their co-operation we would have failed," Spittle says.
Every member of staff was given a 'Supply Chain Story' card that emphasised the importance of the supply chain to the business and encouraged people to improve in four key areas: improving the customer experience improving stock availability improving efficiency and making the business a good place to work. There was also an effort made to communicate the importance of the changes to the rest of the business and a steering group, including representatives from other departments, met regularly as the changes were introduced.
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