M&S new distribution centre at Castle Donington

M&S' new distribution centre at Castle Donington

Retailer Marks & Spencer is working to update its sourcing and logistics systems after admitting that 20 years of under-investment have led to a sluggish and inconsistent supply chain.

Speaking yesterday (9 May), financial director Alan Stewart told investors at a tour of the firm's new state-of-the-art distribution centre at Castle Donington in the UK, that its supply chain is an area "where M&S has been challenged as it has not necessarily been best in class".

The company has prioritised the revamp of its supply chain and sourcing systems as it works to become an increasingly online and international retailer.

Plans involve streamlining the number of distribution centres it operates as well as moving to a FOB model from full service vendor suppliers (FSV).

Sourcing head Krishan Hundal said this shift will reduce the level of complexity across the business, with one buying and sourcing model allowing for better visibility across the supply chain, while also improving margins.

Work is well under way on the project, with 75% of product and 95% of suppliers to convert to this model by the end of the financial year. He said the moves will improve intake margin by GBP45m per year.

The company has also changed how it sources its ranges, with three strategies for different products - core, seasonal and fast track.

Core products, which account for 30% of its range, include volume lines like underwear and cashmere. Hundal said M&S has reduced the price of its women's cashmere sweaters to GBP65 from GBP69 last year, while increasing the weight and adding extra detailing.

He said the company managed to do this by "pulling our scale" together, and moving production to more cost-effective regions.

Seasonal ranges account for 60% of its offer, and include products like swimwear. The company is now trialling some of these items online before being rolled out more broadly.

Hundal said the company moved production of its dressing gowns to Turkey from Sri Lanka which improved speed to market, allowing it to test 22 different colours before choosing to sell the best performing ones. This increased sales by 11% and reduced markdowns by over GBP1m for that line.

It's about having great in-season availability, mitigating and taking out the risk of some of our seasonal product," said Hundal.

Meanwhile the company will work to fast track its Limited range, accelerating the time from design to shop floor, which currently takes six to eight weeks.

Hundal said that improving the speed to market on these lines is dependent on logistics and the company's ability to be agile and flexible, and that the systems overhaul will help to make the company more responsive.

The changes also mean that the distribution system will become increasingly agile with the company reducing lead times, inventory and costs through reducing the number of distribution centres. Currently, product is stored at over 100 sites across the UK, and it aims to reduce this to three sites.

The shift away from FSV will see the retailer have all of its product arrive at its regional distribution centre RDC1, which it plans to build by a port in the South East, products destined for the north will then be shifted to its RDC2, based in Bradford, while other products will go to the Castle Donington site.

Currently there is a two to three week lead time from port to store, the company hopes to reduce the time to one day, said supply chain director Dirk Lembregts.

He emphasised that the reduction in lead times will also mean the company can reduce inventory by 33%, and logistics costs will fall 40%.

While the company streamlines the number of warehouses it offers, it is also implementing new systems in general merchandise.

A shift to a "tactical push" system will see stock allocation and replenishment handled centrally, which until now has been handled by individual stores. Stephen Fitzgerald, head of the general merchandise development programme, known internally as GM4, said the move will maximise availability and improve planning.

The changes will also see better assortment planning, with ranges tailored to stores, which will lead to better planning of channel level stock requirements and improved store layouts.

The company unveiled its plans at the opening of its Castle Donington distribution centre. The 900,000 square foot, highly automated site will be able to process a million items each day. It will handle all online orders and employ 1,200 people at peak times.