Like other retailers, today’s grocers compete in an experience economy. In this economy, price and selection are still important – but more than ever, customers want better overall experiences and outcomes.
For grocers, such positive customer experiences depend in large part on the freshness of the food on the shelf. Customers are picky, and many simply go where the freshness takes them. A single day or even several hours lost in the logistics of getting strawberries or freshly prepared salads to the store can have a dramatic impact on food quality and customer service, quite apart from lost margin and revenue.
The logistics challenges of large retailers
For the Swiss cooperative Migros, such challenges are magnified by the scale at which it operates. Migros is much more than a grocery store. It is, in fact, the largest retailer in Switzerland. Migros Aare, the largest among 10 Migros cooperatives in revenue, operates 126 supermarkets, 29 shopping centers, and 56 specialty stores – with overall annual sales of more than CHF 3.4 billion.
I recently had a chance to speak to Manuel Melliger, head of logistics projects at Migros Aare. “Ensuring product freshness requires efficient logistics processes and systems,” Melliger explains. “At Migros, we had several warehouse management systems at different locations, which did not allow for a consistent and timely flow of information.” Migros Aare’s logistics team, in other words, lacked transparency and visibility – “which is critical when the goal is to ensure the freshness of groceries with short shelf lives.”
Data latency regarding the delivery of finished goods was a major problem. “This meant that the forecasting and replenishment process was driven by an inaccurate view of inventory and demand,” says Melliger. “When you are dealing with vegetables, flowers, and plants, an accurate demand forecast is essential to enable a customer-centric supply chain.”
Reimagining business processes
Historically, Migros was working on a “make to order” model, where all partners in the supply chain waited for the stores’ requirements to send orders to the suppliers and start goods-picking in logistics. This meant Migros lacked the flexibility to respond to high peak loads.
The Migros Aare cooperative decided to transform the supply chain into an “iterative forecasting model” aided by digitization. With improved visibility and predictability and an iteratively generated demand forecast, goods can be ordered from the supplier and picking can start before store orders arrive.
This model extends lead times and improves the precision with which Migros can plan and control the flow of goods. It also helps the company absorb peak loads by increasing the availability of goods in the warehouse and pallet building in sync with the stores, which simplifies the refilling of store shelves.
The benefits of digitization across the supply chain
To help digitize its logistics processes, Migros implemented SAP Forecasting and Replenishment and SAP Extended Warehouse Management (SAP EWM) on the SAP HANA platform at its Schoenbuehl distribution center. This 100,000-square-meter facility receives up to 7,000 pallets and coordinates up to 600 truck journeys a day.
“The greatest benefit is the timely, continuous, and transparent flow of information – from the receipt of goods at the perishables distribution center to the receipt of the goods at the store,” says Melliger. “This optimization was one of the main objectives for the project, as we lay the foundation for further developments and optimizations along the supply chain.”
Information transparency has also improved Migros’ quality of store-level demand forecasting, planning, and logistical processes. “We see an increase in performance and a reduction of errors in the picking process for distribution,” says Melliger. “Accessing correctly timed store inventories and balancing peak loads has helped us increase the availability of goods – both in the warehouse and in stores.”
With greater transparency in the supply chain, Migros can better optimize demand forecasts and logistics processes to align with customer needs. This improves on-shelf product availability, leading to a better shopping experience for Migros’ customers.
In the end, of course, improved customer experience is the goal. “Each digitization project at Migros is focused on the customer,” says Melliger. “Each must generate added value for the customer – whether it’s in terms of improved services, reduced costs, or even increased efficiency. SAP Extended Warehouse Management represents a major milestone in digitalizing our supply chain and ultimately creating a better shopping experience for our customers.”
Arsim Jahii, head of digital supply chain, SAP Switzerland, says, “The current warehouse logistics project lays the foundation for the digitization of logistics processes and offers a scalable, innovative platform to not only meet current demands, but also future requirements, which is key in such dynamic environments. The improved visibility into the flow of goods and data enables continuous improvement potential, enabling a deep horizontal and vertical process integration. Thank you for this very exciting journey, Migros.”
Download the IDC report “Leveraging your intelligent digital supply chain” to find out how an end-to-end digital supply chain – from design and planning to manufacturing, logistics, and operations – addresses the operational pressures of shorter product cycles, design variability, fluctuating demand, and faster delivery expectations.