Albert Heijn Improves Product Availability through Centralized Replenishment
Capgemini helps supermarket chain improve supply chain through responsiveness to customer behavior, high level of automation and cost control
Download als PDF“Replenishment is based on a customerdriven supply chain. A true collaborative
partner, Capgemini supported the
replenishment project with excellent people in important roles. Capgemini brought
in the right IT and retail knowledge, but even more importantly, the right skills
and
attitude. This determined the actual success.”
Tony Vendrig, VP Supply Chain, Albert Heijn
The Situation
Albert Heijn is the market leader in the grocery business in the Netherlands.
With 752 stores, over 60,000 employees, more than 25,000 product SKUs, over 11
million customer transactions per week and 10 million possible SKU-store combinations,
Albert Heijn needed to find the most efficient and effective way to balance customer
demand and unpredictability with logistics costs in the supply chain. Using a
collaborative approach, Albert Heijn and Capgemini found an impressive state-of-the-art
solution for this challenge.
Henry Ford’s dictum that he would give his car customers “any color as long as
it’s black” doesn’t work with today’s more demanding and unpredictable consumers.
Providing customers with the goods they want, at the time, the place and the price
that is right for them, is the only way to keep them satisfied.
Rising incomes, rising expectations and greater individualism have combined to
create a customer base that expects differentiation. But that translates into
greater complexity and higher costs for the retailer. It means that each store
must be fine-tuned to reflect the wants of specific customers, which could mean
new store formats, deliveries to home or office, ad-hoc promotion or even time-of-day
pricing.
The increasingly unpredictable nature of customer behavior makes planning even
more difficult. More and more time is spent on planning, but the results are less
valuable. Planning involves making assumptions about what will happen, rather
than reacting to what customers are actually doing.
The Solution
The team set up by Albert Heijn and Capgemini to come up with a solution determined
that the only way to be responsive to customer demands was to build processes
and define rules that did not demand as much planning. They developed a highly
automated replenishment process with a single point of customer demand forecasting
and centralized control management.
Decisions about store planning and forecast models needed to be much more reactive,
which required the availability of continuous, near real-time information. Traditional
processes are typically built around batch processing cycles, usually one per
day. Moving from a batch to flow system (continuous operation and continuous decision
making) facilitates individualized delivery schedules based on geography, transport
costs, type of merchandise, etc. Naturally, some batching still occurs in the
process, such as deliveries to the distribution center from suppliers or the start
of a new promotion, but the emphasis is on continuous flow of information, with
no artificial barriers to impede the reaction time.
To determine how much of a particular product to send to a particular store requires
knowledge of the present and historic service levels as well as constraints of
both the product and the store. Each item/store combination has a unique set of
parameters. For some products, such as dry groceries, the parameter is simple
— when one full case is sold, one new case is ordered. But for items like fresh
produce, factors like the desire for freshness, an attractive presentation and
the cost of shrinkage must all be taken into account before deciding on an order
schedule. Predictive forecasting is only used for special situations, such as
promotions and events. Once the promotion is started, however, ordering is quickly
adjusted to reflect actual customer behavior in the store (e.g., real-time POS
data).
Local stores have responsibility for their own sales opportunities but they constantly
feed information to the central repository about changes to their planograms,
new items, promotions, branding and customer behavior. The central system synthesizes
the data and offers the stores ongoing planning information and updates. The result
is an optimal balance between local entrepreneurship and central synergies.
The Result
By instituting an automated system that can provide a sales ordering report per
store, per item, per date, and per hour, Albert Heijn has reduced out-of-stocks
by 50%. It has also realized a 7% increase in the commercial attraction rating
for its stores and the amount of time employees spend on store processing has
shown a significant decline. Improved availability of goods, fewer leftovers,
less time spent on ordering has translated into more time for employees to work
directly with customers. Supplier investigation into Albert Heijn’s products proved
that availability increased by 14% during promotions.
How Albert Heijn and Capgemini Worked Together
Albert Heijn and Capgemini worked together on this project from pilot phase to
national rollout. Process, organization and IT systems were developed jointly
as was the transformation strategy for 744 stores and the Head Office.
The multi-disciplinary project team transformed Albert Heijn’s logistics, merchandise
and stores into a state-of-theart supply chain operation. The result of combining
all these elements into a centrally-controlled, highly automated, real-time and
event-driven system is that Albert Heijn can guarantee with a high level of certainty
that on any given day it will be able to satisfy its customers.