At the forefront of omnichannel

Elgiganten have recently broken ground in order to build the largest fulfilment centre in the Nordics. The new centre is designed to ready the company for an omnichannel future, delivering the optimal balance of supply chain effectiveness and flexibility.

Big, bigger, Elgiganten. Elgiganten's Nordic distribution centre in Jönköping in the middle of Sweden is massive by any measure. Actually, it's one of the largest in Northern Europe, though exactly how large it is, depends on how you measure the size of a warehouse. One thing is certain however, the size of the new centre is entirely consistent with the narrative of the company itself, revolving as it does around constant growth and large ambitions. The company creates new jobs almost every day and opens new stores at a similar rate. To date, Elgiganten have opened 289 stores, employed 9.000 people and achieved gross sales of 26.9 billion NOK. And the distribution centre is about to get bigger still. A new fulfilment centre will enable the company to handle increased flows from e-commerce and omnichannel.

Opportunities abound in omnichannel for a retail giant such as Elgiganten; More sales, greater customer loyalty, greater differentiation. Still, only a handful of companies will be able to profit from omnichannel according to a March 2015 report from Ernst & Young (EY) and Consumer Goods Forum (CGF). Omnichannel is the label given to the idea that future customers will expect to be able to seamlessly switch between channels during the purchase process, from physical stores to smartphones and support centres. EY and CGF expect the annual growth rate in retail stores to be just 5% though 2019, whereas online growth is expected to grow by 15% in the same timeframe.

Elgiganten are taking steps to get ahead of the changes in customer behaviour. But it must do so profitably. Which is why the company decided to invest approximately 500 million SEK in building this state-of-the art fulfilment centre featuring a long line of fully automated solutions that will enable Elgiganten's omnichannel supply chain to be both effective and flexible.

Higher service levels at competitive costs
Elgiganten's strategic programme through 2020 is entitled 'Customer Champion’, and is focused on developing an extreme customer centricity throughout the value chain. Unsurprisingly, the supply chain has an important part to play, if the company is to realise the objectives of faster delivery, higher service quality and lower costs.

Andreas Thimour, Development Director at Elgiganten, explains: "The fulfilment centre is a reinforcement of the existing Nordic distribution centre in Jönköping. It will be an automated powerhouse, delivering faster delivery times, higher service levels, increased productivity, and competitive costs. It is the cornerstone of our strategic investment in delivering both a superior omnichannel experience for our customers as well as improved profitability.

Three flows
In broad terms, the flow of goods into the new centre will be separated into three: An automated flow for small goods, a flow for large goods such as white goods and flat-screens, and a flow for those goods that Andreas Thimour refers to as 'uglies' - pallets that do not fit the automated flow. The automated flow consists of quality control, high-speed conveyors and a pallet high bay warehouse with eight cranes, as well as a tote warehouse with 88,000 locations and 220 so-called shuttles, which are small, extremely flexible and very fast transport units. The crane-operated warehouse sends pallets to an automated depalletizing station, where the pallet is broken or decanted down into boxes. Picking takes place at 13 picking stations of which there are two types, both designed to ensure ergonomically correct working heights for the employees. The picking stations are also equipped with a weight-based picking control, which catches errors at the source, making it easy to fix them. Goods that are being routed directly to the customer, are wrapped in packaging for distribution, and sent to a picking line, that fixes the shipping label on it and readies it for distribution.

Elgiganten is a part of Elkjoep, the largest consumer electronics and household appliances company in the Nordics, owned by the English electronics retailer, Dixons Carphone. Elkjoep have established a series of retail brands, incl. Elkjoep and Lefdal in Norway, Elgiganten in Sweden and Denmark, Gigantti and Markantalo in Finland, Elko in Iceland, as well as Elding on the Faroe Islands and in Greenland - all of them built according to the big-box store business model. Elkjoep continued its rapid expansion in 2013/14, establishing several new stores and delivering gross sales of 26.9 billion NOK. Today, Elkjoep has 289 big-box stores and more than 9,000 employees. The distribution centre in Jönköping, Sweden is at the heart of the supply chain, critical to continued success as it supplies all the Nordic big-box stores.

The fulfilment centre is 12,000 m2, out of which 8,000 m2 is a high bay warehouse reaching a height of 30 metres above grounds and 2 metres below. Together with the existing warehouse of 95,000 m2, the new centre will have a combined area of 107,000 m2.

"We recently began construction, and the building is due to be completed during the second half of 2015. We should be able to commission the centre in the autumn of 2016 and be fully operational in the summer of 2017," says Andreas Thimour.

Future-proofed until 2021
According to Andreas Thimour and senior consultant Christoph Ohly from Langebaek, the fulfilment centre has been dimensioned to handle the increasing flows of orders and goods until 2021. "Beyond that, the centre is designed to allow for a future expansion, enabling us to handle increasing volumes until 2025 - 2026. For instance, we currently stock approximately 6,000 products but will be capable of stocking 14,000," says Anders Thimour.

Elgiganten have entered into an agreement with Knapp for delivery and installation of all hard- and software for the new centre, and have retained Langebaek as advisors for the duration of the project. "We are working very closely with Knapp on simulating the systems, in effect stress testing the capacity of both hard- and software under maximum flow conditions. This is a complicated technical solution with many moving parts and processes that have to work seamlessly together, so there's little room for error. It is much easier to fix errors, and far less costly, if we find the flaws and weak points in the system now before all the hardware has been installed," Christoph Ohly explains, and adds; "Once the fulfilment centre is up and running it will be able to process 40,000 orders each day and the fully automated packing plant will be able to handle 2,000 packages every hour."

Critical changes
The new distribution centre demands that employees and managers alike are capable of coping with novel technologies and new processes. "Commissioning the centre will require a significant change management effort on our part. We will have to adopt an entirely new mindset for one thing. And for another, we will need to ensure that the employees, the technologies, and the changes work well together," Anders Thimour explains.

Elgiganten is doing its utmost to involve and engage with employee representative and operational managers, including setting up site visits which provide employees the opportunity to speak directly to colleagues who have already gone through some of the changes. "We work hard to create multiple lines of communication between the project team and the many operational teams, ensuring high levels of openness and clarity. Additionally, we have appointed super-users, who will be thoroughly trained in using the new systems and will help cascade the training to their colleagues."

Prepared to do battle
Elgiganten is the leading consumer electronics retailer in the Nordics. Effective and flexible logistics are essential to maintaining competitiveness in an omnichannel environment. The report "Re-engineering the supply-chain for the omnichannel tomorrow" from EY and CGF concludes that the traditional retail supply chain, which are designed to deliver goods to physical stores, are having difficulties delivering the flexibility demanded by customers as well as the profitability desired by their owners.

"The new distribution centre will allow Elgiganten to face the competition head-on. This includes both existing and new competitors, who might enter the market from another industry or geography. The centre will enable them to deliver a high level of service to omnichannel customers and still make money," says Christoph Ohly.