Episode 31: Retailers warned: Waiting to scale fulfilment could compromise future growth

In this episode of Retail Untangled, Amie sits down with Katie Budd, sales manager APAC at Vanderlande to discuss how retailers who put off scaling up their fulfilment capabilities might not only be leaving sales on the table – they could be damaging their long-term business opportunities. 

Transcript

Amie:

Welcome to Retail Untangled, my name is Amie Larter and this is the podcast where we speak to retail industry experts and find out business hacks that help them succeed. You won’t find these gems anywhere else, and we have some superb stories from the coalface as well as helicopter insights from retail industry leaders. Today’s guest is Vanderlande’s Katie Budd, who has joined us to discuss why retailers who delay scaling up their fulfillment capabilities might not only be leaving sales on the table, they could be damaging their long term business opportunities. She’s also here to dispel the myth that automation is only for the massive tier 1 players and what that can look like on a  smaller scale. 

So Katie, competition is absolutely fierce and many retail leaders are currently thinking about how to achieve and sustain growth right now. It's a complex puzzle, but fulfillment is that is clearly a core piece from your perspective, given the complex environment. What's the single biggest strategic mistake you observe leaders making when they try to scale up their operations? 

Katie:

So I think there's two sides of it and two different angles. And one is definitely that they sit and wait and they then are in complete trouble mode. They are acting to catch up and they're being reactive rather than proactive. And that is one of the biggest mistakes because then they are shoehorned into having to react to the market rather than being able to make the choices that they want to lead the market. So when people sit back and they wait too long and they think, no, that's fine, that won't happen next year. We see it so much in say January.

And people are so crippled by Black Friday. Black Friday and Christmas. And because they're like, it's fine. This time last year, we thought we could make this Black Friday. But actually, now they're like, in a panic for the next Black Friday. And they should, if they'd have acted on that first time that they'd have gone for it, then it would have been a completely different story. 

Amie:

I can imagine. And you've got all of those processes that you've put in place that aren't necessarily right, and that's just kind of snowballing.

Katie:

It's snowballing and then they suddenly realize they've got so much to do they've got nine months and it's like what can we do in nine months and you think Well, you can do step by step, but if you'd have done it in a year in nine months, you'd have had all the things that you'd ever want to do.

Amie:

It will be prepared. So that mistake often leads to a massive customer experience failure. So you're not only seeing it internally but that external piece as, and as we know a poor delivery or returns process is essentially brand abandonment. It can lead to brand abandonment shoppers simply just don't come back. What are the consumer impacts on scaling the wrong way? 

Katie:

If you are not able to adapt, then somebody is going to go and buy from somewhere else. We all do it. I know I personally will look and say, OK, that's a three to five business day SLA. Because essentially that's what these systems try and help do. They are improving all the customer experiences, whether that is directly to their front door or the way they're going to the shop.

So whether that's the product being available, it arriving in time, if you're not able to do what your competitors are doing, then the sale is gonna go to them. Like I'll buy on next day delivery versus two to three days. I think we all would. And even if it was say like $5 more expensive, most of us will probably go and do it. So, and I think they saw, I saw something the other day, it was like 93% of online shoppers who are surveyed across like 10,000 people, it was that they will, go and rebuy at the same place if it has a nice smooth easy returns process rather than one that they had to go and print it off and do everything like that which is huge most people saying that they're going to do that. 

Amie:

It makes sense so let's tackle a common belief right away: is automation only feasible for those sort of tier one retailers or is it possible for a growing mid-sized business that needs to scale? So is there a pragmatic entry point that they can actually afford? 

Katie:

Absolutely. This is the biggest myth and this is my favorite one. When we approach people and we say, hey, this is what we do. Would you like to talk to us? And they go, no, no, no, I'm not that big. I'm not Woolworths, so I don't need to do that. And then we say, well, okay. They go, yeah, but we do really struggle with, we use Black Friday example again, pickers on Black Friday. We go, well, then you have a problem.

And the best way that we say it to people is if you have got a problem that you need to solve, then you need some form of automation. And that can be on any scale. Like it can, it doesn't have to be a big fancy robotic picking system. We can do really simple software changes that allow really operationally just small things that have a massive benefit. So no, it can be from any scale. And we kind of say, if you've got a problem or you want to grow or you want to execute your business in a different way, then automation is big. 

Amie:

That makes sense. And another myth which actually ties, sort of moves on from that one is that automation is sort of this terrifying, disruptive, all or nothing overhaul. For a leader who knows they need to smarten up their operations to meet demand, what's the first logical step? 

Is the answer always, you know, and this is your space, not mine. So I immediately go to shiny new robots or does the smart part, sort of that underlying software and data strategy actually need to come first? 

Katie:

I would say that bit comes first because you can do the biggest investment in all the nice shiny equipment. If you're not processing, say your orders in a correct way to feed the technology, you're just going to completely run out and you're going to be in the same situation. So doing those data smarts at the very front end.

Again, you don't have to have big complex software. There are really simple things you can do in there that just say send orders in waves for example, or batch pick. So then a batch pick and sort is made easier. So there's lots of different things you can do just by formatting the data you already have, being able to spit it out the other end and change your operation, which then allows you, like that's the stepping stone. Then you can go and do as much shiny lovely robotics as you like, but as long as you've got, know, you've maximized the most simple aspect, then you've got the right starting point. 

Amie:

And you've got that foundation in place. 

Katie:

And then no matter what you do from there, you've got the foundation and you can scale up that foundation and grow from it. Whereas, and that's making the right investment. You'll see the right investment and you get payback for that. And then you can move on to bigger things, wherever that is. 

Amie:

And do you often see, and I mean, I said before, this is your space not mine so if this sounds ridiculous you can let me know but do you often see that people try and bite off too much at once or do you feel like people are starting to do that in a smarter way? 

Katie:

We get people coming to us and that's normally the case and they say we want this huge scale operation and we say okay, your host software? I don't have any.

We go, okay, all right, yeah. No, we understand your ambition. We understand what your desire and your end goal is. And we can see why you think that would work for you. Like you Google warehouse automation and all this stuff comes up. And sometimes it is people are bang on. Like some people do come and they go, yep, I want this. And we go, fantastic, you know your stuff. Sometimes we go, look, let's work with you and educate you. And if that might be your end goal, that might be your end goal for your business in 10 years time. But, do you want to fully invest for the stuff in 10 years time or should we break this into chunks and do it on a step by step basis? 

Amie:

Which makes so much sense and it's good to see someone that's kind of working with people from word go because ultimately you want to end up there too. 

Katie:

Yeah. 

Amie:

But it makes sense for you guys but it's nice to see that partnership grow over time. 

Katie:

Yeah. Yeah and that would be a big thing if you go to somebody who is going to try and make that happen you'd be silly because you'll get to the point where you're trying to get your CFO to sign off for this project and they're going to go: what's my payback, and there won't be one. So you don't need to find kind of the right partner who's going to help you come on that journey. We call it an automation journey and it is the biggest buzzword in our industry. But it's so true. Like the journey that people go on throughout their kind of operational growth is definitely a little automation journey. 

Amie:

I assume that it's an automation journey, it's never that destination piece because technology changes all of the time. So once you, yeah, once you do something, you've always got to just take into consideration how technology is changing too. 

Katie:

Yeah, that's quite a big thing, being able to future proof and kind of grow the system too. But there's also, there's two aspects. You can have the technology that runs and that is the mechanics. That's going to stay there and that's going to do it. But it's also how you operationally change as well. So the system isn't just going to do what you need it to do.

You are going to need to work operationally as well with your teams to go, hey, how can we improve this? What could we do if we do this slightly different at this aspect of our supply chain, how does it impact down there? So it's all about this journey of making sure that you're kind of like looking after and curating what your investment is. 

Amie:

Which makes so much sense and feeds very well into our next question, which I really wanted to be about the labor market. And it's undeniably tied at the moment. And given this reality, how should executive leaders be referring or reframing the conversation around automation and the business case from a workforce perspective? 

Katie:

So it's always a really scary thing which everybody always says to us and I'll go for, I'll go stand at the bar and somebody will say what do you do for a job? And I'll tell them and they'll say so you take away jobs and I go no, absolutely not. I make it so that you are paying an operator to do what they're paid to do. You are not paying them to do 50,000 steps a day. You are paying them to pick and pack the orders for your operation. 

So if you're going to get the most out of what you pay that person to do, you want to do things like make it as easy and efficient for that operator to fulfill their role. So when you're looking at labor and labor shortages, if you think about, okay, if you're doing this size operation today and you're being able to do it with 20 people and you want to double your operation, you're going to double the amount of people in the same space. No, it's going to be like an ant farm. It's going to be chaotic.

And also, you're not getting anything back for those 40 people because you're having to pay all the wages, etc. So the best way to look at it is, okay, how do I execute that growth? Can I execute that growth with the same amount of people? Yes, by investing in some technology which can help make those people's jobs better. I'd also say as well, like if a lot of what we're seeing, especially say Sydney, a lot of the warehouses are moving out west.

into more rural areas where land is cheaper, there's more land, you've obviously got Western Sydney airport opening as well, and the labour is even going to get even more sparse. And so the people who are going to work in the warehouses that you're deploying, if you've got four on a block, and one of them has got automation, and that person can say, hey, I can kind of go to work and have a bit of fun, because it is more fun, realistically, it's more fun working in a warehouse with automation than it's not. And if they're paying just a little bit more per hour, all the workers are going to flood there.

So it's about, again, that competitive thing, staying competitive and being the one that people want to work as well as kind of putting it into the business case of you're able to grow without having to go and hire all these people. You can keep the team that you've got and get them good at what they're doing. 

Amie:

Which makes sense and very well put. Can you walk us through an example you've seen of a retailer that successfully sort of cracked this scaling code, and the real, I like to call it, aha moment in their approach that changed their trajectory?

Katie:

Yeah, so we worked really closely with the team at ASICS. So ASICS, ASICS Oceania. Well, I hope most of us know the brand. 

Amie:

We should know them, yes. 

Katie:

You should do. You should do. Not everyone, but most. And so they're based out of Marsden Park in Sydney. And in about, I think it was 2014, they moved into this new facility. And they said, right, we know we want some sort of automation. So they were like, right, OK, we don't know what it needs to be. We'll go out and have a little look. So we ended up putting in just a quite simple sortation process for them. And it was kind of through the middle of the warehouse. And it allowed them to pick and dispatch to all of their retail fulfillment stores. 

So they're able to do their retail operation without people having to walk all the way up and down the warehouse and sort to all the different stores. They're able to do this and it was really nice and easy. That took over in takeover, sorry, means, so it was finished build, the build was finished in March 2020. So what happened in March 2020 for most retailers? Not a fun time. So what did they use instead? So they managed to, throughout this process, use it to boom their e-com business. 

So they took something for what it was completely not purposeful and managed to build and fulfill their operation throughout COVID so that it basically grew the whole of the e-com business as well, which was, I know it's a perfectly timed story, but also it meant that they got a payback of that solution within six months because they were able to completely utilise it and they used the smarts in it as well. So they had a team who they've kept there and that they are all quite local, really good team and so they were like, right, we love working here and they've stayed. We have actually just finished building a whole new extension to this because they had an extra part of the warehouse because the econ business was able to grow so much from that initial investment that they've done a whole different system which allows them to do their wholesale, their e-comm, and use the existing system to together. 

We have managed to grow that so they've doubled the capacity within the same space. They've reduced the cost per unit per everything that they handle. They've taken on new SKUs. They are able to do weekends, like the Sydney Marathon, they sponsor the Sydney Marathon, where they did like 50,000, 500,000 units in one weekend, which is a crazy number.

But their smart investments where they said, okay, we do this, this would give us the payback, this is why we need to do it, has allowed them to grow and completely execute this new omni-channel operation, which I don't think if they had not done that first sorter and made that jump, because it's quite a big thing for them. Like it was the first kind of big automation system for ASICS globally. So for them to be able to do that. That was one of our favorite examples. I love telling that story.   

Amie:

So that ASIC example of the six month ROI, that is a very fast turnaround, I'm sure. Can you give us a little bit of an indication in terms of what that return on investment journey actually looks like? 

Katie:

Yeah. So we will always aim for a payback between three to five years. And we think that makes sense for businesses. Very, very large scale businesses that are happy with seven years plus different ballgame. For say like mid to small level retailers I would say a three to five year payback is what we're aiming for. Anything which is under that is fantastic but probably a little bit unrealistic. I'd say we need to look at the kind of the long-term vision when it comes to payback because once you have finished that five years and also bear in mind it's probably going to take one to two years to build anyway, once you get to the five years you're completely laughing. Like that is complete money in your pocket because you're just going to run and run the system. There's a capex and an op-ix that are part of this, but the op-ix will always just keep the system running, but once you've done that initial investment, and that's the way that we tend to look at it. 

Amie:

Looking ahead, what does the next evolution of automation look like? Are we talking pure AI, machine learning, driving decisions? I think that's an obvious one. When I was doing my research, I learned about the word co-bots. Did not know. It did not know about co-bots. I do now. Working side by side with humans. What does that look like? 

Katie:

So I think probably many people like you look and they go, like robots, like humanoids. This is really cool. We love it. It's probably actually a lot simpler than that. We are seeing something which is quite a big trend from say the last 10 years, which is all around flexibility and scalability of systems. Because I think traditionally automation systems have been quite static where you put them in and that is fixed infrastructure. It has to stay there and then they've grown and gone- that’s in the way now. 

And I think we're living in quite unpredictable times, especially with with e-com growth and retail. Like we don't know which way it's going to go for retailers. Like we can try and grow both. So being able to have technologies which are flexible with business growth is the biggest thing. 

Amie:

Which makes sense. 

Katie:

Yeah, there's a shift from putting things into our houses that are stuck. There's a big change towards systems that can move and adapt and actually the disruption to an operation. If you grow and you'll say retail grows 10 times faster than your e-com and that's not what you planned, that it's not going to hinder your investment. You can repurpose it to a new operation. So as much as I think the co-bots and stuff are lovely, they are fun. They're actually not as suitable for everybody as we think. 

Amie:

And that makes sense, but it was very interesting. 

Katie:

We do look at them. We look at them because a lot of customers say like we've seen this, we really like it. Yeah. And so we go, well, we can investigate it for you. And I always like it because it's fun. 

Amie:

No, but it does make sense to, I mean, it seems like it's never a one size fits all solution. Right? So it does make sense to develop, what do we call them? Systems. Systems that are flexible to needs because at the end of the day no retailer's needs are going to be exactly the same at any one time. 

Katie:

And staying competitive I think is quite a big thing as well because we all like it. You, again you would return to your favorite shop when you open up a box which is maybe like nicely wrapped. I don't know I like it when I get them wrapped in tissue paper and there are stickers on them and that's my customer experience. Things like sometimes the cobots can take away personal experiences that only a person being able to pack a box is able to do.

So there's still an element of personal touches which will always be needed by humans in order for certain customer experiences. 

Amie:

That makes sense. All right, so to wrap up, what is one essential piece of advice you would offer? It could be a founder or CEO who's acutely aware they have a serious fulfillment problem right now and need to scale but are currently frozen sort of by the fear of making that first step?

Katie:

I would say reach out to a few people like us. Reach out and find somebody that you gel with. Find somebody that you've made a really good connection with who will help you on the journey. Because say you cast the net to like five or six people, you're going to find you've got a connection and you work with the ethos and the morals of certain businesses. And you will find the right partner because they will help you with what you need.

And they aren't just going to shoehorn you into a technology that works for them because they need to do X amount per year to fill their water books. You're going to find somebody who's going to hold your hand and walk with you and be that partner that you're going to need in the long run. Because we often joke and say these are not transactional relationships. These are long-term marriages. Sometimes we spend more time on the phone to our partners than we do our own home life. So find somebody that you click and understand and that you feel like they've got your business. 

Because if they understand your business as much as you do, they are only going to help and hinder and grow that business with you. So you can have three people that do the same thing. Because we kind of all do something slightly different. But find that one person who really gets you and has taken the time to learn and understand your business more than anything. That would be my one piece of advice to say, if you're going to jump and do it, just take some time to find your partner.