Back to the future
29 April 2019
Two-man delivery specialist ArrowXL has lifted itself back from the brink following a near catastrophic fire at its important Worcester distribution centre. HSS editor Simon Duddy talks to the team at Arrow to hear how they recovered, and how they took the opportunity to revamp operations.
In April 2017, ArrowXL’s hub in Worcester was completely destroyed following a fire. The delivery firm quickly opened a temporary hub in Chepstow, and an interim hub in Droitwich Spa but plans to re-locate back to Worcester to a brand new DC by September. CEO Charlie Shiels says the new DC will be “the best two-person facility in the UK”.
I visited the team at the interim hub in Droitwich Spa to see how the rebuilding process was going.
Peter Scraton, operations director at Arrow XL took me back to the immediate aftermath of the fire.
“The alarm went off. We came out of the building and within half an hour the building was well ablaze. Nobody was hurt but we knew we'd lost over 40% of our network.
“For a lot of businesses this would be the death knell, but the senior leadership team camped in a Beefeater restaurant meeting room and put together a contingency plan, challenging ourselves to get the business back up and running in a week.”
Within 24 hours Peter and the rest of the leadership team stood in front of the whole of the Worcester workforce and told them a facility in Chepstow had been acquired, and with the transport yard in Worcester untouched by the fire, these assets would be used to restart the business.
Arrow transported workers from Worcester to Chepstow to support this.
“Everyone chipped in,” adds Peter. “It was a real team effort. Gradually over 6-9 months, we got back to normal.”
Arrow knew Chepstow wasn't suitable in the long term, so acquired a larger facility in Droitwich Spa, but its long term plan was always to rebuild the warehouse in Worcester.
“I am very proud of that because I don’t think many businesses would have reacted like this to catastrophe and I think the workforce have been hugely grateful.”
It’s a remarkable story of recovery, made all the more so because 3PLs typically run on a knife edge at the best of times.
Peter is candid, saying ‘the operating costs of the network account for 90% plus of everything we do’. With margins tight, the onus is on the business to drive efficiencies in any way possible.
Add to this, fast changing consumer buying patterns that are driving the volume and nature of the business for Arrow, and you have a heady and potentially overwhelming brew.
Peter explains: “We are in a digital economy and the consumers are very demanding. So in turn, our clients want more for less. And that puts big challenges on us, in how we generate profit. We have to get it right and it's constantly evolving.
“If we don’t keep on top of the cost structure and combine it with the ability to provide a first class service, we will not be able to attract new business.”
Like all logistics businesses, Arrow has had to react to seismic changes in the UK, as the decline of the High Street has been driven by the digital economy. This has led to an upswing in demand for two man delivery as the general public is far more relaxed about buying big items online than it was even five years ago.
A related change is that retailers who might carry out these deliveries themselves with dedicated fleets rarely do it these days, because the market is Peak driven and it is very expensive to run a dedicated network.
“One of our selling points is we run a shared network so we carry multiple clients on a vehicle,” says Peter.
Even within the bubble of the online retail boom, nothing stand still. Perhaps the most stark example of this is the changing importance of returns.
Over the last few years, returns has. Mutated from an afterthought to a front-of-house solution when talking to clients or prospective clients.
“When you to go to a customer you put a product in and you take a product out,” says Peter. “It has become almost as important now as a delivery.”
The extend of the returns issue can vary greatly by product.
“If you take mattresses, we have a number of big clients like Simba, and these guys run offers so people can buy a mattress, have it for 90 days and return it. The consumers get wise to this. So you know certain products are more likely to come back as a return.
Arrow once had a ‘clunky’ returns process. It is still looking to minimise the number of scans needed to get products back in stock. The average returns process takes 7-10 days, and Arrow aims to get it down to market standard, which is about 48 hours. Part of Arrow’s plan is the implementation of an IT solution called Single Account, which will help reduce the number of touchpoint needed to a single scan.
“We are looking to have a standard process across the business that is simplified and redefines how we grade the product. At the moment, each hub has a slightly different process,” says Peter.
“We’re looking very closely at centralising our returns process. We see the gains here as streamlining and leveraging the scale of the operation. It makes it easier to drive that SLA down. We will analyse the data as the benefits must offset any potential extra travel costs. Fundamentally, we’ve probably got 12-18 months to significantly reduce returns processing time to keep us competitive.”
As well as returns, the sharp peaks of online retail, are guaranteed to keep any logistics business on its toes.
Luke Barton, general manager of the Droitwich DC, says the most recent Black Friday didn’t see a gradual build up, which tends to mean consumers were waiting for the right deals.
Peak was sustained into December, with a quieter period between Christmas and New Year, then a jump again for the sales in January. In contrast, the Easter peak is more of a plateau and more heavily dependent on the weather.
Luke explains: “The challenge is how you manage the volume. Understanding the forecasts and what that product mix looks like and then making sure we work with the central operation to manage the scheduling so we can get it processed and back out. It helps that most retailers have got a lot better at forecasting.”
Interestingly, Luke explains how it isn’t just a numbers game in terms of getting staff in for Peak.
“Motivating people through those peak periods is a challenge, it's very people centric. In November before Black Friday, I stood up in front of all our people and talked about what was coming and let them know what was needed. We engaged with staff and they're bought in. Now, I walk through the warehouse and people ask me about volumes. If you don’t engage, then people may not understand how important Peak is to the business, and that becomes a massive challenge,” he says.
Recruitment is a major challenge for Arrow, although the size of the challenge varies greatly by region, with London posing the toughest questions.
For example, an advert for a warehouse operative in Enfield may receive 120 applicants, but Arrow counts itself lucky if 15 are suitable.
“I’m a firm believer that you recruit for attitude and then you can train the skills,” says Peter.
But in general terms, it is easier to recruit warehouse operatives than HGV drivers.
“They are becoming a dying breed. We don't get many applicants. We may get 20 or 30, and if we get three or four that are suitable, we’ll be lucky.”
The majority of Arrow’s fleet is seven and a half tonne trucks, so class 2 licences are required.
“It’s a difficult life,” adds Peter. “They are offloading three tonnes of product and are expected to be a customer service agent in the process.”
Arrow opened a training academy last year, and runs a Warehouse to Wheels programme to find the drivers it needs. There are 40 people on the programme currently, recruited from the warehouse, vetted, and given psychometric tests. They go through a very thorough hiring process. Arrow then pays for their license, and puts them through a customer service training, as well as teaching them how to drive the vehicle.
“I think that'll prove very successful,” explains Peter, but he isn’t putting all his eggs in one basket.
“We’re also thinking of using three and a half tonne vehicles, particularly in urban areas. That's because you don't need a class 2 licence. So we can recruit customer service oriented folk and then train them in the hard skills.
“There's a whole heap of things we're looking at to recruit the people we need. For example, drivers can do 12 hour shifts for four days and have some time off. We are looking at making our drivers some of the best paid in the industry but we’ll be more demanding in what we expect from them.”
A primarily UK-based logistics operation, Arrow does not expect to be affected greatly by Brexit, but it has looked closely at suppler relationships.
For example, Arrow is replacing 100+ lorries and switched from MAN to DAF LFs.
“We chose it because it's a great truck - it is regarded as the best seven and a half tonne delivery truck on the market - but part of our thinking was these trucks are UK-made and 30 million spare parts are held in the UK.”
In terms of forklifts, Arrow did a deal with Unicarriers before Brexit was looming large but again it has gone back and checked with MHE suppliers to ensure they are well tooled up in the UK to maintain supply.
“We have gone through our supplier base to see if we are exposed in any way and so far, so good,” says Peter.
People are absolutely at the centre of the Arrow business, as far as Peter is concerned and this relates to decisions around senior leadership as much as recruitment challenges for operatives and drivers.
“As an executive director on the board, my main focus is people, the strategic shape of the network and process re-engineering. The biggest win for me is the calibre of people we’ve brought in,” says Peter.
“We've effectively restructured the senior leadership team. A number of very talented leaders has improved us exponentially. We're punching above our weight in terms of the talent we're bringing into the business. When I joined the business two years ago we probably got two nominations for employee of the month. We now have 70 on average.
“We've turned the whole pyramid on its head, moving away from this traditional command and control structure to have leaders in the business who will engage with their people.
“This has borne fruit in our controllable service and we've gradually weeded out the folk who don't want to be here.”
While many firms would have buckled under the pressure with a massive part of its capacity turned to ash in an afternoon, Arrow bounced back quickly, and then started to search for positives.
Peter explains: “We want to use the opportunity of a new site to leverage lots of positive change and use it as the benchmark for the rest of the network.”
The new 258,000 sq ft facility will be much better equipped than the one it will replace.
Luke Barton explains: “The new site allows us to make interesting decisions. For example, the old Worcester warehouse didn't have a mezzanine floor, but we introduced one to the new site which gives us a massive opportunity and extra capability to hold stock for clients.
“The new Worcester DC will also be twice as high – up to 14m – and we've got colleagues who are used to picking to 7 metres at most. We want to use technology by putting cameras on the reach trucks and get into the environment before we go live and train and coach them and get them familiarised.”
It also gives Arrow plenty of pallet racking and a flow-through area, as well as better loading facilities (the 24 bays will be able to take double deck trailers) and more yard space. It is purpose built for Arrow. The warehouse will have an L shape with separate inbound and outbound areas.
“In Droitwich, we retrofitted double deck pods on to the loading bays that allow us to use our double deck trailers, which is absolutely critical. We used Dock Solutions for this, and they also worked with us on the Chepstow site.”
The firm has also specified mesh decks and mesh shelving, to accommodate sprinkler systems. A sensible precaution given the fire at the previous Worcester facility.
Arrow uses counterbalance trucks, reach trucks and low level order pickers (with long forks and short forks). They are important because the stuff Arrow moves tends to be heavy and bulky. It also uses manual pump trucks but has introduced more mechanised equipment to reduce the risk of injury.
As mentioned earlier, the flow-through concept deployed by Arrow, which has some similarities with cross docking, is key to its success.
Luke explains: “With flow-through, product is brought only half way into the warehouse and not fully put away as part of a just-in-time operation. It has brought massive efficiency benefits.
There's also secondary benefits such as, if you don’t put product away, you damage less of it. You also have better stock integrity as well. If you can't find something in a warehouse it's already been planned on a delivery route and effectively that means the delivery route is going out sub-optimally. It’s about finding that sweet spot for bringing stock in when you are ready to process it.”
Margins in logistics aren’t massively high, so every penny spent has to be spent wisely. Arrow is just about to invest around £3 million in system changes. One is replacing an antiquated planning system with the Paragon dynamic planning system which uses live data to plan routes and optimise service.
Perhaps the jewel in the crown, in terms of Arrow’s rebuilding programme, is its Warehouse Excellence project, which is led by Peter. As part of this, the JDA Dispatcher WMS is being rolled across the business.
Peter says: “Interwoven with that, we are looking at warehouse layout, standards, signage, people organisation and leadership, it’s an end-to-end business transformation project.
“It will include returns. The idea is we have one warehousing model for the whole business and we aim for it to be world class within 18 months to two years.”
Arrow is working with consultant Davies & Robson on this plan.
Peter sums up the challenge well, both for the project, and arguably for the business, and indeed any logistics business when he says: “When you get the opportunity to spend capital in the business it's a prime opportunity to make fundamental change and I don't want to miss out on this. We've got to be dynamic, we’ve got to be proactive, we can’t stand still.”