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Order consolidation at root of M&S DC problem

23 January 2015

As the online retail boom hit new heights in the run up to Christmas 2014, Marks & Spencer delivered poor performance in online sales. This happened despite massive investment in a new automated DC at Castle Donington that is dedicated to eCommerce.

M&S was unable to deliver some orders within the timeframes it had promised. The sluggish fulflillment operation caused damage to the retailer’s reputation as well having a serious impact on its quarterly figures.

The disruption caused the company’s dotcom performance to go from growth in October and November to 6% down for the quarter.

The knock-on effect in the third quarter of 2014/15 was general merchandise down like-for-like by 5.4% and overall group sales down 1.6%.

While part of the dip was due to unusually mild early winter weather, much of it was down to fulfillment problems.

Some press reports have even suggested this disruption at the DC could cost M&S boss Marc Bolland his job.

But what was at the heart of the problem?

Bolland told investors this lay in picking and packing at the new DC and kicked in after Black Friday.

He said: "This is the first year we have faced Black Friday and the first full Christmas the Castle Donington DC [has tackled].”

The problem M&S had was not just about volume but order combinations.

Bolland continues: "During the year you don’t get the order combinations you get at Christmas, and this was a problem. Christmas is the most complex time for assembling orders, for example you might get a tree, dress, and wrapping paper combined in one order.

"There were two issues - picking and packing. For picking, we needed to change the settings of the automated system to improve the flow of goods. We have done this.
"In terms of packing, we need to add flexibility to our packing benches.

"They are right for the operation. They are highly efficient, they are good for handling both hanging and boxed goods. However, we have seen we need more flexibility here, and have started to add this, with more improvements to come.

"We were back to meeting our delivery promises in the run-up to Christmas.”

Bolland stood by the 900,000 sq ft Castle Donington facility, insisting it was the right option for M&S in the long term.

"This is an advanced DC and we’re convinced it is the right approach for the future, to have all of the products [for eCommerce] in one place is best for availability and cost control.

"I also hold my hands up. The fulfillment challenge was difficult to achieve but we didn’t get it right. But in terms of strategy and investment, are we on top of the logistics issue? Yes.”

Bolland also played down suggestions that M&S could have prepared better for the pre-Christmas peak, insisting that the retailer had a strong performance during a cyber peak in early November.

"The Christmas complexity was something we simply could not test for,” he explained. "We could only experience this high speed when it happened in reality.”
The DC at Castle Donington is part of a far-reaching plan to revolutionise logistics at M&S. When it reaches its completion (projected for 2016/17) M&S will have six sites, down from 110 warehouses.

"Castle Donington is the most difficult site as it is highly automated and eCommerce focused,” said Bolland. "The remainder of the sites are NDCs and will not be fully automated. The risk level is much lower.”

Despite the problems, the Castle Donington DC handled 10 million singles last quarter.