DC Velocity - IdeaBook 2015

located around greater London. The company’s full
name, John Lewis Partnership, reflects its ownership
by its 91,000 employees, who are called “partners.”
John Lewis is a department store that offers three
main lines of merchandise: fashion, home goods,
and electronics. It first began selling products online
about 10 years ago. In 2009 it pioneered a service,
called “Click & Collect,” that allows consumers to
order online and, in most cases, pick up the mer-
chandise in John Lewis retail stores as well as at some
Waitrose supermarkets.

Early on, an expansion of the company’s online product portfolio—more items were available online than in the stores—drove e-commerce sales growth. The expansion of the Click & Collect program into all John Lewis branch stores as well as consumers’ appreciation of its convenience further increased online sales, says Terry Murphy, director of national distribution center operations.

But the company struggled with some aspects of e-commerce fulfillment. When John Lewis first entered the realm of online retailing, it operated separate distribution centers for the online and physical store sales channels. That led to a somewhat convoluted and inefficient fulfillment process.

Back then, the retailer would receive products into the store distribution centers, and then send batches from those DCs to third-party-operated fulfillment centers. Some suppliers shipped products directly to the fulfillment centers as well. The fulfillment centers would put away those products and then pick and ship online orders for home delivery. If the online orders were intended for the Click & Collect program, however, the third-party fulfillment center would have to send those items back to the distribution centers so they could be loaded on trucks for delivery to the stores. “Trying to explain that was a little bit loopy,” Murphy says.

Concerned about the complexity of the process for
handling Click & Collect items, John Lewis in 2010
decided to redesign both its order fulfillment process
and its supporting infrastructure. The retailer elected
to shrink its network of 12 distribution centers to
either five or six “hybrid” facilities that would handle
fulfillment for both online orders and store replen-
ishment. (The company has not yet made a final
decision on the number of DCs.) “As our online sales
grew, what we wanted to do was be able to replenish
the shops and fulfill the online sales from the same
inventory,” Murphy says.

The changeover to a network of hybrid DCs will benefit the retailer in several ways. First, it simplifies the order fulfillment process, reducing time, touches, and costs. It also will allow John Lewis to carry less inventory overall. In addition, because the hybrid facilities are designed to pick individual items, or “eaches,” they support the retailer’s shift to a replenishment strategy that requires picking an item for each one sold and shipping individual items rather than full cases to the department stores. Without the need to store full cases at retail locations, John Lewis will be able to convert stockroom space into sales space, thus expanding the breadth of available store inventory.

OPEN SOME, CLOSE SOME

As of this writing, John Lewis is still in the process of determining the final shape of its network of hybrid facilities; the company expects to complete its network restructuring by 2016. According to Murphy, the retailer chose to make the conversion in phases due to leases on current buildings and the resources involved in carrying out the project.

At present, John Lewis has seven distribution centers—two dedicated to online sales, two for store replenishment, and three hybrid DCs up and running. Another hybrid facility is set to open later this year. All of the DCs ship to customers throughout Great Britain. “It is more cost-effective to have a national inventory rather than regional,” Murphy says. “We hold one single stock of each SKU (stock-keeping unit) rather than regional holdings of duplicate SKUs. This is because the United Kingdom is not too large to access each store each day.” It would also be expensive to replicate its inventory of 250,000 to 300,000 products in more than one DC, he adds.