Bringing the distribution operations together has yielded major savings, says Liam McLoughlin The revised Somerfield logistics operation created by the merger faced one overriding problem ­ there were too many distribution centres. Consequently, some rapid pruning was needed to get the system up to full speed. Post merger, there were 32 stock holding locations, including 28 depots and four smaller points. The Somerfield chilled depot at Broxburn was closed in November, leaving 27 depots. Last month the multiple announced 15 more will close over the next three to four years. This will bring the total to 12, which will be augmented by the building of two new ones ­ one south east of London, and the other in the north west. Bosses say the shake up will lead to an overall increase of 300 new jobs. In England and Wales, the Kwik Save Wellingborough depot will become a focus for the slower moving lines. This is one of only two composite depots together with Pitreavie, both formerly Kwik Save operations which could handle ambient, chilled and frozen products. To tackle this a dual approach was taken, according to group supply chain director Simon Hughes. Somerfield worked closely with Exel Logistics to establish the right strategic approach to distribution with several months of detailed computer modelling of the volumes needed in ambient, chilled and frozen. "Firstly we identified short-term tactical savings that could be made, then we prepared a five year strategy," says Hughes. "We shut the four small delivery points down by October and took the decision to invest £1m in the Kwik Save depot at Pitreavie and we closed the Broxburn depot in November as a result of that. "I think that too showed a merger benefit in that it was a Kwik Save depot we were investing in. For the Kwik Save people it must have seemed like the merger was all one way, but in this case the right solution was to save money by delivering from Pitreavie." Hughes says one of the first things identified after the merger was that around 300 of the KS stores were receiving prepacked produce through a somewhat improvised network, as the approach to produce had been to use concessions. "There were 300 stores where they didn't have a concession and so you could only get a very narrow range of fresh produce through those stores. "Somerfield had a decent system for supplying produce so we shut the four Kwik Save delivery points quite quickly which gave an improved produce offer in those 300 stores through a cheaper supply chain." The capacity of the former Kwik Save centre at Sherburn near Leeds was also boosted to take on extra capacity from Wellingborough. Before the merger all of Somerfield's crisps and Kwik Save's sugar were delivered direct to store by the suppliers. Now the company has started to trial delivery of crisps through its Ashton depot. Hughes explains: "We have achieved all of sugar and, as the strategy unfolds, we expect to take all our crisps through the depot as well." He says the depot based approach will lead to benefits in cost savings and reduced stock holding further down the line. "We promised the City we would achieve £2m of savings in the first year and we have comfortably beaten that, plus we are on target to beat the £5m annual savings promised by year two." In terms of the outlay needed to integrate the Kwik Save and Somerfield operations, Hughes says he expects it to be cost neutral in the first two years of the strategy. The biggest challenge in the merging operation is that much of Kwik Save's business is ambient whereas Somerfield sells a lot of chilled products. Consequently, as the merger has proceeded, more chilled storage space has been needed within Kwik Save as they convert to Somerfield stores. Meat and green grocery are done as a concession at Kwik Save and not in house, and Kwik Save stores generally have less storage space and need more frequent deliveries. In terms of stores, Hughes says the company now has considerably more drop points than any of the other multiples "We would welcome more flexible delivery times ­ 25% of our 1,400 stores have restrictions on delivery hours," says Hughes. Somerfield has raised the issue that frequently restrictions on delivery times can prove counterproductive with a detrimental impact on the environment "Most emissions come from traffic jams and it would be much better if you could deliver out of hours with bigger vehicles." Hughes says the company needs to work hard to bring the culture of the two organisations together. "We need to take the best of both to get something that is stronger than the two on their own. Hughes sums up: "I really think that all things considered the teams have done a fair job and laid the foundations for a bright future ." {{Z SUPPLEMENTS }}