Nisa’s new ambient distribution warehouse has had its share of problems, but retail members are now all set to share in the benefits. David Rees was given a tour.

Approaching the gleaming vista of the Bloom Lane distribution warehouse in Scunthorpe, you’d think it is more likely to be owned by NASA than Nisa. And you don’t have to be a rocket scientist to work out that the 625,000sq ft state-of-the-art facility has the potential to lift the group to previously undreamed-of heights.

Although the new warehouse is a short drive from the group’s old Foxhills headquarters on the opposite side of the same trading estate, it belongs to a different world. Not only is it massive - the depot floor spans 17 acres - but at a cost of £30m it is also massively expensive. But, there again, Nisa is in a race with its competitors, and it needs space to win it.

Room to move was certainly limited at the Foxhills site. Stock was squeezed into three different locations, making efficient picking difficult. As Nisa is a broad church including supermarket chains such as Booths and Proudfoots as well as c-stores, a range of about 9,000 ambient lines is required, so it was clear that the Foxhills agreement was not worth renewing and a new solution had to be found.

The solution was Project Vision, a purpose-built distribution warehouse. Progress was rapid - the project was approved by members in July 2004 and was ready 15 months later, having been at one stage the biggest single construction project in the north of England.

After a frenetic weekend moving stock the warehouse opened on October 31 last year. But, in hindsight, opening on Halloween may have been tempting fate, because the first couple of months turned out to be a real horror story.

Retailers were expecting the depot to make their lives easier, instead it made their lives hell. Stock was short and deliveries were delayed, sometimes by so much that retailers had to make a second order before the first one had arrived.

The Day One for Day Three cycle became in some cases, Day One for Day Five. There were gaps on shelves, and angry customers.

What went wrong was the logistics equivalent of the butterfly effect, whereby a small disturbance in one part of the operation led to massive disruption further down the line. For one thing, the rapid pace of the move led to some stock being stowed in the wrong bay. For another, there were tiny inaccuracies in the computer settings that control the timings of the picking operation, meaning that some orders couldn’t be consolidated in time to meet the dispatch window.

And once deliveries were turning up short or late, Nisa members upped their next orders to compensate, with the result that service levels in November struggled to reach 80%.

Group commercial director Neil Turton pointed out that retailers’ perception of the problem proved to be a more of an obstacle to overcome than the warehouse issues themselves.

“Normally, the maximum number of cases ordered in our busiest week is no more than 1.5 million,” he said. “We were getting 1.8 million. This volume made it more difficult to recover.

“But even in our worst week we still delivered more than a million cases. Had we been Tesco we could have recovered quicker by saying ‘No, you can’t have that much, have this much instead’ - but we’re not set up like that.”

But that, of course, is how Nisa eventually solved its problem, by temporarily imposing limits on orders. Service levels in December were about 90% and are now about 96%, with a mid-term goal of reaching 98%.

“It was necessary medicine,” said Turton. “We got it right before Christmas, with service level percentages the mid- to high 90s during the last week.”

Turton is “very sure” that the problems at Bloom Lane are behind them, and if he could have his time over there isn’t much he would do differently.

He said: “We know what caused the issues here, and they were all linked to moving and the period of stabilising after moving. We had 2.5 million cases of stock to move so you are bound to get some glitches in terms of making sure products are in the right place. In hindsight, we might have spent more than a weekend over it, but we tried to maximise customer service and took orders as normal.”
But, of course, it was the retailers who bore the brunt of the problems.

“Clearly, there was a disruptive impact,” said Turton. “A lot of cashflow and business plans will have been messed around by having to get stock from the cash and carry, but there haven’t been huge demands for compensation. Deep down, members cherish the fact that this is a mutual organisation and they all share the risks as well as rewards. We asked members what they wanted, and they said the priority was to rebuild customer goodwill, so we’re going to work on providing our best ever trading package.
“Some members were very upset, but most were pragmatic,” he continued.

“We expected Costcutter, our biggest client, to be very angry but it was absolutely fantastic. It kept its customer service department open on weekends and fielded calls from members, and Costcutter managing director Colin Graves also put the entire Costcutter sales team at the disposal of Nisa to work in the warehouse.”

As it turned out, this gesture was largely symbolic, as the warehouse procedures are so highly automated that more people does not necessarily mean more productivity. Staff need training to use the voice-controlled picking system, with each order generated by scanning a smart card. In fact, the only paper in the entire warehouse is the picking labels stuck on the side of delivery stacks.

Within the warehouse are three distinct picking areas - the main racking; a secure section for high-value items; and a bulk storage area for promotional lines on pallets.
Products from the secure area have to be picked first so that these items can be repacked inside strong tote boxes and placed at the bottom of the stack, with lighter items placed on top to give the delivery more stability and also make it a less attractive target for criminals.

Any opportunist thief trying to help themselves to a Nisa delivery would be lucky to get their hands on much more than quilted kitchen roll.

The warehouse management system also controls the optimum pallet heights and weight balances for loading goods into a lorry, and knows which customers prefer their deliveries in roll-cages rather than pallets. And despite all this complexity, the warehouse can pick 200,000 cases a day, often in units of one case - a source of amazement to some of the multiple grocer staff who have visited the site.
In short, Nisa members can now expect to receive on-time, reliable deliveries at a lower cost without having to cut their range back.

But the warehouse also signifies the transformation of the group into a new entity. It now owns a massive, technologically advanced unit, but it has had to borrow substantially to build it, making an investment bigger than the entire previous asset value of the company.

This borrowing means that a slice of future trading profits will go into interest repayments, but it has also put the group in a strong position, argued Turton. “When you compare us to other groups, we’ve done it and they’ve still got it to do.

“The model was always to replicate the economies of scale enjoyed by the multiples for the benefit of members, so retailers can now invest in their businesses knowing we have done this. The members finally feel part of something big.”