Working the assets

by Emily Atkins

In July the LCBO, Ontario’s liquor retailer, launched its e-commerce platform, with almost 5,000 products.

Customers can browse, buy and have their beer, wine and spirits delivered to any of the retailer’s 654 local stores—for free—or to their home for a $12 fee. LCBO is committing to deliveries within two to three days to homes and four to 12 days to stores. Canada Post is handling the residential deliveries.

MM&D had a chat with Nick Nanos, LCBO’s acting senior vice-president, logistics/quality assurance division, to find out how e-commerce will affect operations, and how it will evolve.

The primary objective in the launch, Nanos says, is to leverage the LCBO’s existing supply chain (for more coverage of how this works, see MM&D’s November-December 2015 issue, page 18, or online at www.mmdonline.com/features/142871/).

What this means initially is fulfilling e-commerce orders directly from the flagship store on Cooper Street in downtown Toronto. There are about 4,000 products stocked in the store, he said, and another 800 to 1,000 that are in the consignment warehouse immediately adjacent.

This is allowing the LCBO to offer products online that are not sold in stores, opening up opportunities for new, smaller producers to reach their customers.

Cross-docking in Durham
With an average of 250 trailers on the road every day, and about 475 store deliveries, with trucks going back and forth from the flagship store on Cooper Street to the main DC in Durham, it allows e-commerce products to be picked at the store and adjacent warehouse, then cross-docked at the DC and shipped out to stores very efficiently. The four to 12 day timing for orders depends on the individual store’s replenishment schedule and product availability.

The Canada Post orders are picked at the Cooper Street location and collected at the back door for delivery. Canada Post is not offering temperature-controlled deliveries at his point; Nanos notes that the SAQ in Quebec has been doing this for several years, also using Canada Post, and has not had any issues with product spoilage. The use of smaller delivery trucks on shorter runs mitigates the risk of the orders being exposed to temperature extremes.

“We had those processes in place, we have the infrastructure in place, we have the fleet in place going back and forth between the DC and stores,” Nanos says. “So it was a means of building a system that enabled us to leverage the supply chain to deliver. We’re very confident that not only is that a good business decision from a efficiency perspective, it really does provide an endless aisle.”

A flagship in every town
Customers have reacted extremely well to that newly expanded choice. “Comments are coming in from people in remote areas saying ‘Oh my god, I now have access to all these craft beers that I never had in the past. I now have access to all these exclusive programs’,” he says. He likens it to almost having a flagship store in every community.

Phase one is planned for the first 18 months, with up to 16,000 different products on offer by 2017. After that, Phase two will look at leveraging the organization’s global reach, taking advantage of its network of buyers and the constant flow of containers to avoid having to hold inventory.
Nanos says customer access will increase tenfold without having to expand capacity in the DCs.

As with any retail operation, the LCBO faces the challenge of dealing with SKU proliferation. And although Nanos notes that competition is not something people often associate with the LCBO—being the liquor monopoly it is—he says it is a competitive marketplace with consumers demanding “a wide variety of ever-changing products.”

This makes it a challenge for any logistics manager to come up with the means to manage stock and mitigate the proliferation of SKUs. “As my first manager used to say, ‘You don’t have rubber walls in that DC,’” Nanos laughs. “E-commerce solves that.”

Efficient startup
Nanos also notes that the initial approach, of leveraging the systems, and capital equipment they already have has made the e-commerce experiment very efficient. The startup cost was $8.3 million, largely spent on IT development.

As the experiment progresses, Nanos says, plenty of metrics will be assessed. Cost-per-case is a big one in the DCs, along with cube utilization on the freight side. He also points out that expensive inter-store transfers—where customers could have product in stock at one store expedited to another for them—will drop off, as the e–commerce system becomes the means for customers to access product that’s not immediately on hand.

While he’s clearly very pleased with the initial launch, Nanos points out that it will probably be up to three years before the LCBO really knows how big the e-commerce business is going to get.

“We wanted to see how the e-comm sales were and how they are going to grow before we started investing in different technologies,” he says.