Last updated on May 18th, 2016 at 09:06 am
Team Invisible Hands, one of two USC Food Industry Management (FIM) Program teams chosen to present their capstone projects at the Western Association of Food Chains (WAFC) convention in April in Hawaii, wants to drastically change the way grocery stores operate.
With the rise of online and high-tech retailers like Amazon, the average brick-and-mortar grocer is going to have to find ways to keep up, and Team Invisible Hands believes that automated shelf replenishment is the answer.
“The industry as a whole hasn’t made any major advancements or significant technological changes since the introduction of the UPC bar code in 1972,” said Victor Farr, a project manager with Natural Markets Food Group. “We realize there has been progress made, like self-checkout and click-and-collect, which has really been great for the industry. But they still don’t tackle those operational challenges that we face every single day.”
The operational challenges the team argues are dragging down the industry include labor, out-of-stocks and shrink, which cost grocers $100 billion per year, according to the Food Marketing Institute and Nielsen. But using the automated shelf replenishment system the team has designed, Invisible Hands says retailers can cut non-perishable shrink in half, decrease labor costs (without letting go of workers) by 15 percent, increase sales by 6 percent and “ultimately double your profitability.”
The team’s system has two parts: one that automates the backroom and one that stocks and maintains products on the shelf. Retailers can utilize just the backroom system for some of the benefits, or invest in the full system to take advantage of all the savings Invisible Hands describes.
Don’t waste any backroom time or space
The first step of an automated backroom system doesn’t change, said Shawn Wolek, a high-volume store manager with Fry’s Food Stores. “The truck shows up at the back door, just like it does now.”
But then each pallet is placed directly into the team’s envisioned sorting machine, which breaks it down, separates it and scans in the product.
Once it updates the inventory balance, the machine will determine which items stay in the backroom and which need to be moved to the sales floor. Products that are staying put will be moved to their designated location in the backroom—anywhere from the floor all the way to the ceiling, allowing retailers to make use of previously unreachable space.
An organized backroom with no wasted space alone will cut retailers’ costs, says Invisible Hands, thanks to a decrease in overstocks and greater control over working capital. And because employees will spend less time in the backroom, the team also expects employee theft to decrease. Potentially the biggest benefit, however, is the system’s ability to handle click-and collect.
“With backroom automation your stores will have the ability to become mini distribution centers, which will set you up perfectly to begin offering click-and-collect services,” said Jeanie Goodrich, a pharmacy coordinator with Smith’s Food & Drug.
According to Wolek, the machine will take online customer orders quickly and accurately—without taking labor off the sales floor to do it.
What happens next to sales floor-destined products depends on whether a retailer is using Invisible Hands’ whole system or just the backroom half. For stores without the full system, the machine will load the products onto carts, organized in the most efficient way for a store’s individual layout and with the exact number of each product needed.
Free up employees for customer service
For retailers that opt for Invisible Hands’ whole system, instead of sorting items onto carts for employees to shelve, the machine will “shuttle that product, via the ceiling, to the sales floor, drop it in between the aisles and fill the shelves from the back… It’s going to be constantly pulling your back stock and filling your shelves 24/7, even when the store is closed,” said Wolek.
This system also will automatically rotate product, helping operators maintain a first-in, first-out inventory at all times, added Goodrich.
“That’s really going to help us decrease our out-of-codes because you will be turning inventory more quickly. One of the benefits you will see with automated replenishment is a need for less quantity and number of facings of each product on your shelf at any given time.”
Because retailers will need fewer facings, they will be able to increase product assortment.
The biggest benefit, though, says the team, is the decrease in pallet stocks, which will immediately boost sales.
When the system is not replenishing product, it will be conditioning and facing the aisles, making stores “grand open-ready anytime for any customer at any hour.”
Invisible Hands also hopes that the system will increase employee satisfaction—and decrease costly turnover—by allowing employees to spend more time on meaningful work, like assisting shoppers.
An automated system also will allow store operators to save on workers comp since store employees won’t be spending as much time stocking.
To remodel an existing store with its system, Invisible Hands estimates an upfront cost of $2 million and annual maintenance costs of two percent. The team believes the investment would be well worth it, raising the average store’s profitability from 2 to 4.2 percent.