Coles warns suppliers to lift their game as automation looms

Coles is whipping its grocery supply chain into shape as it prepares to transition to its hi-tech, fully automated distribution centres.

In 2019 Coles inked a multi-million-dollar deal with global online grocery specialists Ocado to construct state-of-the-art customer fulfilment centres in Sydney and one in Melbourne.

Coles is whipping its grocery supply chain into shape as it prepares to transition to its new $150m hi-tech, fully automated distribution centres, and has warned its suppliers it will be ratcheting up inspections of pallets delivered to its doors to minimise waste and inefficiencies in the system.

The nation’s second-biggest supermarket chain has reminded suppliers in a new directive, obtained by The Australian, that meeting these delivery standards, which especially relate to the packing and presentation of pallets, was a requirement of doing business with Coles.

Inspections of supplier deliveries will be increased from mid-September, Coles has told its suppliers.

“As we continue modernising our supply chain and introduce automated DCs (distribution centres), complying with our supplier standards is becoming more important than ever,’’ Coles chief of commercial and express Greg Davis told suppliers in a recent communication.

“Not only is it a requirement of doing business together, it also leads to faster turnaround times and avoids the costly and unnecessary effort of rejected deliveries.”

By reducing the number of pallets and deliveries rejected, Coles hopes to remove inefficiencies from the supply chain as well as costly waste around sending pallets back to suppliers. This will also help reduce the strain on the Coles automated distribution centres that are set to open in 2023.

In 2019 Coles inked a multi-million-dollar deal with global online grocery specialists Ocado to construct state-of-the-art customer fulfilment centres in Sydney and one in Melbourne to almost double Coles’ for home deliveries from online orders, making it a leading player in the online shopping sector. But to maximise the rewards generated by switching to an automated customer fulfilment centre there needs to be a reduction in poorly packed and labelled pallets, and Coles is now asking its grocery suppliers to meet this challenge as a condition of trading with the supermarket.

Coles believes if it can get this right now and have all suppliers on-board before the Ocado centres open it will smooth the transition to the automated distribution centres.

In a letter sent to suppliers, Mr Davis said these compliance standards were crucial as the supermarket worked towards its automated sites.

He reminded suppliers that in earlier communications and Coles supplier forums the supermarket chain had provided updates on its automation programs, reinforcing the need for improved compliance.

“We appreciate your support as we drive to improve compliance. From mid-September we’re increasing inspections of inbound deliveries at DCs which may result in more rejections. Non-conforming deliveries will be reported in your monthly Dashboard and can be discussed with your Coles contact.”

Mr Davis said the most common issues around compliance included unstable pallets, lack of pallet stabilisation, carton integrity, nonconforming pallet configuration and the incorrect placement and/or format of labels.

Under the agreement forged with Ocado, Coles will gain access to Ocado Smart Platform technology, offering a leading online grocery website, automated single-pick fulfilment technology and home delivery solutions.

Each centre has an estimated sales capacity of between $500m and $750m per annum.

Capital expenditure, inclusive of upfront Ocado fees, is expected to be approximately $130m to $150m over the four-year ­development and construction ­period.