Woolworths is set to take the wraps off a new $215 million fully automated distribution centre that promises to deliver a step-change in cost savings and productivity when it goes live in the next year.
The state-of-the-art distribution centre in Dandenong South in Melbourne – which is owned by Charter Hall and leased to Woolworths for 20 years – is close to reaching practical completion and is expected to be fully operational later this calendar year or early in 2019.
Woolworths has yet to release details about the distribution centre, which is the largest in Australia and features the nation’s largest solar installation and more than 14 kilometres of conveyors.
However, analysts have started crunching the numbers and believe the facility could save Woolworths at least $45 million in annual operating costs, increasing pressure on rivals Coles, Aldi and Metcash’s IGA retailers.
“Woolworths is taking a major step forward on costs with this automated warehouse,” one analyst said.
The facility, which sits on a 15.9-hectare site 35 kilometres south-east of the Melbourne CBD, will stock more products than Woolworths’ Brisbane and Sydney distribution centres combined and will supply most of Woolworths’ stores in Victoria.
The Dandenong facility combines technologies used in the traditional logistics industry and those in manufacturing and postal systems, including multi-storey racking systems, robotics and high-speed conveyor and sorting systems, to sort and distribute stock faster and with much greater accuracy than traditional warehouse technology.
Analysts say perhaps the most valuable feature of the new centre, which will operate 24 hours a day, seven days a week, is its ability to pick cartons off shelves and load them onto trucks and pallets in the right sequence to meet the specific needs of stores.
The major cost savings are in labour, both in the distribution centre and in stores.
One analyst estimated the distribution centre would require about 100 staff, a fraction of the number at Woolworths’ Broadmeadows distribution centre in Melbourne.
“The more material saving is in the back of the supermarket,” the analyst said.
“There could be 10 or 12 people in the back of store breaking down pallets and putting them on roll cages [to take to aisles].
“If the goods come in already largely sorted so they can be pushed out to the right aisle … you could save a significant proportion of the people at the back of the store.
“Woolworths hasn’t talked this up … but they could save four people per store, that’s 800 people [in Victoria, based on 200 stores].
“That’s a major saving and it’s something competitors will have to think about.”
Another major saving will be in energy costs. The facility will house Australia’s largest commercial solar installation and will generate solar power equivalent to 250 homes.
In a recent report, Woolworths’ distribution design centre manager, Michael Lucas, said that due to the scale and complexity of the new systems Woolworths might need to test the facility for 18 months before it goes live.
“It is the largest single investment in infrastructure in Woolworths’ history and it is expected to deliver significant safety, efficiency and productivity,” Dr Lucas said.