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HEATHROW AIRPORT RETAIL CONSOLIDATION CENTRE

GOOD PRACTICE CASE STUDY

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RETAILERS USING THE CENTRE AS AT 31 JANUARY 2002

Accessorize Alpha Retail World News, Glorious Britain American Pie Austin Reed Bally Books Etc Brioche Doree Brioche Doree (Select Service Partners) Burberry Caffe Nero Carphone Warehouse Caviar House Chocolate Company Churchs City Centre Restaurants (CCR) Caffe Metro, Caffe Uno, Garfunkels, Est Est Est, Wendys Clarks Disney Escada Gifts4all Hamleys Hargreaves Sports Hargreaves, Nike (Hargreaves franchise) HMV Isanti La Senza Links of London Lush Mulberry Nuance Hugo Boss, Hermes, Bulgari, Quiksilver, Chocolate Box, China and Glass Pizza Express Pontis (Caffe Italia) Rolling Luggage Starbucks Swarovski

ACKNOWLEDGEMENT
Photographs: BAA Picture Library of BAA plc'.

Heathrow Airport Retail Consolidation Centre

BAA PLC

Significant reduction in the number of vehicle movements Improvement in air quality A green blueprint for others to follow

GOOD PRACTICE CASE STUDY 402

Tie Rack Wetherspoon Whittard of Chelsea WH Smith

Government's Energy Efficiency Best Practice Programme provides impartial, authoritative information on energy efficiency techniques and technologies in industry, transport and buildings. The information is disseminated through publications, videos and software, together with seminars, workshops and other events. Publications within the Best Practice Programme are shown opposite. For further information visit our web site at www.energy-efficiency.gov.uk or for buildings-related topics please contact: BRECSU Building Research Establishment Garston, Watford, WD2 7JR Tel: 01923 664258 Fax: 01923 664787 E-mail: [email protected] for industrial and transport topics please contact: Future Energy Solutions Harwell, Didcot, Oxfordshire, OX11 0QJ Helpline Tel: 0800 585794 Fax: 01235 433066 Helpline E-mail: [email protected]

Energy Consumption Guides: compare energy use in specific processes, operations, plant and building types. Good Practice: promotes proven energy efficient techniques through Guides and Case Studies. New Practice: monitors first commercial applications of new energy efficiency measures. Future Practice: reports on joint R & D ventures into new energy efficiency measures. General Information: describes concepts and approaches yet to be fully established as good practice. Fuel Efficiency Booklets: give detailed information on specific technologies and techniques. Energy Efficiency in Buildings: helps new energy managers understand the use and costs of heating, lighting etc. CROWN COPYRIGHT FIRST PUBLISHED MAY 2002

BEST PRACTICE PROGRAMME

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When we started this project our vision was to create a 21st Century logistics operation which would overcome the airports physical constraints and allow Heathrow Airport Limited to grow its retail business and fulfil its environmental objectives. To achieve our goal we needed a radical change to our delivery process, but recognised the need to involve our customers from the start if we were to succeed. We have developed an excellent working relationship with our logistics partner, Exel. They share our enthusiasm in not only making the current operation a success but in developing the product to extend to other parts of the airports business.
Brian Gibb, Security Development Programme Manager, Heathrow Airport Limited

BAAs challenge was therefore to find a new distribution strategy that improved efficiency and reduced congestion and pollution. Their solution was to establish an off-airport consolidation centre, managed by the logistics provider Exel on their behalf. This approach is proving to be extremely effective and won the prestigious Institute of Logistics and Transport Environmental Award 2001. It has gained increasing acceptance as the retailers serviced by the consolidation centre see the benefits for their organisations. This good practice case study describes the background to the project, its inception, progress to date and planned future developments.

The planned new Terminal 5 is expected to add another 450,000 sq ft of retailing space within the airport, which is approximately equivalent to 250 new retail units. If Terminal 5 were to operate on a similar basis to that used previously at Terminals 1-4, it would require 64 new delivery bays plus a substantial parking area. A lack of space in the proposed site for Terminal 5 prevents this from being a viable option. In anticipation of these plans for Terminal 5, Senn Delaney, part of Arthur Andersen & Co. performed a study of truck movements at Heathrow in 1996. They produced various proposals as to how the number of vehicle movements supplying retail units at Terminals 1-4 could be reduced. The study

Brian Gibb, Security Development Programme Manager for BAA Heathrow Airport Limited and inside the vehicle Simon Cockshull is Site Operations Manager for Exel, the contractor.

INTRODUCTION
BAA plc is the largest commercial operator of airports in the world. It owns and operates seven UK airports, which together handle over 100 million passengers each year. In addition to airport management, the companys core skills include retailing, project management and property management and development. Retail development within Heathrow airport has increased dramatically over the past ten years, but the infrastructure has seen little change to accommodate this growth. Congestion, both on airport roads and at loading bays, was a significant problem with 439 supplier movements to 240 retail outlets being made each day. Clearly with the development of Terminal 5, this congestion would only increase.

THE NEED FOR CHANGE

The delivery operation across Terminals 1-4 had evolved over several years and was no longer adequate to support the growing retail business at Heathrow. Particular problems included: An overloaded central terminal area and single tunnel access. Poor infrastructure. A lengthy and unpredictable delivery service.

evaluated various retail delivery options and reviewed both the planned infrastructure and new methods of approaching the delivery problem. Some of these solutions were taken from other retail practices world-wide. It concluded that the best combination of traffic volume, physical infrastructure requirements and delivery/handling costs would be met by the creation of a consolidation centre. The study recommended that this consolidation Between March and June 2000, Exel performed a trial of this off-airport consolidation method. Eight retailers volunteered to participate (including Bally, Tie Rack, City Centre Restaurants and Sunglass Hut / Watch Station) corresponding to some 40 retail outlets across the four terminals. The trial produced a 66% reduction in deliveries to the airport and good feedback from the retailers. The consolidation centre allowed more flexibility of delivery times, and staff did not have to leave their shops to collect packages from a central point. Other benefits included: A quicker turnaround of delivery vehicles at the consolidation centre Less pressure on hauliers regarding drivers hours regulations Better vehicle utilisation Easier start-up for new retailers within the airport After accepting the findings from the consultants report, BAA sought to develop an alliance with a key logistics operator in order to manage the supply of goods to the retail outlets in the airport. This partnership had four main aims:1 To improve methods of delivery to retail units 2 To reduce vehicle movements through consolidation of products 3 To improve handling at delivery point both on and off the airport 4 To improve management of packaging waste Following the success of the trial logistics companies were invited to submit proposals for the large-scale delivery of the scheme. The five-year contract worth 2 million per year was awarded to Exel starting in May 2001. Predictability / reliability of deliveries within agreed windows to both the consolidation centre and retail outlets Less in-store stock required due to quick, reliable replenishment centre be located away from the airport and that all retail merchandise and catering foodstuffs be delivered to it. The only exceptions to this would be newspaper deliveries and high value, high insurance cost deliveries such as cash / bullion. These items should be transferred into the airport directly by their suppliers. This option would also provide balanced benefits to all parties that use, or are affected by, the airport, i.e. retailers, airlines, flight service companies, passengers and

FOUR MONTH TRIAL

Exel delivering cage within Heathrow

These issues, together with growing environmental pressures and the potential requirements of Terminal 5, demanded a radical re-think of the previous operation.

Congestion at terminal 3 delivery point

the local community.

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OPERATION
Exel currently operate a 25,000 square ft warehouse at Hatton Cross with five vehicles (4 x 17 tonne rigid box-vans with tail-lifts and 1 x 3.5 tonne with tail-lift) and some 20 operational and clerical staff. Freight arrives at the centre in a variety of packaging from the suppliers. It is subject to security checks, caged and sealed ready for despatch. The seal is part of a DfT approved security arrangement that includes a Rapiscan X-ray machine, operated by trained Exel staff. The vehicles used to deliver goods from the consolidation centre to the airport are currently on hire to Exel but will be replaced by a new company owned fleet in summer 2002. This will consist of three tractor units and three urban rear-steer 11 metre box van trailers, with tail-lifts. Two trailers will be dual compartment, with a moving bulkhead, and fitted with electric fridge Thermotainer containing chilled product being loaded onto a vehicle motors to cater for chilled / frozen food deliveries from the cold store. When the Exel vehicle unloads at the delivery bay within the airport, an Exel employee brings the
Number of Roll Cages Delivered May 2001 Jan 2002

Some retailers also use Exel for the provision of additional services, such as: Overnight stocking Carrying a buffer stock that can be picked and delivered on demand Providing stock levels / records Receiving in bulk and breaking down for multiple deliveries Pre-retailing, for example, point of sale displays Seasonal stock-holding

A reduction in the number of vehicles passing through control points and driving airside, thus reducing the number of less experienced drivers on these airport roads. Flight operations (e.g. aircraft refuelling, baggage handling, flight catering) have been greatly enhanced by this reduction in congestion.

Faster deliveries being made to the consolidation centre by suppliers since there is less congestion on approach roads and fewer delays in off-loading goods and loading returns.

Security scanning at the Consolidation Centre There are some 240 retail units currently trading across Terminals 1-4 and Exels consolidation centre operation currently services 100 of these. The target was for Exel to service 10% of the total expected volume within the scheme by the end of Year 1, but this target was achieved within six months.

Retailers are charged per roll-cage delivered at a rate based on a cost-neutral position for the retailers, in terms of the savings brought about by consolidation. This process was adopted to maximise participation of retailers in the scheme during the first year of operation. Additional services are charged for separately. Exel have an open-book contract with BAA and charge a management fee for their services and expertise.

More frequent and scheduled deliveries to the terminal buildings, enabling retailers to know more accurately when goods will arrive, within agreed delivery periods. This helps a retailer to receive merchandise in a shorter time, something that is greatly appreciated.

Potential savings in both supply chain and staffing costs for retailers using the consolidation centre.

goods to the store (or stockroom) in a roll-cage together with delivery notes from both the supplier and Exel. Any stock that needs to be transferred between branches within the airport can be labelled with the new delivery address and will be delivered on the next visit to the named branch. A driver and usually two terminal staff man each delivery vehicle, which remains at a terminal until deliveries to all the retail outlets are completed. Security checking procedures have been embedded into the system at the consolidation centre, reducing the number of checks that need to be made for vehicles destined airside. All the delivery and terminal staff are screened for security. Deliveries can be scheduled to suit the retailers

BENEFITS ARISING FROM THE CONSOLIDATION CENTRE

In summary, Heathrows new consolidation centre has achieved: A reduction in the number of vehicles travelling to the terminals, thereby reducing congestion both within the airport and on the approach roads. These improved traffic flows within the airport benefit all airport users both in terms of reduced congestion and improved air quality.

ENVIRONMENTAL ANALYSIS
In the last week of January 2002 there were 115 inbound deliveries to the consolidation centre, each with an average turn around time of 12 minutes. The total time that suppliers vehicles spent at the consolidation centre that week was 115 deliveries x 12 minutes = 23 hours. Previously suppliers vehicles would have made up to four deliveries to the airport (i.e. one to each terminal). Each of these would take approximately 45 minutes to complete. Assuming that a single vehicle would have made an average of three deliveries to the airport, the total time taken by suppliers vehicles to deliver to the airport before the establishment of the consolidation centre Congestion at a control point in Heathrow

Number of Roll Cages 21 May

11 June

2 July

23 July

13 Aug

3 Sep

24 Sep

15 Oct

5 Nov

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16 Dec

6 Jan

27 Jan

preference. The consolidation centre is now open 24 hours a day, 7 days a week for deliveries and also provides onward transportation and delivery to the airport at any time specified by the retailer. Exel also collect and remove recyclable packaging waste, such as cardboard and plastic. The delivery staff are trained to ensure that they are aware of the environmental role that they can play.

Week commencing Rolling 12 wk average

A chilled storage facility (3,500 sq ft) became operational in November 2001 allowing the consolidation centre to meet the specific requirements of catering outlets by delivering chilled and frozen products. Previously, these products were stored in insulated containers (Thermotainers) that could be transported into the airport using non-specialist vehicles.

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would have been 115 deliveries x 3 drops x 45 minutes = 258.75 hours. This also assumes that there would have been the same number of weekly deliveries by suppliers as in 2002. This corresponds to a saving of 235.75 hours per week, which translates to a cost saving of 4,715, assuming a 20 per hour rate to cover the fixed costs of the vehicles involved. Annually this equates to a saving in excess of 245,000, based on current levels of activity.

Carbon Dioxide, the weight equivalent of 426 bags of sugar! Assuming that the average family car emits Carbon Dioxide at a rate of 180g per km then these savings are equivalent to those generated when the average family car is driven 2367 km or 148 x 10-mile journeys. Annually, 22.15 tonnes of Carbon Dioxide are currently being saved which is equal to the Carbon Dioxide generated by a family car over 123,067 km or 7,692 x 10 mile journeys. This reduction in journeys also saves 1.35 kg of

It is planned that in 2002 the staff responsible for delivering goods into the retail units will be based full-time within the terminals and will not travel with the delivery vehicle. Deliveries will then be made to a dedicated area within each terminal, where the full cages are off-loaded and then the empty cages and cages containing waste packaging are loaded onto the vehicle. A turnaround time of 20 minutes per vehicle at each terminal is expected. These vehicles would contain 15 cages, with each retail outlet receiving 2/3 cages per delivery. This operation will significantly reduce the time taken to deliver to each retail outlet. All new concessionaire agreements and renegotiated existing agreements at Heathrow will require retailers to use the Exel facility, so that by the end of 2004 all retailers will be incorporated within the system as existing franchises are renewed. There will also be a study of the possible efficiencies of supply chains both within and between other BAA owned airports. The consolidation centre currently services Gatwick Airport three times a week, and London City and Stansted Airports. BAA is keen to examine how other airport operations in UK The partnership between BAA and Exel contributes to the environmental strategy for Heathrow by identifying base data, measuring, monitoring and setting targets to demonstrate the improvement in air quality and packaging waste management as well as service levels and ease of access. Heathrow airport has seen a significant reduction in the number of vehicle movements as a result Exel vehicle airside at Heathrow

Reduction in vehicle movements Oct 2001 Jan 2002 40

Carbon Monoxide, 1.06 kg of NMVOC (Non Methane Volatile Organic Compounds), 3.79 kg of Nitrogen Oxide and 0.28 kg of Particulates a week.

35

Since these savings were calculated at current business levels with the consolidation centre serving only 40% of potential outlets, they are likely to be increased further in the future. Emissions are also expected to reduce when

30 Reduction in vehicle movements

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the new alternative-fuelled fleet is introduced. The intention is to use compressed natural gas fuelled vehicles, as they provide the best current improvement to local air quality.

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15

FUTURE DEVELOPMENTS
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could benefit from the use of a consolidation centre in their distribution operations.

Exel are currently introducing a computerised

5

hand-held tracking system, based on Palm Pilot technology, which uses software specifically written by Exel for the BAA operation. Every carton will be given a bar-coded label, as will every cage so
29 Oct 5 Nov 12 19 Nov Nov 26 Nov 2 Dec 9 Dec 16 Dec 23 Dec 31 Dec 6 Jan 13 Jan 20 Jan 27 Jan

CONCLUSIONS
The BAA consolidation centre, run by its chosen logistics partner Exel, was awarded the 2001 Institute of Logistics and Transport Environmental Award for its contribution to the environment. It has already produced significant environmental benefits and is regarded as a blueprint for future retailing operations, both at airports and in other locations. At the start of the project, BAA was under

of this scheme. On time delivery performance to the retail outlets is currently 95%. BAA have been able to set targets at full implementation of a 75% reduction in the number of vehicles delivering to the airport and a 90% use of vehicle load capacity. Retailers operating within the airport receive more effective, on-time deliveries on high security shared-user vehicles. The project has been so successful that any new retailer uses the consolidation centre as a condition of contract. With such positive commercial and environmental benefits, this type of solution may be adopted not only by other airports but also by retailing operations with similar congestion problems such as those based in city centre locations.

that goods will be scanned in and out of the consolidation centre. Load planning will be performed electronically, producing a full manifest by cage. Each cage will be sealed and tracked as it moves around the airport and will also be scanned at retail outlets. This development will increase the efficiency of this delivery operation still further. Currently the Duty and Tax Free shops, operated by World Duty Free plc (a subsidiary of BAA plc), are not included in the consolidation centre operation. They are serviced by a separate distribution facility in close proximity to the airport that could be incorporated into the Hatton Cross facility the future. BAA may also wish to extend the scope of the consolidated delivery service to include other business areas such as airport maintenance and construction projects.

Week commencing Rolling 12 wk average

These 115 vehicles per week now delivering into the consolidation centre would previously have all delivered into Heathrow airport itself. Excluding the journeys made by Exel from the consolidation centre to the airport, 35 fewer trips were made into the airport that week. Since each journey is 10 miles, this becomes to a saving of 350 miles per week. Assuming that the suppliers vehicles have a fuel consumption of 10 mpg, then 35 gallons (159 litres) of diesel fuel are saved, worth 100 a week or 5,125 per year to that single supplier. This corresponds to a weekly saving of 426 kg of

increasing pressure to provide a solution to the airports physical constraints. Some 400 vehicles were delivering goods on an unscheduled daily basis to retailers, causing massive congestion within the airport and on the approach roads. Off-site consolidation was the solution chosen to solve this problem, with the operation commencing in May 2001. The project has been very successful so far, and it is planned to include all retailers operating within Heathrow by 2004.

Warehouse operations at Hatton Cross