Morrisons | Annual Report and Financial Statements 2011

Our Evolve programme started in 2008 and is now approximately halfway to completion. Evolve is all about making sure we have the right systems in place to support our business processes, increase sales and efficiency, and compete strongly in today's retail market as well as creating flexibility for the future. In short, making a well run business run better.

A key focus in 2011/12 has been the introduction of a new produce manufacturing solution to our five manufacturing produce sites to improve efficiency.

Produce manufacturing solution

Produce manufacturing is central to the Morrisons commitment to quality from field to fork. Employing 2,700 people, our produce sites produce 29m packs of fresh fruit and vegetables every week for sale in our stores. Until 2010/11, each site was planning independently against daily orders and managing stock levels accordingly using manual systems. Visibility of inventory levels and yields was limited.

The Evolve programme means more than just new systems. With over 75% of the workforce set to use the new solution, skill levels across the entire division were raised. "We had to change the way people operate - and their mindset", says Andy Joynson, Manufacturing Director for Produce, "we introduced more robust processes, structure and organisation - driven by better solutions."

With two years in planning and 16 months in rollout, all the produce sites have invested in a huge collaborative process. The three month readiness programme before each go-live covered everything from leadership through to infrastructure. This, along with the commitment shown by colleagues, was the key success factor.

The new produce solution: provides advanced, centralised planning and scheduling; orders from the sales management system; checks raw material inventory and creates a demand for manufacturing and replenishment stocks from suppliers; and sets hourly schedules for production lines. We have automated the processes for bringing raw materials to site, receipt of orders and marrying up our resources. We now have consistent methods for planning and scheduling, and standard reporting.

The dispatch process is also more efficient, with produce allocation and picking lists generated automatically, meaning stock visibility has improved across the business. We can produce a report at any time to show exactly what is in every area of the business, and in what state, replacing the need for continual counts.

The new solution supports our drive for quality in fresh produce. It allows us to monitor the ongoing quality of all products, enabling better supplier management. Better visibility of stock also increases the focus on reducing inventory in the supply chain, which helps to ensure freshness.

In 2012/13, we aim to deliver benefits of £1.3m through improved labour efficiency and yield. The major benefit, however, is derived from improving sales order fulfilment against quantity and time. This will lead to improved availability in our stores for customers. The overall benefit is estimated at £2.7m a year.

Next up - meat

Our meat manufacturing solution is going live to our first abattoir in the second half of 2012/13, with rollout to the other two sites by early 2013/14. The meat solution is necessarily more complex than produce, yet builds on the same model. Productivity and efficiency savings are expected, with an overall benefit of £2.2m year-on-year once the system is complete.

Our indirect procurement programme has a target of saving £100m by 2013/14 and we made good progress during the year, delivering £40m of benefit.

We reviewed every area of spend - both revenue and capital expenditure, and looked at a variety of ways to reduce cost, including the use of e-auctions, rate negotiations, consolidating spend and reducing consumption.

We also undertook an exercise to reduce the build and fit out costs of new stores opening our first 'Lean Store' at Newport in November and achieved a saving of £2m against our original estimates, the equivalent of c.30% of the total store build and fit out cost. Around half of the savings are already being applied to all new build stores. The remaining 50% will be trialled further and implemented when we are confident that we can take the cost out without compromising our high standards.

Our network optimisation initiative, which was launched in 2007, has focused on building capacity, reducing costs and increasing efficiency throughout our supply chain.

In the final quarter of the year, we completed the original programme with the opening of a new, state-of-the-art RDC for the South West at Willow Green, Bridgwater. This 800,000 square foot site, which replaces a number of smaller centres, was opened ahead of schedule to enable us to manage the busy Christmas period and will become fully operational in the first quarter of 2012/13. The new RDC, a capital investment of £105m, enables us to consolidate service into one efficient centre and will deliver savings of £20m annually from 2014/15.

Great companies continually strive to be more efficient. Morrisons has a number of initiatives underway which will drive efficiency and cut unnecessary cost out of our business.

Every hour per day we save in all of our stores equates to approximately £1.4m of annual cost saving - so even small changes can deliver big benefits. In March 2011, we launched an initiative to focus on store productivity and have delivered savings of £25m in the year. Good progress was made on a number of initiatives, including opening our specialist counters later in the morning, which reduced labour cost but also allows our customers to see our craftspeople setting up for the day; automating the receipt of news and magazines, which avoids manual checking and administration; and changing the way bananas are displayed to reduce the labour cost whilst also reducing the wastage that arises from handling the fruit too much. During the coming year, we will continue to trial and roll out new ideas and we are on track to deliver our target of £100m by 2013/14.