Coles Myer has extended the outsourcing of its online grocery business to Australia Post, giving the postal service a greatly expanded role in fulfilling the retailer's customer orders.

Under the five-year agreement - set to take effect from late November - Australia Post will take the reigns at Coles' online fulfilment centres in Melbourne and Sydney, with most of the 300 staff at those centres transferring to the Post Fulfilment Online operation.

In a statement released to the Australian Stock Exchange (ASX), Coles Myer said "Part of Australia Post's fulfilment solution, which prevailed over competing offers from other logistic companies, involves an investment in new electronic systems and work practices that will improve the efficiency and capacity of the centres to fulfil grocery orders".

Australia Post logistics general manager Alec Caselli said the existing sites will gradually be migrated to two new Australia Post "mega-fulfilment" facilities at Chullora in Sydney and Ardeer in Melbourne. The facilities, 20,000 and 40,000 square metres in size respectively, are expected to start operating in the second half of 2003.

According to Caselli the new agreement represented a huge transformation in Coles' online fulfilment model. Under the new model Australia Post will stock Coles inventory while the retailer will maintain control of customer relationship and branding.

-This is still our business but we are now using an expert agency to complete the order processing," said e.colesmyer managing director Jon Wood.

Caselli said Coles' online fulfilment system had not advanced very much since its early days. The new model replaces a single-order system with a paperless warehouse based that allows multiple orders to be processed at once.

"In the Post logistics environment there is no paper, everything is done electronically from the time the customer places the order on the 'net to the time its physically delivered...even the proof of delivery is done with a handheld device," said Caselli.

Under the new model customer orders will register directly on data centre equipment based at each fulfilment centre. The orders will then be distributed to fulfilment centre staff equipped with handheld devices.

Caselli claims the system will be able turn around customer orders in four hours ahead of delivery the following day.

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