A strategic view
01 June 2018
The focus is on optimising delivery networks to keep up with consumer demand, says John Perry, MD at supply chain consultancy SCALA.
With smartphones making shopping more convenient than ever for customers, consumers are also expecting more from retailers in terms of quicker delivery times and faster checkout processes – 67% of consumers would be more inclined to spend more online if same-day delivery was offered.
To meet these demands, more retailers are beginning to offer next day delivery and even same day delivery options. For instance, online retailer, ASOS, offers this service for shoppers in London, Leeds, Manchester and now also in Birmingham.
But this is placing incredible pressure on the supply chain, which has to carry the weight of the increasing demands. More distribution centre space is needed to keep up with growing demand. However, the issue that businesses are currently facing is that distribution centre space is in decline. In fact, since 2009, the amount of available warehousing space has fallen by 71%. Global real estate service provider, Savills, estimated that there is only around two and a half years’ worth of supply left. Soon, it could mean that companies have to limit the number of products or services they can offer to customers, such as only offering quicker delivery options on popular items that have a high turnover rate.
Suppliers and retailers alike are all under increasing pressure to provide products on a shorter timescale and reduce the cost of their supply chain activities. Network optimisation is directly concerned with addressing these issues and can incorporate a wide range of options. A company will begin by gathering data on the activities, volumes and capacity of the end-to-end supply chain, which can then be used to analyse, test and inform strategic decisions concerning warehouse location, size, type and transport requirements for example. The ultimate solution will be one that achieves a better balance between cost, efficiency and service.
Say an online clothing retailer identifies higher than expected volume growth in the South West of the UK and needs to devise a strategy for optimising the network. After analysing the capabilities of its resources and locations compared to the delivery points, it is evident that the warehouses aren’t able to hold enough stock, and it doesn’t have an adequate number of delivery drivers to ensure customers can get their products in time. In this instance, depending on factors, such as warehouse contracts and funds available for investment, potential solutions could be anything from relocating a warehouse to an improved location, opening an additional warehouse, modifying the existing site or using a third-party provider for additional storage and transport at the geographical extremities.
To avoid limiting their product offering, it is crucial that businesses understand such issues as network efficiency and the importance of optimisation, to enable them to plan and test their supply chains, quantifying and identifying future capacity constraints, and to examine if they can handle the changing consumer landscape effectively and efficiently. If not, then businesses could struggle with future trends and their ability to adapt to growing consumer needs.