How to get stuff to the shops in the "new normal"

With the changing face of retail - click here to read the article - comes the knock on effect of how this impacts the supply chains, logistics and distribution operations of the world.

If manufacturers and brands aren’t selling so much into a wholesale model, and more products are being sold through their own channels, direct to consumers, what impact does this have on how goods are distributed.

Rather than selling a truckload or pallet load of products, one purchase order to the supplier for 1,000 widgets turns into 1,000 purchase orders for 1,000 widgets. 

By directly selling their own items, suppliers don’t have to share their margins with retailers, but they have the potential pain of distributing the goods themselves.

Distribution centres and warehouses have been going through their own transformation in recent times as they're dragged into the 21st century and all of the technology that comes with it.

Automation has been the order of the day, as efficiency and productivity, or doing more with less, becomes vital to keep up with changing consumer behaviour.

The world of handballing inbound containers and full pallet picks has slowly reduced, with an increase in single order picking and packing operations to fulfill the needs and wants of consumers who have fallen in love with the ease of online shopping. This has been coupled with manufacturers and brands who enjoy the autonomy and control of being able to sell directly to their customers.

Of course, older ways of working will stick around whilst companies realise that they can get away with operating as they always have without having to invest in their supply chain and distribution functions.  

Retailers, as a rule, and in line with that much vaunted theory called common sense, would much rather invest in their front end offering of stores, websites and customer service (perhaps more so the first two!) than have to think about the back end functions of actually getting the goods out of the door.

The more forward thinking retailers have already realised that their distribution and supply chain is a competitive advantage in its own right, and have given it the care and consideration it deserves, being such a big part of the overall organisation strategy.

What the current changes in retail means, is that wherever you are with your distribution and supply chain strategy, you're going to need to give it a lot more focus now, and in the future.

Automation in the Distribution Centre

Lots of distribution centres already have forms of automation in them. 

It’s a good idea to give a definition of automation to understand what we’re talking about…

“In its simplest form, warehouse automation is the application of specialised equipment and storage and retrieval systems. It is the automation of repetitive processes which previously required labour.”

As an example, most warehouses and distribution centres use a form of conveyor to move product from one area to another. It could be a manual roller conveyor that uses gravity or a “push” to move things along the line, or a fully automatic electric conveyor system that runs around the entire building.

Either way, a system is in place to automate the movement of product from one area to another to remove the need for a person to do that job.

Arguably, there are lots of functions in a warehouse or distribution centre environment that could be automated, and we’re seeing lots of organisations follow this route.

There are lots of observations in this area. For instance, an initial question that could be asked is perhaps, “has fixed racking had its day?”

By having a fixed pallet racking, are we limiting how easily we can change the layout and work flows of a warehouse or distribution centre? Would we be better having a goods-to-person, or GTP system? Some of the most popular ones include carousels, vertical lifts, automated storage and retrieval systems (AS/RS), mini-loads, and automated material-carrying vehicles. 

Of course, by deciding to invest in automation, this isn’t a silver bullet to solve all issues.

Automation can be used to make gains upon existing processes by improving speed, efficiency, reliability, accuracy and by providing (eventually) cost savings. But using it doesn’t mean that it will solve all goods-handling issues and it may not be the right fit.

Let’s not forget, humans are still better at a lot of things than machines!

We shouldn’t forget that humans are much more flexible when it comes to adapting to changing business conditions.

Automation is a big investment, and in that way it’s vital that due diligence is carried out to not only ensure an adequate return on investment (ROI) is achieved but also that the automation makes long term economic sense.  

It’s very easy to look at the initial outlay in investment in isolation, but thought should also be given to performance and reliability of the automation equipment, as well as long-term maintenance and repair costs.

Automation can transform a warehouse or distribution centre, but you need to understand if you are using it for the right reasons and not just following an industry trend for the sake of it.

The World is too small?

This may be a crazy statement to make, but stay with me.

We all know about the world getting smaller as more organisations work on a global scale.

Supply chains have been one of the biggest drivers of the world shrinking, as we see products imported and exported everywhere, often through protracted supply chains where products touch lots of countries and oceans.

Interestingly there are quite a few negatives of having a small world, especially in a supply chain and logistics environment.

?? You may hear that the environment is “incestuous”.  This isn’t from the true meaning of the word, but what this means is that you will often mix with the same people in the industry and the same people will move around the industry, so you will often come into contact with people more than once in different organisations or circumstances.  

?? You may find that by operating in a small world your growth is stunted.  If you’re always mixing in the same industry circles you become used to “just so” and you don’t challenge yourselves.  You don’t grow and don’t reach your full potential as a business.

?? You will find that you are constantly grappling with the same problems and issues by operating in a small world environment. 

?? You may think that you’re getting somewhere with the challenges you have but you will constantly go around in circles in order to try and resolve certain issues, without moving out of your small world.

?? You lose perspective.  Small problems suddenly become massive issues if you don’t have a wide enough frame of reference.

In theory, the world is now a supply chain.  We are all interconnected in one way or another.

And in that lies the crux of the issue - optimized supply chains make the world smaller, but do optimized supply chains make the world better? 

To most people who lived 100 years ago, the other side of the world was an unthinkable distance away. Today, it’s where our toothpaste tube is pressed shut.

Once upon a time, factories needed most of their raw materials and component suppliers to be local to where they were based. Or at least regional. If their supplies couldn’t get to their factories on the back of a wagon, the factory had no use for it.

Optimized global supply chains changed that.

Once the factories realised that they could get their supplies from cheaper locations, factory owners realised that they could put their factories in cheaper locations. 

Industrial sectors bounced to Mexico and then to Japan then Taiwan then Korea then China - always in search of lower labour costs, utility costs, and property costs. China’s massive labour force and expansive geography made it an ideal low-cost manufacturing source.

Optimized supply chains are why most of what we buy at the shops is affordable. Optimized supply chains puts presents under our Christmas trees. Does that make the world a better place? For a lot of us, yes.

But until we figure out how sustainable supply chains can work, and understand the impact of turning low-cost manufacturing locations into consumer economies (which happens when all those low-cost labourers start to earn more and more money).

When optimized supply chain decides that costs have risen too high – and we shut down those manufacturing facilities and distribution centres for (sometimes literal) greener pastures… does that make the world a better place?

Which moves us on to...

Micro Fulfilment Centres

If the physical retail stores aren’t being used due to lockdowns or lack of footfall, what does that mean for the store itself?

One opportunity is that the store turns into a micro fulfillment centre.  We're often told how organisations want to get closer to their customers, well this opportunity takes that option literally and you can move your stock to be in the middle of a community of customers.

It may be that the retailer has a lot of stores in one area, that in the past was a thriving office area, but now is extremely quiet.  You may not now need all the stores to service the current demand.

Why not transfer stock to these stores and deliver directly from the store location rather than a centralised hub.  Stock availability becomes less of a problem as you’re able to tailor what SKUs each store or fulfilment location holds, based on the demand from the local community.

Delivery time reduces as you’re already near the customers home, and it has the environmental advantage of reducing the “final mile” transport impact, and gives the possibility of utilising cycle or on foot deliveries.  

This is also a way to future proof the operation, as these sort of micro fulfilment centres are ready made for driverless car and drone deliveries if these evolve.

In Summary

There are potential opportunities and changes across the whole supply chain.

These changes, as ever, will be driven by consumer behaviour, technology, and the future of retail.

How do you see distribution and supply chains evolving?

Robin Kiziak is an experienced finance manager with over 15 years experience in the distribution/logistics and retail industries

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