Let’s talk supply chain issues – There is some good news about supply chains – twelve months ago, container ships were in a holding pattern at many ports, with cargoes waiting to be unloaded for weeks or months. Today the situation is quite different, with most container vessels being able to dock and unload within 24 hours of arriving at port. This has reduced the pressure many organisations have been feeling when stock has been stuck just out of reach for long periods of time.
Manufacturing and warehouse space
Of course the situation isn’t perfect – a recent Barclays report shows that £23.6 billion worth of goods are currently waiting to leave UK manufacturers’ warehouses as a result of these delays that have left key parts stuck at other points in the supply chain. Most disturbingly, £3 billion of food and drink is log-jammed in this process.
According to Barclays, seven out of ten UK businesses are waiting for items to arrive from suppliers so that they can complete and send out inventory. This has a significant knock-on effect for logistics too, with 59% of companies saying they are still struggling with supply chain issues. Two-thirds of manufacturers state that their customers are having to wait significantly longer for products.
Manufacturing is finding new ways to address these difficulties – primarily seeking out new warehousing space to allow for the delay in sourcing and receiving components and raw materials. A third of manufacturers have begun the process of ‘near shoring’ – moving their supply chains closer to the UK to reduce the degree of both risk and delay. Financially, 38% of manufacturers are hoping to obtain private equity funding to support their changed approach to the supply chain.
Warehousing in the retail sector
Significantly, this manufacturing challenge means warehousing costs have not come down, which has led to an interesting retail development – the pushing forward of the seasonal calendar with goods appearing much earlier in the stores even than usual. Why? Because there is only so much stock that can be fitted into a warehouse and so the big retailers have been clearing out space for two reasons:
- new warehouse space is difficult to obtain
- warehouse rental has become so expensive that pushing inventory out onto the shelves is cheaper than renting more space.
However, long-haul logistics have been hard hit by the bottlenecks in both ports and warehouses. In February 2023 it cost around £1200 to ship a standard size container from China to the USA, compared to £7900 in March 2022. It’s close to a recession level in economic terms, although it’s expected that costs will begin to increase again, as retailers process their inventory and contemplate greater importation levels.
All this volatility is set to continue and a further problem for supply chain management is the difficulty of hanging onto good warehousing staff – holding on to talent can be problematic as warehousing remains challenging and there are easier jobs to be found at other points in the supply chain process.
Significantly, Lowe’s the big American DIY and home goods retailer, is restoring storage warehouses, rather than order picking warehouses, as part of a supply chain upgrade. These dedicated warehouses will be used to store ‘off season’ goods such are barbecues in winter, snow shovels and outdoor Christmas decorations in summer. The strategy is designed to reduce the need to offer heavily discounted deals on inventory that is cluttering up retail space and is a direct contradiction to the route that most big retailers have been using for the past couple of decades which has been to rely on just-in-time ordering and warehousing facilities that can also ship e-commerce orders.
Managing warehousing as part of a supply chain model
One way to approach how warehousing impacts supply chain issues is to look at more closely integrating planning and decision making. The over-early arrival of Easter Eggs and summer bikinis in supermarkets in an example of failed planning, because it serves no better purpose for such items to be filling supermarket shelves than pallet storage in warehouses, unless companies can confidently predict converting warehouse stock into more, or higher priced, sales.
Given the relatively high price of warehouse rental and the relatively low cost of logistics, it’s vital that decision-making optimises warehouse inventory and recognises the cost of shelved items. This may mean conducting a warehouse audit, never a favourite activity for most companies, but it’s common to find organisations ‘hoarding’ slow moving stock especially the backlog items from the pandemic which has some companies hedging their bets, wondering if a new COVID panic might lead to high demand for SKUs that aren’t currently moving. A good audit is only useful if a company is also willing to make some tough decisions, and there are innovative ways to utilise low value or unmoving stock, such as looking are warehouse retailing outfits or partnering with a surplus redistribution company to dispose of unwanted inventory.
What to change when looking at warehousing
Creating change can be problematic as many individuals within a supply chain may see the current supply chain process as the only one possible – this means that change management may be necessary to overcome resistance. This can be especially true if the change is more than removing low value inventory from the warehouse space. Being clear with warehouse personnel about the need for changes is vital to achieving a good level of implementation and being sensitive to the way that the warehouse operates can also help with choosing the best solutions.
The next level of adaptation to ‘warehousing as solution’ to supply chain issues is often some level of technology. This can mean a new approach to picking orders, especially around FMCGs where the current difficulties in supply chains are presenting retailers with a delicate balancing act. Failures in the supply chain are being highlighted in national media while attempts to fill otherwise empty shelves with unwanted goods are being unfavourably commented on in social media arenas. Order picking can’t help with major supply chain issues, but more accurate selection of SKUs will optimise customer satisfaction where supplies are available.
If you are looking for a professional logistics company to help you manage your stock more cost effectively, then call DMG Freight Services today on 01279 452468.