After decades of working with just-in-time strategies, one report says that 84% of UK businesses are considering a move to just-in-case supply chain models. That’s sounds remarkably high, especially given that many SMEs never get the headspace to think about their models at all, but it’s definitely the case that warehousing is seeing a substantial amount of interest from companies looking to their profits from the golden quarter.
This period, from autumn half-term through to the January sales, contains most of the big spending days: Bonfire Night, Christmas and New Year, not to mention Black Friday and the January sales. Meeting this demand is crucial for many UK businesses, and part of meeting demand involves finding the necessary space for warehousing, pick and pack and order fulfilment.
Warehousing and the gold quarter
So far so good. But this year’s golden quarter is proving to be deeply unpredictable.
When looking at the warehouse space required, businesses are trying to work out what to expect – the cost of living crisis is going to have an effect, but how, exactly? Will people spend more on home entertainment and less on going out, or vice versa? Will the World Cup have an effect? We know that the Women’s Euro 2022 tournament was predicted to bring £54 million of extra economic activity to the UK … and that the triumphant success of the English women may actually have doubled that impact. Then there are the downsides, which are equally well known:
- Ukraine war
- Chinese lockdowns
- Fuel and energy prices
- Driver shortages.
And finally, there’s the economic predictions, which are currently suggesting that sales volumes will be down on 2021, by as much as 13% in the electrical sector, with only health and beauty showing a tiny volume increase of .2%. In addition, there’s a British crisis – with major retailers reporting that they have the lowest stock levels since 1983, arising from the COVID-19 and Brexit challenges, allied to transport disruption. The Confederation of British Industry (CBI) says that UK-wide stock levels are at their lowest, in relation to projected sales, for nearly forty years. It all adds up to high levels of uncertainty, unpredictable levels of demand, and unknowns around staffing, and especially logistics and delivery services. The hiring bonus and introduction bonus processes that have been introduced in the hospitality and care sectors are already extending to food manufacturing and logistics and look likely to accelerate as companies plan for the golden quarter.
Just-in-case warehousing strategies and logistics
A just-in-case strategy makes sense to companies caught out by Brexit and the frustrating delays created by the Russian invasion of Ukraine and subsequent sanctions and the Chinese lockdowns occasioned by a new US law the Uyghur Forced Labor Prevention Act (UFLPA) which has caused a Chinese response of locking down whole regions to internal sales only. All European countries are struggling to find alternatives to Russian gas and oil supplies. Just-in-case is the 2020 version of stockpiling, and while it makes sense to hang on to whatever goods you can, it creates a greater demand for warehouse space, especially close to good distribution routes.
Are there principles that companies can apply to their decision-making? There certainly are:
- If your company generally has a single annual peak (Christmas, summer holidays etc) then investing in permanent warehouse space is probably not cost-effective because it incurs a continuing cost for something that isn’t producing a return for the rest of the year. Wild hopes that companies can let their excess warehouse space rarely play out in practice for several reasons:
- The extra administrative and legal cost of subletting, even if it’s legal
- Potential insurance problems through subletting and not having control over a tenant’s inventory
- Defaulting short term tenants
- Conflicts between the personnel of the company owning the warehousing and the tenant’s personnel.
- Make sure that location decisions are based on the best possible information. At periods of reasonable predictability, UK businesses have got used to using bulk storage and a central distribution system, often in the Midlands area. Newer location models focus on trying to locate stock closer to end users, which could be retail outlets or might be based on where 3PL partners are best able to service the organisation. Ecommerce has make a huge different to the way that organisations need to think about distribution and the rising cost of fuel and the lack of available drivers is accelerating the need to be more precise about how goods get to end users, factoring in cost of delivery, available workforce, and the basic cost of warehousing.
- Ensure the poor inventory practices aren’t part of the problem. For example, failure to order the right amount of goods at the right time can lead to problems with order fulfilment that have nothing to do with warehousing. Similarly, poor storage can cause difficulties – pallet storage only works if the company has space to unload and access pallets for pick and pack operations in good time; bulk storage that can’t easily be converted into order fulfilment is a failure of inventory operations. Improving inventory efficiency can be as important as choosing the right warehouse space when economic conditions are unpredictable.
- Thinking about suppliers (and supply chains) can be headache-inducing but is crucial to success. Learning to think about supply chain issues in risk terms will help organisations succeed through being both more cautious and more agile. Many scenario planning organisations are suggesting that risk exposure to China will not reduce in the foreseeable future, and that Russia’s behaviour in Ukraine means that Estonia and Latvia should also be considered as high risk places with which to do business. Many American companies have already begun to ‘nearshore’ by moving supply chain to Latin American or to ‘farshore’ to Southeast Asia. UK companies should be exploring their own exposure to risk, especially given that Brexit has already added complexity to relationships with the rest of Europe.