Stockpiling could build resilience, but what follows next?
‘People have started to understand that and it affects how they are looking at the future,’ explains Tim Crighton, Partner, Logistics and Retail at Cushman & Wakefield.
With the potential end of the lockdown, businesses have started to focus their attention on how they can safely reopen and manage customer psychology.
The retail sector is also looking at how seasonality will change. Many have unsold stock and they need to find space for summer, autumn and winter goods.
’The normal supply chain cycle has been interrupted,’ continues Crighton. ‘Other industries are in their summer peak time, but it is very hard for them to work.’
Online boost Online grocery in the UK has been historically at a level of 6-7% for a significant time. Despite expectations for growth the sector did not manage to achieve a significant market uptake.
Covid might turn into the driver for the longawaited shift to online. According to Crightonthe industry might reach between 12-15%. The challenges of getting online orders rightwill not disappear but firms will be forced toembrace changes in consumer habits.
‘The numbers for online penetration during the Covid crisis could be underplayed,' Crighton says , ‘because of the availability of delivery slots.’
Many people were unable to secure a delivery slot, but that doesn’t mean they are not interested in shopping online. Large retailers have already announced plans to take more spaces for online fulfillment. Businesses are still learning how to get the whole supply chain right and will need to re-adjust their practices.
Adapting logistics Different logistics operators have responded to the new normal in different ways. Some of those with high levels of automation in place were not able to respond as quickly, according to the expert.
The reason is that automation is highly effective when there is a high level of certainty over volumes and the SKUs that need to be handled. The virus has wiped it out and companies with less automation can adapt their strategies much faster, adjusting workforce, MHE and process to keep pace.
Additionally, there is a lot of manual labour in the industry and it is likely that it will continue after the crisis is over. “Automation is capital intensive and many retailers might not have a lot of capital to invest,” explains the expert. →
Crighton thinks it will take time before we start talking about sustainability, but its importance is rising. ‘Because of the virus, we have seen that maybe we could be less reliant on some elements of mobility and transport,’ he explains. There is the danger of emission bounce once the economy is up and running.
Additionally, companies will look at how their supply chains are structured and if they could nearshore some activities. Protectionism policies are being talked about a lot but it is too early to see what will come out of it. Cushman & Wakefield say they have seen a number of companies looking into simplifying their supply chains and trying to deal with the risks of offshoring.
In the next five years we could see more flexible robotics that are able to substitute different parts of manual processes rather different parts of manual processes rather than some of the very large, expensive automation solutions we’ve seen in the past few years.
With rising inventory levels, UK companies are looking for container storage. This could have a negative effect on the world container use, as more are sitting still and are not being used to transport goods. “There is a finite number of containers in the world,’ Crighton says.
Stock for resilience To build resilience in their supply chains a lot of retailers are being advised to stockpile.
“Six months ago such action would have been a bad idea,” explains Crighton. In the short term inventory increase is likely to happen until firms understand how they can deal with the effects of the virus on their stock levels. Ultimately Lean will return to the supply chain as retail can’t afford to have too much stock laying around.
In the end of April the UK Warehouse Association announced the country has around 2-3 weeks of warehouse space available. Companies are forced to stock goods for longer, but the country might be running out of affordable spaces to use.
‘There is pressure on the supply at the moment. Some retailers could opt in for a lower quality storage space,” Crighton adds.
We have seen some landlords decide to beflexible and allow shorter term deals to provide themuch needed space to retailers.
Production shift Firms are assessing all possible risks and opportunities like how likely another pandemic is, what are the costs of shifting production, how such a move could be made.
None of this means companies will move production instantly as it is still early days and most are looking for long term options.
Crighton says historically we tend to “Overestimate the short-term impacts of criss and underestimate the long-term impact” Sustainability Governments, particularly in Europe, have addressed the issue and have proposed some drastic changes. In the short run firms will mostly focus on finding the right tools that will allow them to operate safely, keep their staff healthy, and the business running.
Tim Crighton is a Partner in the Occupier Services team at Cushman and Wakefield and leads a team that specialises in Retail Logistics and Supply Chain, working with businesses to identify, acquire, develop and operate logistics facilities throughout EMEA. Prior to joining Cushman and Wakefield, Tim held roles at Kingfisher Plc, Linde and chilled supply chain specialist Gist.