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Retailers suffering supply chain problems caused by coronavirus should overhaul their warehousing strategy and introduce a more “resilient approach”.
This would mean abandoning the traditional just-in-time philosophy that prioritises lean inventory but often comes with high fixed costs during lower demand, and rapidly escalating costs during demand peaks.
In a white paper published this week, Steve Purvis, operations director at supply chain consultant Bis Henderson Space, says the coronavirus pandemic has caused both supply and demand shocks, which had led to a “radical change in retailer, manufacturer and shipper requirements for warehousing and warehouse-related activities”.
He explains how demand from different verticals has varied enormously since the onset of the pandemic and subsequent social lockdowns, with manufacturers and retailers of home furnishings, for example, looking for somewhere to store goods that cannot be sold, while grocery and healthcare suppliers are on the hunt for space due to surging demand.
Additionally, the type of facility required also varies wildly – from deep, dark storage space to hi-tech temperature-controlled and bonded.
However, he also argues that, while the pandemic came as an unprecedented shock, supply chain shocks themselves were hardly uncommon, and the last few months have served to show the inadequacy of planning for future shocks.
“Amid the frenzied acquisition of warehouse space, it is hard to discern much implementation of deep, pre-existing, strategy,” he says. “And that is strange, as although the combination of depth, reach and scale of the Covid-19 impact is certainly unprecedented, supply chain shocks are very common.”
Mr Purvis explains that the traditional model for warehouse expenditure relies on predicting what a shipper’s “core capacity” requirement is on an annual basis, and then leasing short-term extra capacity during peak periods.
However, he argues that notwithstanding the pandemic, in today’s era of rapidly growing e-commerce retail, this brings a high cost, due to increasing numbers of peaks, such as the recent popularity of events like Black Friday and Cyber Monday.
“Depending on the profile of the various peaks and troughs, and how they overlap, that ‘core capacity’ may spend much of the year seriously underused.
“That not only represents capital unnecessarily tied up, but may also lead to considerable effort in engaging extra warehouse staff at peak to bring operations up to capacity – before then bringing in the emergency facility as well,” he writes.
He argues that shippers and their forwarders should view peaks as fundamentally unexceptional, and adopt rolling forecasts and a more flexible warehousing strategy that “requires access to a range of sites, suitable in terms of size, location, duration of availability, access to labour, IT and other facilities.
“Businesses that win will take a strategic approach to utilising flexible storage space on a planned, ongoing and coordinated basis, creating a continuous dynamic buffer that flexes with the business.
“They will work with a specialist space broker/facilitator, not to locate a shed at the last minute, but to analyse the supply chain, the inventory requirements and characteristics, as well as the resulting warehousing needs and solutions.”