Photo By: Canva
The triple effect of Brexit, the pandemic and the war in Ukraine has driven supply chain costs to new heights and revealed areas of over-reliance and inefficiency in global supply networks. this is a problem when addressing the global supply chain crisis.
However, while some may have hoped the supply chain crisis was a short-term issue, our latest research among the UK’s top 100 retailers reveals that 87% believe things will not go back to how they were before the crisis began. Retailers also believe higher costs are here to stay.
Given the concurrent cost of living crisis in the UK and the need to keep making progress with ESG commitments – including reducing their carbon footprint – retailers face the difficult challenge of managing costs when consumers are demanding higher availability, quicker deliveries and more ethical shopping, but also tightening their belts. While seller and buyer must both adapt to this new landscape, competition remains high.
Our research also reveals a great disparity in retailers’ responses to the crisis. While the majority are doing something, this ranges from small, incremental changes to restructuring – suggesting many retailers are undecided or working through some fundamental constraints, such as cost barriers.
Playing the long game
Far from seeing the global supply chain crisis as a short-term issue, 87% of retailers say things will not go back to how they were before the crisis began. Two thirds (63%) say it will go back in some ways but not others, while a quarter (24%) believe things will never be the same.
Retailers are overall doubtful that supply chain costs will return to pre-crisis levels, with 37% saying this is “unlikely” or “very unlikely”, and only 31% saying it is “likely” or “very likely”. What’s more, despite the many widely-publicised issues with supply chains, two thirds (62%) of retailers say consumers are demanding higher availability and quicker deliveries.
As a result, the majority (57%) of retailers say the supply chain crisis is one of their top priorities at the moment, rising to 70% of grocers. However, while the vast majority (89%) of retailers are making some changes as opposed to waiting to see what happens, responses vary.
Home retailers are the most likely to not be making any changes (19%), perhaps due to the strength of the current market for home improvement coupled with less flexibility in supply options, while grocers are the most likely to be making significant changes (30%) as they grapple with significant fluctuations in commodity prices.
Clearly, long-term issues require long-term solutions. Retailers are less confident now than they were three years ago about their supply chain’s ability to cope with the demands placed on it over the next five years, suggesting the need for significant transformation.
Perran Jervis, head of retail and consumer goods at TLT, says: “This is no longer about managing short-term peaks in demand. Our research clearly shows a fundamental shift in global supply chains, and retailers will need to recalibrate around the issues – from global commodity shortages, to interdependency on international trade routes and, increasingly, environmental concerns.
“The preference for incremental changes isn’t surprising when you consider the financial and other difficulties with wholesale change, especially in the current economic climate. All retailers will have to find more financially and environmentally sustainable ways to manage their supply chains moving forward, looking at all options including sharing infrastructure, and consumers will need to come to terms with higher product and delivery costs. The government may well need to provide further support with this.”
Counting the cost
Rising costs are retailers’ greatest concern with regard to managing their supply chains (82%), with the biggest increases seen in fuel (86%), shipping containers (68%), raw materials (66%), supplier costs (65%) and technology (51%).
Environmental impact is also a top-five concern, which is significant given that retailers’ environmental performance is under increasing regulatory scrutiny and with the regulators making it clear that allowances will not be made for extenuating circumstances such as the supply chain crisis.
The most common response to rising costs is the search for new efficiencies (68%), closely followed by passing costs onto customers via products (67%) and deliveries (55%), which is often seen as a last resort.
Perran Jervis says: “Passing costs onto customers is never a preferred option, so this shows just how few alternatives retailers have been left with, and why so many are offsetting costs elsewhere – for example through steps like better staff rostering, warehouse automation, reducing wastage and reducing returns. Until now, many retailers have been avoiding investing too heavily in these other areas, but these are now becoming essential to their survival.”
Grocers (40%) and fashion & beauty (30%) retailers are more likely to be renegotiating existing supplier contracts than home (26%) and lifestyle & leisure (17%). Home (37%) and fashion & beauty (36%) retailers are more likely to be renegotiating leases than lifestyle & leisure (27%) and grocers (20%), for example to reduce or forward-fix costs. When asked about measures that have not previously been feasible but are now becoming more urgent, almost half (47%) of retailers say this includes fuel bunkering/hedging, 44% say closer stock management, two fifths (39%) say labour-saving technology and more than a third say near-shoring (36%) and using UK manufacturing and suppliers (34%).
Dan Read, technology partner at TLT, says: “Technology is vital in enabling closer stock management; retailers cannot afford to hold excess stock or for that stock to be in the wrong place at the wrong time as they rise to the challenge of meeting customer demands for higher availability and quicker deliveries.
“We are seeing increased investment in and deployment of warehouse and stock management solutions, which are becoming crucial in giving retailers live data on their inventory. A key pillar of these solutions is speeding up the move to the cloud, allowing the convergence of silos of existing data and the use of newer tracking, automation and RFID technology to provide valuable and real-time insights.” More than half (56%) of retailers say there is a risk of retailers cutting corners to save costs as a result of the supply chain crisis, with 26% saying they strongly agree this is the case.
Photo By: Canva
The majority (78%) of retailers say changes to modes of transport is one of the longer-term issues affecting supply chains.
After sea freight became less feasible during the pandemic – due to port closures, delays, a lack of workers, a lack of shipping containers and, therefore, rising costs – air and road transport have seen the biggest increases in retailers relying on them more (20% and 17% of retailers respectively).
While air and road circumnavigate the issues at sea ports, they are the most financially and environmentally costly ways to move goods, making them unsustainable in the long term. Rail remains more difficult due to reduced flexibility and over-dependence on unreliable infrastructure together with the additional cost of onward transportation from rail heads, which are seldom conveniently located. However, over a third (35%) of retailers say it is becoming easier to justify decisions based on environmental concerns, while a quarter (26%) disagree, 16% are neutral and 23% are unsure, suggesting this is increasingly front of mind when deciding how to manage supply chains.
Battle lines drawn
The report makes it abundantly clear that retailers are dealing with a new paradigm and will face continued cost pressure moving forward.
Next week, we will conclude the report by discussing guaranteeing supply and biting the efficiency bullet. We will also make a copy of the report available for downloading.
