Chain reaction: Retail and wholesale supply chains adapt to a climate of change
In what has been an unprecedented and challenging period for the industry, retailers and wholesalers have responded quickly to create resilient supply chains that respond to customer needs, says Karen Johnson, Head of Retail and Wholesale, Barclays Corporate Banking.
“In response to this challenging environment, businesses have increasingly looked to strengthen supplier relationships, simplify logistics and improve the transparency of their supply chain.”
Karen Johnson Head of Retail and Wholesale, Barclays Corporate Banking.
Short-term shocks accelerate the shift to new business models
Research by Barclays Corporate Banking reveals that UK wholesale and retail businesses intend to use their immediate responses to Covid-19 disruption to accelerate structural change. Whether that’s increasing existing investment in e-commerce and direct to consumer sales or creating less complex and more sustainable supply chains, firms are ensuring that short-term disruption creates longer-term opportunities.
- Three-quarters of respondents say Covid-19 has delayed their supply chain – 44% say their business was well prepared for the shocks of such an event, although nearly one in five admit they were not
- Lockdown and other restrictions have driven a step change in online purchasing, which is likely to remain – e-commerce is the biggest overall investment focus for retail and wholesale businesses over the next two years, with nearly half (47%) of firms planning to prioritise investment in e-commerce technology
- More than half (52%) of wholesalers have responded to Covid-19 by either launching or increasing direct to consumer (D2C) sales – with many firms investing heavily in e-commerce solutions to facilitate this, the change is likely to become permanent.
- With changing and new distribution channels, it is no surprise that investing in transport and logistics is an investment priority for 49% of wholesalers, and 35% of retailers. In addition, the pandemic has exposed the fragility of complex global supply chains and emphasised the potential value of localisation over upfront cost savings.
- Sustainability remains on the agenda, with 35% of firms overall intending to prioritise reducing their environmental impact over the next two years – however, with the rise of the socially conscious customer, other aspects of environmental, social and governance (ESG) criteria need to be given similar importance
- While investment in customer-facing technology is high on the agenda, technology at other stages of the supply chain is yet to come fully into its own – only one quarter of firms plan to focus investment on inventory tech over the next two years.
Strategies for success
By improving the transparency and sustainability of their supply chains, retailers and wholesalers are building resilience and overcoming short-term disruption while setting themselves up for long-term success.
Understand supply chain
While nobody can predict the exact shape of future events, even something as seemingly unforeseeable as a global pandemic falls within the bounds of possibility. Anticipating and assessing potential risks should form a central element of your supply chain strategy. Risks can then be prioritised and contingency plans put in place to minimise the potential impact on your business.
Being ready to think laterally, entertain new possibilities and seek out new opportunities is fast becoming a necessity in an uncertain world. When shocks and unexpected events do occur, those businesses that are agile and confident enough to adapt quickly will be best placed to survive and thrive. If your supply chain has been built on optimising costs, consider aspects such as resilience and sustainability. As consumers become even more socially conscious, the demands on businesses will increase and new strategies will be expected. Be prepared to pivot to new distribution methods, new products and services and even new business models if required.
Broaden supply chain
Depending on a single supplier to fulfil your needs is intrinsically risky. Avoid putting all your eggs in one basket by sourcing and using multiple suppliers where possible. However, simplifying your supply chain in terms of length and complexity can also help reduce risk. Both the pandemic and Brexit highlight the potential advantages of using local suppliers. Similarly, diversifying your customer base and routes to market will make your business more robust and resilient in the face of localised or more widespread disruption.
Investing in technology to streamline your supply chain can create competitive advantage by reducing costs and making you more responsive to customer needs. It can also present opportunities for new routes to market, reaching a wider customer base and increasing resilience. Those suppliers who don’t grasp the digital opportunity risk being left behind.
Effective supply chain management is made significantly easier when it’s a joint effort. Collaborating with your suppliers and developing strategic partnerships with transport and logistics firms will help ensure visibility throughout the product journey. As well as making your supply chain more efficient, this will enable the level of transparency increasingly demanded by today’s socially conscious consumer.
Finance your plans
Barclays is dedicated to helping companies ensure they are financially resilient and sustainable. Speak to your Relationship Director today about working capital management solutions, green loans and other options to support your company’s supply chain and wider business ambitions.
High standards of sustainability and transparency and a range of strategies to increase supply chain resilience are the foundations for strong, secure business at bed manufacturer Dreams.
The appointment of Kal Singh as Dreams’ Supply Chain and Distribution Director in December 2019 was a strategic move that has certainly paid dividends over the past few months. “Part of the reason for having an executive member with a background in supply chain management was to shore up the business’ supply chain infrastructure,” says Kal.
“As a bricks-and-mortar retailer, operating in a far more digitally savvy world, we were looking at the entire supply chain, from supporting our vertical manufacturing capability right through to investing in more space and making sure we’ve got more stock to deliver more quickly to customers.”
With these plans already formulated to manage supply chain operations when the Brexit transition period comes to an end, the pandemic provided a real-life test. “Covid-19 accelerated our plans,” says Kal.
All the Brexit plans of holding more stock, having more space, building more stock, have just gathered speed during and since lockdown, especially to meet the level of demand the business has experienced over that period.
Addressing Covid-secure deliveries
When the Government first announced lockdown in March, Dreams paused operations “We weren’t actually sure at one point whether we were going to carry on delivering or even producing,” However, with a robust order book and demand from people, including keyworkers, who had recently moved and needed a bed, Dreams resumed operations after a couple of days. “We had an order book of several millions that we needed to deliver and although our stores were closed, all of our products are available through our website. The challenge was to complete those deliveries safely.”
That meant an investment in PPE and, in the early days, saw two-person deliveries undertaken with two different vehicles to keep the crew entirely separate. “Initially, that cost us considerably more, but it was vital to maintaining that service for our customers,” says Kal. Similar changes were made at the company’s bed factory in the Midlands, where a two-tiered shift process and a range of Covid-secure measures were implemented to ensure production was maintained.
Facing a squeeze on supplies
As the country emerged from lockdown, Dreams has continued to see high demand for its products. “Everyone suddenly made a mad dash to get those raw materials – fabrics, covers, springs, and so on – and we certainly experienced pinch and pain points,” he explains. “I suppose we’d taken for granted that you can order things from China or Europe or even from UK suppliers sourcing from third-party providers, and they just arrive.
Globally, though, when everything stops, resurrecting those supply chains and getting back to anything near normal takes time and we’ve seen most of our suppliers struggling in one way or another.
In response, Dreams brought forward its plans to create additional warehousing space, investing in a new 130,000 sq ft distribution centre. “Maintaining good relationships with our suppliers and having that extra space means we can hold extra weeks’ worth of cover of raw materials if we can get hold of more, so that we don’t run out of essentials. We’ve also diversified by bringing on more suppliers, so perhaps before where we had just one, we now have two or three.”
Prepared for new challenges
It’s been a steep learning curve for the business, explains Kal. “We’ve gone from our factory being in a position of strength and not having to worry about supply of raw materials, to weeks where promises of certain springs or raw materials haven’t materialised and that’s led to delays in production and ultimately the service to our customers. It’s meant our focus and energy have been less on large-scale wholesale transformation and more on survival and surety of supply to meet the growing order book.”
As a result, Kal is cautious about the impact of the end of the Brexit transition period. “The changes we’ve made in securing supply and being more vertically driven as a business means I’d like to think we’re pretty well set, but there’s still some nervousness around the areas we can’t fully control, such as borders. In the past few weeks, we’ve seen Felixstowe and Southampton come under huge pressure from container inbound and some of our raw materials and finished products have been stuck at ports. However, we’ve got some of our European suppliers switching to road haulage and, again, we’ve tried to diversify our supply base where possible.”