Monday 23rd Oct 2017 - Logistics & Supply Chain

Of eggs and baskets…

Bigger is better seems to be the slogan for the business world, whether it’s the drive for mergers and acquisitions that create larger and larger companies or the stratospheric remuneration packages our captains of industry claim are essential to motivate them to get them out of bed in the morning.

But is bigger is better always going to be the case in all aspects of the business world, especially when applied to the supply chain? Take the case of warehouses, for example.

For years there’s been a steady drift towards having fewer but larger warehouses. In the UK and some other parts of Europe, the voracious supermarket chains have led the charge. They’ve been pushing their influence upstream in the supply chain. They’ve pressed their suppliers to deliver into central or regional warehouses rather than direct stores. Small wonder many suppliers have centralised their warehousing as well.

Rising demand
Meanwhile, in industries such as electricals and clothing, more manufacturing has moved out of Europe to places such as the Far East. Because of that, stock takes longer to arrive in European markets and distributors or resellers have to hold buffer inventory to allow for vagaries in lengthy supply chains. Result – demand for larger warehouses has risen sharply.

But I’m beginning to wonder whether some of the companies that have gone for broke on monster warehouses are going to regret their decisions. When it comes to warehousing, could we be moving out of the era of bigger is better and into the age of small is beautiful?

No doubt opinions will be divided on this point. But in warehouse management, there seems to be a range of pressures pushing against the notion of size for size’s sake.

The first of these is the green thing. There is little doubt that consumer power is taking on a sharper environmental edge. That displays itself in issues such as so-called excessive packaging. But it also surfaces in criticism about so-called food miles and, in general, about the distances goods are shipped from producers to consumers.

I met an old friend recently who lives in Jersey in the Channel Islands. He told me that the famous Jersey Royal potatoes he buys in his local St Helier supermarket have been first shipped to England to be washed and packed and then back to Jersey. Many shoppers have similar tales. Stopping lunacies such as this will partly be a case of radical rethinking about the way a supply chain is managed. And companies with huge centralised warehouses will find it more difficult to bring more flexibility into their supply chains than those with dispersed distribution points.

But it’s not only environmental considerations that should prompt a warehouse rethink. There are also transport considerations to take on board. The first of these is that the Working Time Directive has reduced the driving hours truckers can spend in their cabs. Not surprisingly, those companies that have cut out regional warehouses, now find that truckers need to make longer journeys.

But that’s not the only transport issue on the horizon. In several parts of Europe, not least the UK, the debate about road pricing is gathering pace. It would be foolish to predict the outcome of this debate in any country. There is a complex web of political and economic pressures pulling in several directions. However, it’s a fairly good bet that some governments will start to edge cautiously in the direction of road pricing.

In the UK, we’re already seeing this in cities such as London and Durham. The economic point is that if road pricing takes hold in any serious form, distance between distribution point and market could become a significant cost issue.

And, finally, what about the wise old adage about putting all your eggs in one basket? We live in an uncertain world. Risk management is a hot topic around boardroom tables. Isn’t it about time that companies started to think about the risks of putting so much of their businesses’ stock in one or two places? After all, bigger (although not better) can also apply to disasters.

Peter Bartram is a business writer and journalist, a regular columnist for SCS, and the author of twenty books

 

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