The pandemic has added fuel to the e-com fire, which could be seen as the funeral pyre of High Street retail. Figures from the Office for National Statistics show that UK online spending as a proportion of all retail shot up from 20% in February to a record 33% in May and remained above 28% in October. Digital market research specialist, eMarketer, predicts that e-com will account for almost a third of UK retail sales by 2024. The problem for retailers is that higher e-com sales inevitably bring higher levels of returns, making their businesses less profitable. In addition, social shopping – purchases made via social media platforms – is on the rise within the e-com figures, especially among Gen Z, with research showing this is more likely to feature impulse purchases that generate more returns.
Squeeze on profits
Add in the complications – and consequent costs – thrown up by Brexit and it is clear that supply chains face multiple challenges as we start 2021. Brexit means additional customs paperwork, bringing the risk of freight gridlock at ports and airports. Restrictions on the free movement of labour will slow the flow of migrant workers into the UK, which will have a disproportionately large impact on the logistics sector, which has employed many EU workers in recent years. The result of this should be higher wages, although this is likely to be mitigated now by the economic slowdown. What with Coronavirus precautions in the workplace, operational changes to meet higher e-com demand, rising numbers of returns and Brexit procedures, companies are facing higher costs on all fronts that – together with lower demand in recessionary times – put a squeeze on profits.
Automation and resilience
With e-com booming, its labour-intensive order profile and higher return rate is leading many firms to consider warehouse automation to increase productivity and accuracy. Tied in with this trend is the desire to build resilience and reduce risk in supply chains by making them shorter and less complex. As well as the desire to reshore or near-shore operations, there is increased interest in co-opetition, a concept that combines co-operation and competition among two or more firms.
Co-opetition can enable companies to raise profitability through reduced costs, shared risks and enhanced competitive advantage. Traditional examples include automotive companies collaborating in R&D, where costs can be especially high. For example, electric car manufacturers have been co-operating to establish a standard charging technology in order to help grow the electric vehicle market. Logistics co-opetition entails collaboration in the supply chain, with two or more firms sharing part or all of their operations.
A recent research study (Pedreira & Melo, May 2020) of supply chain co-opetition examined data from two food manufacturers in Brazil. Simulation was used to evaluate the advantages of the co-opetition in terms of transport costs, CO2 emissions and service levels. The study found that co-opetition can drive significant business benefits, but only if companies change at least some of their delivery programmes to improve synergy. The research showed that outbound transport costs can fall by between 5% and 25%, average lead-time by between 6% and 10% and CO2 emissions by between 5% and 23%. The study also found that if firms do not collaborate on delivery schedules, the benefits remain around 5%, which is unlikely to motivate firms to participate in co-opetition.
There are risks with co-opetition, of course. Companies must ensure that their strategies do not infringe the prevailing competition laws. A greater risk is likely to be failure through lack of trust. To succeed, co-opetition partners should have similar corporate values – likely to be linked to their CSR vision, with environmental impact probably foremost when it comes to the supply chain. They must also draw up very clear rules to define the line between co-operation and competition.
As the UK’s leading authority on automated material handling with over 60 members, AMHSA seeks to accelerate the adoption of world-class intralogistics automation across the UK supply chain. Visit www.amhsa.co.uk, call 07517 610514 or email [email protected]