Back to the land

Omni-channel has changed retail. The rise of eCommerce has meant more items picked singly and delivered to home, resulting in huge re-structuring of distribution processes. In addition, supermarkets are opening more convenience stores while the big out of town shopping centre wanes in importance. 

These changes, plus a growing population in urban centres, presents a challenge to the logistics industry.

UKWA CEO Peter Ward says: "While there is sufficient warehousing and logistics capacity across the industry, given some the changing trends we've seen, it's not all in the optimal location. For example, some retailers say if they could move Milton Keynes 50 miles further south, they would. It is striking that in certain cases Milton Keynes is not best placed to meet customer expectations in the affluent South East."

The logistics of serving the city centre convenience store model, requiring kerb-side delivery 10-12 times a day from a 7.5 tonne vehicle, delivering roll cages to replenish what's been sold in the last hour, is totally different to the model that has been developed in the modern era. What's more, the old model isn't dead, it's still there and running in parallel. 

"This creates a great deal of complexity for retailers and logistics operations. If you want to replenish stores in WC1 multiple times a day the DC can't be in the Midlands, it can't even be in St Albans. Some grocery retailers are using their big stores as distribution centres as well as retail outlets."

While this makes sense in terms of making maximum use of assets that are declining somewhat, the bigger issue is the constraint on land within large urban areas.

"This is the real crux of the matter," explains Peter. "This is why we produced our white paper on this topic." You can download that paper here. http://bit.ly/1UnX5vK

Peter continues: "Perhaps we need to look at planning regulations within the M25. Left to the market, when there is redevelopment land, it will go to residential, market forces say you will get a greater return than building a logistics facility."

The Government has recently announced a new housing policy, but a question mark remains over how people in new developments will be provided with the warehousing and logistics necessary to survive and thrive. 

The UKWA is holding a luncheon at the House of Lords on March 2, with the aim of impressing on senior Government figures that logistics should be recognised as a vital service, like water or electricity. They are keen to ensure that for every tranche of new housing developed, thought is also given to providing appropriate logistics infrastructure.

"There has to be adequate provision," says Peter. "Or else the city will end up choking itself. Do we look at legislation? Perhaps, but in the current environment, I can't see it happening. We are in a free market society.

"We are looking at creative solutions. Part of our role is to bring the property developers and planners together to explore mixed use facilities. There are examples in Hong Kong, with logistics centres underground and lower level with retail space, and residential on top."

Peak 2015

There was a certain amount of trepidation about the recent Peak shopping season, heralded by Black Friday and Cyber Monday and pushing all the way up to Christmas. This was against the backdrop of a troubled time in 2014, when order demand overwhelmed the capacity to deliver, in some cases. This was most painfully apparent when the courier City Link went bust.

Peter believes 2014 took a lot of people by surprise and that caused a number of problems.

"Since then, there has been a lot of discussion and debate. Those companies that take Omni-channel seriously as a sustainable business model prepared better. They rehearsed scenarios, they tried to 'bust the system' in trials. There has also been better communication this year between retailers and 3PLs."

This points to a much more mature business, one that reflects an industry moving beyond an emphasis on single day discount events and a focus on long term sustainable business.

"Online is continuing to grow and is a key all-year focus for retailers. The benefit of a few years experience of Omni-channel Retail, means there is a better alignment of customer expectation with what can be delivered sustainably. It is interesting that some retailers are nudging consumers towards paid-for options depending on how fast they want deliveries or how valuable they are as customers."

A hope for Peter and his membership – numbering over 650 companies – is that placing an appropriate value on the service provided by the logistics function will translate into broader respect for third party logistics companies, and perhaps better remuneration for those services. 

"It is a small step on a long journey," explains Peter. "Fundamentally the demands on the 3PL are beyond the realms of reality. The logistics industry is asked by its customer base to provide many services free and perform on a very low margin. That's why casualties occur, because there is not enough fat in the business. This is a much bigger issue than Omni-channel Retail but as a rule of thumb, the logistics industry is under-remunerated for what it delivers."

Peter adds this is not simply a case of supply and demand and is a structural issue across the piece. While it remains difficult to grow profits, many companies are achieving this by adding value by developing expertise in specialised areas, such as returns. As a rule, firms that are agile and flexible are being rewarded.

One thing is for sure, the industry is moving at pace, with the supply chain visibility achieved by some carriers impressing. 

Peter says: "There are some leaders starting to emerge, some companies have embraced it and made the investment. And with IT moving quickly and falling in price, it is also possible for smaller logistics companies to explore supply chain services that would have been considered prohibitively expensive a few years ago."

While Omni-channel Retail has brought changes to the logistics world, many fundamentals regarding adding value and driving efficiency remain. These qualities, of course, are those the logistics industry excels at. With the help of the UKWA, the future looks bright and exciting for those companies at the coal face.

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