The view on retail supply chains with Jim Hartshorne, MD Retail & Consumer UK&I, DHL Supply Chain
If you thought 2020 was a manic year for the retail sector, then brace yourself for another year of breakneck developments as the sector grapples with surging e-commerce, shifting demand, digitalisation, COVID-19 and Brexit
At the start of 2020, no one could have predicted the rollercoaster that the retail sector was going to ride that year. With white knuckles, the industry saw itself holding on for one wild ride as it was transformed in huge and unanticipated ways that made it look very different just 12 months later.
Years of developments were suddenly compressed into just months in the wake of COVID-19 and the changes it made to consumer behaviour and industry practice.
So, to take stock of where we are and what is going to come down the line in 2021, we sat down with Jim Hartshorne, MD Retail & Consumer UK&I for DHL Supply Chain, to get an inside look at retail supply chains.
A complex set of challenges
“It's quite schizophrenic, if I'm honest,” says Hartshorne when asked to summarise the post-COVID retail world and the supply chains that underpin it.
“We've had fashion retailers that have really had quite a horrendous time, we've had food retailers that have would probably equally say they're pretty exhausted and had huge volume, but for different reasons, and then, there are other customers of ours that have really seen quite significant change in terms of the way that they've operated, so it's been an incredibly interesting year,” feels Hartshorne.
It's been a little bit emotionally challenging as well, if I'm honest
Alongside the commercial challenges, “It's been a little bit emotionally challenging as well, if I'm honest,” he comments, noting the loss of colleagues, often unsung heroes of the response to COVID-19, and the “quite difficult personal challenges, with home schooling and all those other things.”
This heavy impact from the pandemic has resulted in “Challenges that probably are less spoken about, but are equally difficult for us as a business” on the human side. “We've been very cognizant of its impacts on people, whether it be the pressures of dealing with all the things that going on at home for our staff. They still have to turn up and go to work every day, but they've still got children,” which has required new management techniques and also physical systems to “manage with a high level of absence,” and reduce the “productivity impacts of social distancing”.
If you take our packaging services environment, we've probably lost about 10% productivity in that environment, because we can't have the workspaces as densely populated as you previously would have had
“If you take our packaging services environment, we've probably lost about 10% productivity in that environment, because we can't have the workspaces as densely populated as you previously would have had,” even as demand surged for certain sectors, such as food retailing, where there was huge demand for “temperature control facilities, but there isn't capacity, just sitting around idle for that. So that's really challenged everybody and how we respond.”
2020 found out deficient company cultures
These kind of issues are why he thinks “2020 found out deficient company cultures” that have not taken into account the demands on their own staff.
As we plough into a new year, Hartshorne feels that 2021 is “Going to be as mixed as it was in 2020 really. You're going to get winners and losers. The bit that's unknown is what's going to be the real impacts? Who's really hanging on by a thread out there in terms of footfall through stores? Are pubs and restaurants going to be open, and so on? What's the knock-on effects of that?”
Then on top of that for European supply chains, Brexit has finally arrived.
Adding Brexit into the mix
Even with “A ton of preparation,” Hartshorne admits that many find Brexit “An onion that makes you cry every layer that you peel.
“It's not just [a case of] filling a bit of paperwork in and it's all sorted. It’s a multi-faceted complex thing that has changed during those very first days of the year.” He gives the example of moving food into Northern Ireland, which “presented challenges that we overcame,” but illustrated the new complexity. “We had a trailer sitting in a Dublin port containing some products … that had been shipped into that country for 47 years and all of a sudden the manufacturer had to evidence that the free-range egg, which was a part of the ingredients, had been pasteurised, so [it can be] hugely frustrating for people.”
It's been widely documented by the industry that it came too late, that the training was inadequate, and that we didn't have time to test them. However, the support that we've seen and experienced from particularly the UK and Irish revenue services … has been pretty good
He thinks that “it's something that will get better,” as it is largely “a technical issue that people are learning to work with,” in the wake of an agreement that was signed at the last minute and whose details haven been outlined in their entirety with mere days before implementation.
“It's been widely documented by the industry that it came too late, that the training was inadequate, and that we didn't have time to test them. However, the support that we've seen and experienced from particularly the UK and Irish revenue services … has been pretty good. To be fair, the channels of communication have been open, and we've got very good working relationships with them. They're listening to our concerns and challenges and helping us where they can. In my view, I would hope that organizations I have learned every step of the way.”
With this backdrop to 2021, it is imperative to take on innovation and use this moment as an opportunity to change approaches.
One way that DHL found themselves having to change their approach was in the need to respond far faster to sudden shifts and accommodate retail customers’ changes in strategy as they chased consumer demand.
We set up over seven significant pop-up sites within two weeks for two of our big food partners
Part of this was taking an adaptable, flexible approach that could change product flows and also rapidly stand-up new facilities. As consumers flocked to supermarkets to stock up on goods, but moved away from other products as lockdowns kicked in, DHL too had to go with this flow. They decided to use existing facilities for the grocery sector to store temperature-controlled goods, and then “Find relief for the ambient products, which is easier for us to turn capacity on with. So, for a couple of our big retail customers, we created pop-up distribution centres. We repurposed sites that were previously distributing to pubs and were closed and we repurposed fashion warehouses. We set up over seven significant pop-up sites within two weeks for two of our big food partners."
There's nothing like a fire on your feet to make you jump a bit quicker
“Actually, we found that customer decision making was better,” in this new environment he notes, “because there's nothing like a fire on your feet to make you jump a bit quicker.”
DHL has also found their decision-making has sped up, and it has reinforced then need “To carry on with our digital agenda,” a large part of which has been automation.
Accelerating automation as labour shortages remain
Not only have changes to working conditions put the need for space efficiency on a pedestal, but Hartshorne is quick to point out that the labour market continues to be challenging and a “big trend” in his opinion this year, further accelerating the automation in retail supply chains.
In our experience, where the economy has generated that capacity is not in the sorts of places or the skills where we need them
“We haven't seen the surge in available labour that people might imagine. If you sat and watched BBC News, you'd think that there's must be a ton of people to go and work in warehouses. There aren't,” he says bluntly. “In our experience, where the economy has generated that capacity is not in the sorts of places or the skills where we need them.” While “big inner city areas have generated lots of people coming out of hospitality, our sites are in the Midlands, in industrial parks out on the motorways.”
This has meant that “big buckets of cash” are being put towards redrawing the industrial workspace to be more dense and efficient through automated assistance in their “accelerated digitalisation program”.
We've halved the number of leases that we have, but we've doubled the capacity within them. We've gone higher and in a much, much more dense footprint, which is significantly more efficient for us, and much more cost efficient for customers
For example, they “Implemented a new packaging line for one of our confectionery customers that has taken 30% of the labour requirement out of that operation. The whole COVID challenge and everything that came with it just accelerated our investments in that plan.”
Elsewhere, “In the autumn, we opened a new multi-user consumer shed in Worksop, which has six customers in there at the moment, semi-automated - all 220,000 pallets - and we've got another four sites in the pipeline that will go public on in the next 12 to 18 months.” These are “really about making sure that we know we've got buildings that are sustainable for the future. So high density as a sort of strap line. We've halved the number of leases that we have, but we've doubled the capacity within them. We've gone higher and in a much, much more dense footprint, which is significantly more efficient for us, and much more cost efficient for customers.”
“A lot of manual handling, we're trying to take those out with robotics,” he emphasises.
Generating breathing space through automation is also going to be key in supporting retail logistics, as a new environment is emerging that is too intensive to operate capably with current labour reserves. That new reality is the growth of direct-to-consumer operations, which require a whole new level of flexibility and coordination.
Direct-to-consumer has been a huge growth area in 2020, as typical distribution channels have been reduced or shut down completely in the face of the pandemic and many in the retail space look to diversify revenue streams and capitalise on consumers’ desires to have home delivery.
For a lot of these manufacturers, they're not as sophisticated as the retailers in that space, so they need a bit of a sandpit to go and find out what works and what the customers like
However, operating this new kind of distribution “Into the smaller e-commerce players is actually quite complicated. It isn't a full pallet load that you would do into a sort of a Tesco or Sainsbury's. It's small orders and different labelling requirements.”
Furthermore, “For a lot of these manufacturers, they're not as sophisticated as the retailers in that space, so they need a bit of a sandpit to go and find out what works and what the customers like,” says Hartshorne.
This way they can come in, try it and see what works best, and then we can take it back into their core operation
This has led them to build “A really flexible implementation model with them. They can just go and try a few brands, a few product lines, see how it works, be flexible with the proposition to customers, so no massive commitment on their part. Then, once it becomes established, and they build that customer base, and they understand the operating model, we can transfer it back into their core operation where it ultimately will be cheapest.”
We’re spending a bit of time just thinking about what do we not want to lose? What do we gain from this?
The model allows “A manufacturer to pay for their warehouse management system and fulfilment activity on a per shipment basis,” he explains. “Rather than commit to a big investment in a warehouse management system with committed space, they can just come and say ‘We think … our projections are for 10,000 units a month,’ and we can just charge them on that basis…. This way they can come in, try it and see what works best, and then we can take it back into their core operation.”
This emerging flexibility and the technical capacity to support is why Hartshorne is optimistic about retail supply chains even in the face of such disruption. “There's been so many good things that we've started to do,” he says. “We’re spending a bit of time just thinking about what do we not want to lose? What do we gain from this?” This is an attitude that everyone in retail will need to take to capitalise on emerging opportunities and meet the customer where they want.
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