After Brexit, Covid and ships stuck in the Suez Canal exposed the fragility of global supply chains, retailers are taking action to avoid chaos in the golden quarter

  • Retailers advised to ‘remove as much supply chain movement as you can’ to reduce risk ahead of Christmas
  • Bensons for Beds chief executive Mark Jackson explains how it transformed supply chain in the wake of global material shortages
  • Retailers such as Tesco launching rail services as an alternative to road haulage, with others looking at robots or customer delivery

Any time, any place, anywhere. Retail has pretty much lived by the Martini mantra for decades now as an ever more sleek and adaptable supply chain has enabled consumers to benefit from an abundance of goods always on the shelf, whether digital or in-store.

But over the last year, the nuts and bolts of that well-oiled machine have been buckling and breaking under the strain as pressures have built up. 

There were problems that seemed like hangovers from the 19th century, such as the blockage last spring of the Suez Canal.

Then there were shortages of vital components such as computer chips as the Covid crisis disrupted manufacturing and supply across the globe, delays at ports as ships queued up for entry, and surging freight prices as retailers were forced to pay top dollar for limited slots.

At the other end of the supply chain, consumers faced a more limited choice as the pingdemic and a scarcity of labour among suppliers in warehouses and distribution fleets led to unaccustomed gaps on shelves.

On top of that, the turbulent reality of Brexit has piled extra costs on retailers that do business with EU countries. Now, as retail’s golden quarter beckons, there have been warnings on the availability of key seasonal lines such as toys.

Ever Given at anchor in Suez Canal

Retailers were impacted last year when the Ever Given was stranded, blocking the Suez Canal

The BRC warned at the start of September the problems meant “higher prices loom” for shoppers as price deflation slowed. BRC chief executive Helen Dickinson observed: “Some non-food categories, such as electricals, saw sharp rises in inflation compared to last year, owing to global issues from delayed shipping and shortages of microchips. 

“Food retailers are fighting to keep their prices down as far as possible. But mounting pressures – from rising commodity and shipping costs as well as Brexit-related red tape, mean this will not be sustainable for much longer, and food price rises are likely in the coming months.”

When manufacturing, shipping and distribution are all in disarray, the challenges to retailers are clear. As Dixons Carphone chief supply chain officer Lindsay Haselhurst puts it: “Disruption to any of these elements directly impacts on the performance and cost of supply chains and ultimately on our ability to give our customers easy access to a wide choice of exciting and affordable technology. 

“The pandemic has highlighted the fragility and complexity of our global supply chains as we have seen all of these critical supply chain components being significantly disrupted over the last 18 months.”

So how can retailers navigate stormy supply chain waters that threaten to upset a system that had worked so well for them for so long?

Closer to the home

The obvious starting point, says Accenture strategy managing director Kelly Askew, is “where possible, removing as much supply chain movement as you can”. While that may be difficult when it comes to some of the components vital to today’s essential products, such as technology, there are opportunities in areas as diverse as food and fashion.

Askew says: “The best thing for retailers to be doing to remain prudent is balancing offshore versus nearshore sourcing. So, do we want single reliance on clothing being manufactured in South Asia or China, or should we have an offset of that with some clothes being made in Western or Central Asia, Turkey and so on, where there’s an alternate route into market as well as a bit of agility and ability to speed up transport?”

There is some potential to take a similar approach in food through innovations such as vertical farms. These are being tested in-store by Marks & Spencer and Ocado has invested in a vertical farming start-up Jones Food Company. Askew maintains that the innovation combines the appeals of being “relatively straightforward” and “low capital intensity”. 

vertical farming M&S

Marks & Spencer is growing produce in some stores to reduce its exposure to supply chains

One retailer that has increased production at home is specialist Bensons for Beds. The retailer, which is in the midst of a turnaround programme following its acquisition by Alteri, overhauled its supply chain in response to the pandemic.

Bensons chief executive Mark Jackson says traditionally it, and many furniture retailers, relied on sole supplier relationships: “They were generally very reliable. Most things were made to order, they would come into your warehouse and go out to a customer generally in line with the delivery date that was arranged.”

The Covid disruption necessitated change. Jackson recalls: “We had global shortages of every single key raw material – foam, springs, timber, mattress ticking, pillows, duvets. And we had sole supplier relationships. We couldn’t go elsewhere.”

Bensons focused on building stock, particularly of the fastest-selling lines, and building UK manufacturing which now accounts for 50% of total sales versus 35% before the pandemic.

To do both, the retailer had to work in partnership with its suppliers through “understanding suppliers’ supply chain and being able to predict shortages of raw materials”. That has allowed Bensons to act faster.

“The holy grail of a successful supply chain is the more you see and the earlier you can see it, the more time you have to respond and the more choices you have available”

Lindsay Haselhurst, Dixons Carphone

Jackson says the availability of alternative sources is key, though suppliers can be reluctant to cooperate because they fear losing business. However, discussions are ongoing about how supply can be de-risked while maintaining important strategic partnerships. 

“The perfect solution would be that the supplier themselves have alternates so that they don’t have all their eggs in one manufacturing basket,” he adds.

Haselhurst agrees that “building and maintaining relationships with suppliers and manufacturing partners [is one of the] most important levers that drive supply chain flexibility”. 

She says “investing in those relationships, working really closely to share planning, increase transparency and ultimately, improve upstream visibility” is vital. “That’s the holy grail of a successful supply chain – the more you see and the earlier you can see it, the more time you have to respond and the more choices you have available.”

Going off-road

But when product is actually in the UK, how can retailers handle and distribute it most efficiently as warehouses and driver availability come under pressure? Retailers, who have offered sign-on fees for new drivers, have called on the government to relax immigration rules in order to encourage lorry drivers from overseas to come to work in the UK, but that plea has been rejected.

Warehouse with no people

Retailers have struggled with staffing numbers in warehouses and fleets

One option is increased automation wherever possible, such as in distribution centres. Askew says: “Particularly in Covid times, we’ve seen high rates of absenteeism, as well as  a general shortage of people interested in working that kind of job, so having the ability to fulfill more portions of more orders without human intervention is hugely beneficial for the retailers.”

Asos, for instance, is investing $100m (£72.5m) to automate a US warehouse in Union City near Atlanta, to be better able to serve its growing business in the States. 

Similarly, a Tesco spokeswoman says: “We continually work with our suppliers to optimise production in sites through better ranging and automation of production and packing. 

“We are using space efficiently, working to build stock with our suppliers over a longer period, reducing the number of vehicles we use and enabling more efficient routes to store.”

Another opportunity for some retailers could be to explore alternatives to road haulage. Tesco, for instance, was the first UK retailer to launch a dedicated rail service from Spain, using temperature-controlled containers.

Freight train

Businesses are looking at rail as an alternative to road haulage

That transportation method is also attractive from a sustainability perspective. The Tesco spokesperson says: “We are now working to roll out four more rail routes across the UK, including one linking London to Scotland. The new route to Scotland, which will be ready later this year, will use hybrid locomotives – the greenest trains for freight on the UK network – helping customers enjoy fresher food at a lower environmental cost.”

Stores and the colleagues who work there could also play an enhanced role as the supply chain landscape changes. 

During the pandemic many shops effectively became online fulfilment and collection centres. Store staff also switched into roles supporting ecommerce operations - everything from working in warehouses to selling over video. New partnerships were formed with on-demand delivery specialists, from Uber to Deliveroo.

“We’ve seen some retailers experiment with having customers or their employees deliver for the last mile”

Kelly Askew, Accenture

That opens opportunities for stores and the people who work there to play an even greater role as the supply chain adapts to meet challenging conditions.

Haselhurst says: “Through innovation such as ShopLive, our 24/7 shopping service, and contactless order and collect, we turned each of our stores into distribution hubs, giving us a step-change in capacity which meant that while forced to trade online only, we were able to deliver record-breaking volumes.

“We’re constantly looking at taking that further, be it through same day, one-hour delivery slots, or our quick store to door delivery in partnership with Uber. Our stores aren’t just places to delight and inspire customers – they’re key to making it easy for our customers to get what they need, when and how they want.”

All options on the table

Askew thinks staff – and even customers – could become important players in the last-mile supply chain in the future.

He observes: “We’ve seen some retailers experiment with having customers or their employees deliver for the last mile, so fulfilling from a store and having the customer bring something to a neighbour who is on their way home or nearby in exchange for some sort of benefit for them. 

“Or, likewise, employees during periods of lower in-store utilisation being repurposed to do some of that delivery as well. If you think about getting the most value out of your labour dollar, that gives you a really flexible way to do it.

“In particular as you start to engage consumers in delivery it allows you something 100% agile – it can go from zero to huge amounts if your customer volume is [high enough].”

Last Christmas, for instance, staff at US electricals giant Best Buy delivered orders to customers from hundreds of stores.

Walmart has previously considered using customers to deliver and they would be rewarded with discounts. Former ecommerce boss Joel Anderson told Reuters: “I see a path to where this is crowd-sourced.”

starship london tesco robot

Self-driving robots could deliver products to convenience stores

Another last-mile possibility may be delivery by robot. That idea, like delivery by drone, has not yet taken off, though pilots such as that of the Co-op with self-driving robotics partner Starship Technologies are ongoing.

Perhaps the present supply chain problems will prompt a surge in robot delivery. Former Morrisons chief executive Dalton Philips seems to think so – he joined the board of Starship this week.

Askew believes the robots’ moment may yet come as problems are ironed out. He can envisage, for instance, delivery by robot to local convenience shops acting as hubs, from which shoppers can pick up their goods in the same way as they already do with goods ordered online.

All supply chain options will be on the table as retail’s big selling periods of Black Friday and Christmas approach. 

As the busy season looms, retailers that have not already done so must act fast to ensure they have booked sufficient capacity with the big carriers. This year, more than any, late bookings may be difficult, if not impossible, to secure.

Although only a short time away, retail’s red-letter days show the need for effective forecasting in general. That could be made easier by new opportunities thrown up by burgeoning data and the insights it can bring.

Askew says: “How do we take advantage of new analytic techniques to get a little bit more accuracy in predicting? Over the next couple of years, there’s bound to be a bit of uncertainty in that the traditional retail habit of looking backward is less relevant. But using the right forward-looking data, from weather forecasts to consumer confidence to political meanderings, can inform a data model.”

It is an approach already being deployed by Tesco. The spokesperson says: “Better forecasting has made it easier to secure haulage and we have increased the minimum order quantities to better use truck fill and reduce trucks on the road.”

For the difficulties resulting from Brexit, only a political solution is likely to make a real impact on the additional costs and red tape it has introduced.

But across the wider supply chain efforts will continue to make improvements. 

Haselhurst says: “As the pandemic continues to impact supply chains around the world, we will be looking at all aspects of our supply chain to understand how we balance resilience and flexibility for the future – whether that is our sourcing strategies, our supplier relationships, our stockholding or our final-mile distribution networks. We will focus on getting ever better end-to-end visibility and we will continue to play to our strengths.”

Although retail faces supply chain logistics difficulties and cost pressures all the way from producer to consumer, new ways are being found to ensure products are in the right place at the right time, keeping the tills ringing.

  • Sign up for our daily morning briefing to get the latest retail news and analysis