Supply Chain View

The BBC reported last week that UK online retailing grew by 33.4% to £10.9bn last year. Today the headline was that supermarket Kwik Save was closing 79 stores in a bid to stay afloat.

The former story is a well attested trend, and putting it next to the latter is to make a point in a rather anecdotal fashion. But nevertheless, it underlines a distinct move from one selling channel to another, and one that has supply chain implications.

Managing product availability over many retail outlets is hard - you run out of a line in one branch when you are falling over stock in another, your stores have different capacities and customer characteristics, etc. In many ways, an online model dispatching from a single stocking point or merging orders through a distribution centre is much simpler. This would also allow greater complexity at the supply end, extending the range and giving more consumer choice (which is the Amazon model).

But if you are trying to move from one model to another, or to operate a hybrid arrangement, then the existing configuration and processes of that distribution centre are likely to be inadequate. Store replenishments consist of many order lines, perhaps in carton quantities – online customer orders are ones and twos. What does that do to picking efficiency?

At the level of the total economy too there is a great benefit to be extracted, but only if there is structural change. The last 50 metres of the retail outlet now becomes the last mile of online delivery. Do we see a future of thousands of liveried delivery vans clogging our streets as they chase each other around dropping off our purchases? Or will there be a consolidation in last mile services. Back in the first dot-com boom there were various clever ideas and start-ups that tried to solve this problem – how many are still around? The volume didn’t arrive quickly enough to make them profitable. Perhaps we are almost at that stage. My thought is that something will happen when the big parcels carriers start getting involved and the market settles down to a couple of giant providers (it’s all about drop density, and too many competitors kill the profitability) and a few niche players.

We’ll see.