UK retailers have responded to Brexit-led supply chain disruption by stockpiling. But with limited warehouse space, the resultant costs and logistics challenges are significant. While retail supply chains are incredibly lean, Brexit has highlighted a dangerous lack of agility and flexibility.
Philip Hall, Managing Director Europe, CommerceHub discusses the role of drop shipping in reducing both cost and risk and improving the overall customer experience.
Stockpiling cost and risk
As companies ramp up their plans for a potentially disruptive no-deal Brexit at the end of March, Britain’s biggest retailers and wholesalers have raised their stockpiling efforts to the highest levels since the 2008 financial crisis. Retailers are being compelled to locate stock in small, discrete amounts across the country creating significant logistics challenges. From additional transport costs to the complexity of fulfilling customer expectations when stock is located outside the tried and trusted distribution network, the bottom line implications of stockpiling will be felt far beyond the Brexit deadline.
Contingency plans are clearly essential given the potential customs delays; however, the cost and risks associated with stockpiling should be focusing retailers’ attention on better ways of managing the supply chain. Brexit may be a once in a lifetime event, but a global supply chain can be derailed by any number of events, from the failure of shipping companies to strikes, and retailers need a far better, less costly and lower risk contingency model.
Drop shipping flexibility
Very few UK retailers have effectively embraced the use of drop shipping, where the supplier ships direct to the customer rather than to the retailer’s distribution centre. Consider the additional flexibility a retailer gains if drop shipping is more widely used: For example, switching up the drop shipping channel for UK sourced goods would free up space for stock coming from Europe, avoiding additional warehouse cost and minimising the risk and cost associated with moving stock unnecessarily.
Furthermore, resistance to drop shipping in the UK is predicated on outdated perceptions. Retailers prefer to retain control over the customer relationship, but suppliers have made huge progress in direct to customer fulfilment and now offer service levels that rival those of the retailers. Successful drop shipping requires a mindset shift, but the perceived barriers of service quality and end to end information visibility have been eradicated. The only constraint is the level of retailer/supplier trust.
Combining trust in the quality of service delivery with complete visibility of a supplier’s stock transforms customer fulfilment. If a popular product is out of stock in the retailer’s warehouse but in stock at the supplier, the ability to instantly flip to drop ship fulfilment enables customer demand to be satisfied with no disruption and no additional cost.
Brexit should act as a wake-up call for the industry and provoke new supplier/retailer relationships. A lean supply chain has become an essential component of a profitable retail model over the past decade – however, Brexit has underlined the need for far greater supply chain flexibility. By strategically embracing drop shipping, retailers can achieve a smarter model for fulfilling customer demand: an approach that ensures customer expectation can be met with less cost and far more flexibility.