This month, the Bank of England forecast the UK economy will fall into a recession by October. Governor Andrew Bailey warned the unexpected recession will be the longest downturn since 2008 and may last just as long.
The delivery expert ParcelHero says all businesses, from retailers and manufacturers to logistics operators and couriers, should study the hard-won lessons of 2008 now, rather than be taken by surprise once again.
ParcelHero’s Head of Consumer Research, David Jinks M.I.L.T., says: ‘A highly regarded study, that ran from near the start of the 2008 crisis through to September 2010, charted exactly what happened to retail, logistics and manufacturing companies during that period, and the effectiveness of their actions. Its findings are a clear pointer to the best course of action to help avoid the worst impacts of any new recession.
‘The study was a collaboration between The Chartered Institute of Logistics (CILT), which is the leading organisation for transport and supply chain professionals, and the Senior (now Principal) Lecturer in Logistics, Yongmei Bentley, and her team at the University of Bedfordshire. Key professionals in supply chains, manufacturing and retail all contributed to the research. Its results are truly enlightening.
‘At first, indecision seemed to grip many companies, despite the escalating economic collapse. Between November 2008 and January 2009 only 36% of organisations had decided to make any notable changes to their businesses. A remarkable 39% of companies were still undecided what action to take, or whether to do anything at all. A surprising 25% had decided to take no major action.
‘By April 2009, it was all change, however. By then, 56% of the companies surveyed were making significant changes and only 21% of organisations were still undecided. 23% still stuck firm to their pe-crash plans.
‘So, what steps did businesses take, once they had finally woken up to their peril?
Staffing levels: The most common move was to reduce employee numbers. 21% reduced their workforce as the recession bit. Today, the unemployment rate stands at just 3.8%. Back in January 2008, even before the start of the downturn, it was 5.2%. By January 2009, unemployment had already risen to 6.2%. By January 2010, it had shot up to 8% and, indeed, it didn’t peak until November 2011, at 8.5%, before swiftly falling back.
Looking at these numbers, it’s not hard to predict many companies will respond by laying off staff this time around as well. This will be an option closely considered by those retailers, logistics companies and warehousing operators who over-extended at the height of the Covid pandemic home-delivery bubble. Many of these, including Amazon and Shopify, are now reducing personnel numbers to reflect a return to more typical retail consumer behaviour.
Stock levels: The next most frequent step companies took, after they woke to the full impact of the 2008 crisis, was to decrease stock levels significantly. 17% of companies anticipated a significant drop-off in demand and drastically reduced their volumes.
WIP inventories: Similarly, particularly for manufacturers, 12% of companies slashed their WIP (Work in Progress) inventories. In other words, companies not only slashed stock levels, but also slashed the volume of products being produced for future sale, particularly the number of items manufactured “on spec” without forward orders.
Increased local suppliers: Just as today, the recession of 2008 came on the back of a period of high fuel costs. While the main driver for change was the significantly reduced economic activities over the period, the impact of high fuel costs should not be overlooked. 10% of companies switched to local suppliers when possible, reflecting a desire to shorten product lead-times and reduce transportation costs.
Product lines: As well as cutting the number of unfinished products going through production lines, 8% of companies also slashed the number of product lines they made or sold. Retailers and manufacturers cut down dramatically on their range of products, as well as overall volumes.
We’re already seeing that happen in our supermarkets this time around, with companies such as Tesco and the Coop cutting back on the number of different lines of products they sell, both in-store and online.
3PLs: The next most frequent step taken was to consider the use of third-party logistics providers (3PLs). These companies take on all the deliveries, returns and other logistics functions, leaving organisations to concentrate on their core business. Interestingly, supply chain, manufacturing and retail companies increased their use of 3PLs by 8%, to take advantage of cost reductions and reduce non-core activities previously undertaken in-house.
Conversely, 6% of companies already using 3PLs, particularly those with lower transportation needs (such as health care, government, telecommunication, hospitality and construction organisations) actually reduced their use of outsourced logistics and warehousing providers. It seems that organisations with less intensive logistics and delivery needs returned to in-house solutions to cut costs.
Cost reduction and waste elimination: Logistics represents a significant cost for many companies, so many businesses focused on this area in order to reduce costs and increase revenues. This included streamlining supply chains and reducing wastage.
Improvements in processes: Improvements included launching process reviews, decreasing production lead-time, setting travel bans for non-essential events, reviewing networks, consolidating warehouses, and implementing warehouse management systems (WMS) and improved IT systems.
Review of contracts: This quite widespread response often included a complete review of contractual and procurement terms, reducing contract rates, renegotiating discount deals and supply contracts, seeking more efficient suppliers and tightening up on credit control.
Price changes: This was an inevitable reaction, but not always in the expected way. Some companies cut the prices of their goods and services during the downturn to win new customers, but others increased their prices to cover rising costs.
‘It’s interesting to see that the study anticipated that it might be of use to businesses in the future. It concluded: “It is hoped that the findings from this study have practical implications and can offer suggestions to companies to help manage their logistics and supply chains more effectively in difficult times. In addition, the results should contribute to a better understanding of how companies’ strategies evolve for dealing with significant changes in their external business environment.”
‘Of course, the survey’s conclusions provide just a few examples of how retailers and their logistics partners can work together to help meet the challenges of a recession. Many are also innovating to reduce costs and maximise the potential of technology in ways not envisaged back in 2008.
To find out more, see ParcelHero’s study on “Dark Stores” and the High Street of the future at: https://www.parcelhero.com/research/shop-of-the-future