Are these overflowing warehouses the tipping point for European logistics?
11 November 2019
I was struck earlier in the year by a new story which reported that European companies have the fullest warehouses in the world.
It stated that large and medium-sized businesses have ‘hoarded’ high inventories since mid-2018, and in March 2019, inventory rates hit a new record. In fact, this report in March said that warehouses are now at the highest level since 2012 – higher in Europe than anywhere else in the world. Most notably, the largest increase was recorded in the warehouses of German companies.*
This theme hit the headlines again following the latest Brexit poll from the United Kingdom Warehousing Association (UKWA) which suggests that spare warehouse capacity has almost dried up in Britain. According to reports there is estimated to only be enough storage space for “just a couple of days’ freight, inbound through Dover”.
These are news headlines that I find pretty startling; particularly as we’re supposed to be in the era of Logistics 4.0 where everyone is running streamlined processes, powered by technology, and utilising lean inventory and ‘Just in Time’ (JiT) fulfilment strategies.
So, why are organisations continuing to struggle with cripplingly-high inventories?
One of the main reasons for this is said to be the ongoing uncertainty caused by Brexit. Organisations are stockpiling goods in preparation, but this strategy has been compounded by a fluctuating demand for goods across the globe.
But when is warehouse stock, just too large?
It’s estimated that stock levels are currently 20-30% above the ‘normal’ rate - this could have a significant impact on the future success of these companies, if they continue at this rate.
For instance, Days Inventory Outstanding (DIO) – i.e. the amount of time a company needs to convert its inventory into revenue was found to have increased to 52 days (in 2017 it was 48 days). This means it now takes longer for a company to turn stored inventory into sales, and essentially cash in the bank. This slowing of pace means that adjustments need to be made to both production and accelerated sales – after all, additional warehouse space costs a lot of money.
But isn’t stockpiling the only way to prepare for uncertainties like Brexit?
In truth, the reality is that no one can know yet what will happen when the UK leaves the EU, and whether there will, or won’t, be a deal agreed. For now, stockpiling seems to be a preferred option but it’s certainly not the only one.
The important thing to remember is that, as uncertainty lingers, manufacturers need to take control of the situation and kick-start their own contingency plans to ensure they’re ready, particularly if this period of uncertainty continues. A problem-free exchange of goods remains as the key operational concern for organisations, and this is particularly so for those manufacturers that have a commitment to get time-critical parts to customers at the right place, at the right time.
So, what’s the alternative to stockpiling?
Organisations need to switch tact.
These overflowing warehouses are a tipping point for European logistics solutions and arguably the much-needed ‘kick’ that many need to address inefficiencies in their value chain.
The key, is to take a more holistic approach to your logistics strategy, in respect of both inventory planning and returns management. This means putting the customer at the heart of the process and looking beyond just individual warehouse sites and logistics functions. This approach will allow organisations to run more efficient operations and avoid the need to stockpile. Furthermore, if the forward and return flow is perfectly managed the TCT (total cycle time) will be reduced and therefore stock levels can also be reduced too.
How can technology help?
Technology, just like our very own service and technology platform Gateway, has the power to centralise and normalise data, fusing together the physical and digital aspects of a value chain so it’s easier to manage. This makes predictive forecasting possible - allowing organisations to plan and manage inventory accurately and in a more efficient way; using information based on fact, rather than gut-instinct.
In turn, this means organisations can hold onto the parts and products they need, without ever compromising on service. In fact, many of our clients credit complete data visibility and solution control as a critical factor in being able to slash inventory levels, gain better outcomes and improve productivity too.
What today’s news does is really underline the growing need for organisations to use more accurate demand forecasting and supply planning, plus the need to switch to more alternative fulfilment strategies. A ‘one size fits all’ strategy unfortunately just doesn’t fit all organisations any more.
Just-in-Time (JiT) inventory management
A JiT fulfilment strategy – also known as lean manufacturing – is just one example of an approach that can be made possible by a value-added approach to logistics. The main aim of this type of strategy is to minimise the amount of goods held at any one time, saving space, reducing overheads, cutting waste and encouraging a healthy cash flow.
This type of inventory management practice provides many benefits – including improved warehouse efficiencies and leaner inventory management – but it is not without its challenges. JiT relies heavily on factors such as a strong, fast and efficient network of suppliers, and a seamless digital road map. For many organisations however, this will be a huge step change, as most will still operate their supply chains in the realms of physical objects. Digital transformation requires some extensive change management and leadership, and this of course starts at the top.
A challenging strategy to start, perhaps, but we know that those forward-thinking organisations that adopt these digital capabilities will be best prepared to navigate an unpredictable future. The alternative for those not willing to adapt? Stockpile - a necessarily strategy in some instances, but certainly not the only option available, and one which is high risk in today’s volatile market.
For more information about Carousel’s value-added solutions, or for additional expertise on how you can prepare your supply chain for Brexit, please get in touch.
* This is the conclusion from a June study presented by credit insurer Euler Hermes and TRIB Rating, the rating service of Euler Hermes Rating in cooperation with Moody's Investors Service for Europe-wide standardized ratings for medium-sized companies.