The development of smartphones has made it much easier for consumers to access the internet and, as such, online shopping has grown at a rapid pace. Sales at the UK’s 20 largest online-only retailers increased by 23% to £8.4bn during 2017.
While strong online growth is positive news for the UK economy and the retail sector in general, it is causing a headache for supply chain managers. All these packages need to be stored somewhere before last-mile delivery but, since 2009, warehousing space in the UK has decreased by 71%, according to global real estate services provider Savills.
One factor is Amazon. The world’s third-largest retailer, which announced its profits increased by 31% to $3bn during 2017, has expanded its operational space by four million square feet. The company’s persistent acquisition of land is forcing competitors to compete for available space, which is pushing up costs considerably.
In Scotland, the cost to rent 10,000-50,000 square feet warehouses has increased three times faster than average UK rent prices as land availability continues to decline. In fact, warehousing availability is at its lowest in Scotland, where there are only six units in total measuring more than 100,000 square feet. The southwest of England is not far behind, with only eight available units.
Amazon, with its financial muscle, can afford to absorb such costs. Financial restraints on small suppliers mean such firms are unlikely to be able to afford storage space. These businesses may be forced to either make fewer products, offer smaller product ranges or delay delivery times to use inventory.
It is clear that more warehouses need to be built in order to keep up with the current demand for space. Legislative changes such as permitted development rights, which allow building owners to convert light industrial buildings into residential properties without planning permission, have made it more attractive to build housing in existing warehousing space. To encourage developers to build industrial properties, the UK government could limit or repeal the development rights. Alternatively, it could look at offering grants or subsidies in locations where land could be used for warehousing.
While the construction of new warehouses is not yet in the pipeline, procurement executives and warehouse managers must look to optimise their existing storage space. Taking a demand-driven approach to the supply chain will allow businesses to react to consumer demand and purchasing patterns. This means suppliers can establish appropriate inventory levels to satisfy customers and the services they provide. On average, a demand-driven approach may reduce inventory levels by up to 30% and significantly reduce obsolete inventory levels. Businesses can consistently keep on top of their stock and ensure they aren’t storing unwanted goods that are taking up much-needed space.
As well as an improved inventory management plan, suppliers should also think about the layout of their current warehouses. Identifying the most appropriate layout and racking configurations, reducing aisle width, increasing racking depth through the use of narrow aisles, and double deep type racking. Often, businesses believe their warehouses to be full, but space is not always utilised properly because of the mix of part pallets. Optimising beam heights by adding extra levels can often achieve around 20%–50% of additional space.
While online sales continue to grow and drive demand for storage, it is a real possibility that warehousing capacity will be reached. It is crucial that new industrial buildings are developed, but suppliers and warehouse managers must also take steps to make the most of the land they already have. If the situation is not brought under control, the booming e-commerce industry could stagnate and suppliers may be forced to sacrifice some of the services they offer consumers.
John Perry is managing director at Scala
This contributed article has been written by a guest writer at the invitation of Procurement Leaders. Procurement Leaders received no payment directly connected with the publishing of this content.