Decentralisation is the supply chain's new must-have

posted by Michael Carson
3 June 2019

Just as demand is being fuelled by digital connectivity and the ‘always on’ consumer, so too is the ability of the logistics sector to respond and pre-empt ever higher consumer expectations.

Harold Wilson’s ‘White Heat of Technology’ may have prevailed through sixties Britain, but we’re now in the blue heat of digitalisation where readily accessible and relentless technological advances are transforming the way every one of us lives and works, and ever-increasing connectivity has put the consumer firmly in the driving seat. The demand for instant gratification has moved into the area where patience and acceptance once resided.

Gone are the days when shops were only open only during office hours and on a Saturday, and when you could place an order that would be delivered to your local store the following week …. if you were lucky! Same week delivery for any order placed is gone too, and going are the days when we might be content with next day delivery. We are hurtling towards an expectation of same day or even next hour delivery.

And it is keeping the logistics sector on its toes, pushing supply chains and distribution operations to flex and adjust their processes and structures to keep pace. The industry’s response has in many cases been truly remarkable. There are, however, some sectors that have struggled to match the demand. And, as the pace of change gathers momentum, there are many areas where the distance between capability and service target is beginning to look daunting or even insurmountable.

Moving away from centralisation

One of the most significant challenges confronting many suppliers is facing up to the limitations and rigidity of centralised distribution. After all, the move towards centralisation represented a huge investment at a time when it was viewed by most as a panacea for service efficiencies and economies of scale. Such operations have certainly helped the logistics sector capitalise on new technologies and provided an effective focus for resource, fleet management and skills as the shift towards a more consumer-centric marketplace took hold.  But, make no mistake, the dynamics and days of centralisation are on the wane. 

Of course, a distribution network founded on the principles of centralisation still provides considerable advantages in terms of inventory management and stock holding. However, the increasing complexity of moving stock through the network in response to order demand in disparate localities is often stretching the system and processes to the limit.

Even if many targets are hit, it’s only a matter of time before the wheels will fall off if the system is running constantly flat out. That’s when mistakes, oversights and errors can arise - and when the unforgiving consumer will note fulfilment failure and switch to an alternative supplier. A more decentralised model that can accommodate the needs of consumers in all areas of the UK is the only practical option for any business looking to fulfil consumer expectations in the new digital world.

As there are 32 major conurbations with a population greater than 250,000, there are several key reasons for decentralising the supply chain:

• The ability to respond promptly to consumer demand  - product must be in close proximity to consumers to hit a delivery target of 3-hours or less.

• Having the local knowledge, control and capability to react to evolving local demands and requirements.

• The cope for developing a more personalised service for customers – recent analysis has shown that retailers offering a ‘service’ over simply competing on price hold a significant advantage.

• The potential to reduce dormant time and the use of plastic for extending product shelf life within the supply chain - directly supporting the green agenda demanded by consumers.

• The opportunity to develop and introduce local sourcing of produce to reflect recent shift in consumer preferences – could help to offset latent fears of a loss of economies of scale and act as a ‘gateway’ for greater use of local and regional products by national brands.

This amounts to quite a dilemma for effective supply chain solutions. One only has to consider the cost implications of returning to a more decentralised warehouse network – there is not only the cost of additional or alternative warehouse space to consider, but also fragmented and increased stock holding, and the investment and operational cost of new and smaller delivery vehicles.  And when it comes to home delivery, as we all know the final mile is always the most costly. But, if that is what the consumer is demanding and expecting, then that’s what an effective and proactive logistics and supply chain service must reflect.

Just as technology continues to drive consumer behaviours and preferences, thankfully it is also providing many answers to today’s supply chain conundrum. And we must remember that there is clear evidence that consumers accept there is a premium attached to convenience and ‘immediacy’. New systems and methodologies such as unmanned deliveries and drone deliveries will enable businesses to support the shift to near-instantaneous delivery without compromising the operational efficiencies of an existing centralised operation.

There is a growing recognition in the logistics sector that a more collaborative model could provide a sustainable and pragmatic solution, with the same decentralised service available for retailers that have hitherto been in fierce competition. For some, that might be a step too far.  But for others, it really may be the only viable option as the pressure for next hour delivery steadily moves towards being the norm.

Such challenges are not restricted to High Street and online retailers. In the construction industry, for example, the principles of Just in Time delivery of components and materials has helped to maximise efficiencies and convenience for contractors and developers. Even though there is a premium charge attached to three-hour delivery turnaround, that’s a small price in the grand scheme of things. And failing to offer a comparable service puts any other business at a serious competitive disadvantage.

It’s only a matter of time before one company steps up to the plate and takes the competitive lead by offering such a service response without any charge. Then there’s scope for charging a premium for next hour delivery. I would say and so on. However, as scientists have yet to master time travel, instantaneous delivery and fulfilment might be asking too much. But then again who would have predicted the internet, virtual reality, augmented reality and artificial intelligence when Harold Wilson was talking about the white heat of technology.

Michael Carson is a business analyst with Libra Europe Consulting.

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