A visit to a UK supermarket this week can be an odd experience. The number of empty shelves caused by coronavirus-induced panic is quite startling. This has led British food retailers opting to impose restrictions on the maximum number of products customers can buy, whilst a number have also penned a letter to customers affirming that “there is enough for everyone if we all work together.” However, the continued stockpiling suggests a lack of confidence in supermarket supply chains, but is this really warranted?
Ongoing research from Ti shows that UK-based supermarkets hold 23.1 days of inventory on average. This is lower than the average figures for some hypermarkets, such as Carrefoure (38.6) or Walmart (42.4) for example.
Many have deliberately pursued a path that has led towards lower inventory levels. Discounters such as Aldi have been able to gain market share in the UK over the past decade or so, with consumers drawn in by their lower prices. The likes of Aldi have a low number of SKUs (stock-keeping units) at around 2,000, which compares to the ‘big four’ with figures of 20,000-30,000. The low number of lines stocked means that the process of selling is much easier and requires much fewer staff. This major cost advantage over competitors is key to their business model.
In response, some of the big supermarkets have looked to lower SKUs recently too. Tesco embarked on efforts in 2015 to reduce its product lines by 30% from around 90,000. This enabled it to cut 3.1 inventory days in three years.
At a time of crisis, these moves look to have weakened the supply chains of big supermarkets. However, holding lower SKUs has some advantages. Reducing the amount of inventory held takes a degree of complexity out of a supply chain. The simplicity and increased visibility may enable companies to ramp up procurement more rapidly than they would have been able to previously.
Other structural issues may provide advantages at this time too. The prominence of big supermarkets in the UK, over smaller discounters and local stores which are more prevalent in mainland Europe, has some advantages in terms of transport utilisation.
The UK recently moved to relax restrictions on delivery hours for shops. The temporary move, allowing for overnight deliveries, should allow supermarkets to more easily move their own stocks from warehouses direct to the customer.
These supermarkets have also had a great training exercise in supply chain risk management. No Deal Brexit scenario planning has forced management to examine the strength of their own supply chains, looking for alternative sourcing locations and ways in which they can increase warehouse capacity. Whilst a No Deal Brexit has not come to pass (yet!), the contingency plans drawn up may prove beneficial in the months ahead.
In addition to stock held at supermarkets, Ti research shows FMCG manufacturers hold 60 days worth of inventory on average, with around two thirds of this being accounted for by finished goods. This really means there is a plethora of stock available within retail supply chains. It is just a case of getting it to the ‘front line’ and hoping that these supply chains will remain durable in the months ahead as the economy inevitably suffers.
Source: Transport Intelligence, March 19, 2020
Author: Andy Ralls