With the pandemic-fuelled overstocking crisis behind us, retailers are generally seeing inventories return to more manageable levels. This has led many to take stock of their distribution footprint and consider the benefits of consolidation. Of course, rising inflation and other cost pressures are also playing a big role in such decisions.
Another key factor in these decisions is the rapidly rising cost of warehousing in Europe. Indeed, Eurostat figures show that prices in July 2023 were 6% higher than in 2022 and 11% higher than two years ago. Meanwhile, new EU sustainability reporting requirements are putting more pressure on brands to reduce their overall carbon footprint. At the same time, consumers continue to expect ever-shorter delivery times.
So, how do you balance all these considerations in your logistics strategy? As an omnichannel specialist, I get questions like this all the time. And I can tell you that I’ve seen brands benefit just as much from consolidation as from maintaining localised operations. It all depends on the brand. I’ve put together a short Q&A to help you think through this complex issue.
How many distribution centres does a fashion or lifestyle brand need? Is one enough?
Operating from a central warehouse can lead to cost savings through economies of scale in purchasing, storage and fulfilment. Using a central warehouse means fewer employees are needed overall to manage inventory and perform picking and packing tasks. And the recent advances in automation can make the process even more efficient. This makes the use of a single, central location an obvious choice for retailers serving densely populated regions such as the Benelux. Online retailer BOL.com, for example, serves its 13 million Dutch and Belgian customers each year through a single fulfilment centre in Waalwijk, in the south of the Netherlands. Powered by green energy, it has a total floor area of 240,000 square metres and machines that can pack almost 10,000 orders per hour!1
However, companies with a customer base that is spread over a wider geographical area may need additional capacity in their main customer clusters. All these units should be connected to a centralised transportation and inventory management system to improve efficiency and provide visibility along the supply chain so that customers can easily track their orders.
If a brand is experiencing significant growth in certain regions, a ‘hub and spoke’ model is another possible alternative. This model works by routing all orders through a central distribution ‘hub’. Goods can then be sent on to smaller, regional distribution centres as required, helping to streamline fulfilment. This method provides the flexibility to respond to changes in availability and customer preferences. It also helps to spread the risk in the supply chain. For example, if there’s an outage at one of your ‘spoke’ warehouses, you can simply reroute orders through the ‘hub’ warehouse. This model works best for established, multinational brands.
Whichever model you choose, effective oversight is key. This is where a centralised inventory and transportation management system comes in. By connecting all the distribution centres and carriers along the supply chain, this solution provides the flexibility and agility you need to adapt to changing circumstances. A good system will even incorporate an algorithm that calculates the fastest and most fuel-efficient route for each order, automatically selecting the most convenient distribution centre to achieve this. And with customers expecting ever shorter delivery times, this flexibility and visibility can be a competitive advantage. So, whether the product is in a store or a warehouse, a unified e-commerce model allows brands to optimise shipping times and deliver an optimal customer experience.
What’s the easiest way for a brand to expand its distribution network?
If your central warehouse is too small or too far away from key customer clusters, splitting operations across multiple locations can help overcome these constraints and support future growth. MFCs, or micro fulfilment centres, are becoming increasingly popular. They are typically located in densely populated urban areas close to end customers. They can be stand-alone, attached to buildings or even in-store, and can range in size from around 600 to 1,500 square metres. They are typically equipped with the latest technology, including robots and AI-based software, to make the most of the limited space. For example, they often feature automated picking and packing solutions that allow seamless integration with delivery methods such as click-and-collect and hub lockers. One potential drawback, however, is that MFCs usually only hold stock for 24 to 48 hours and need to be replenished regularly, requiring excellent planning and supply chain visibility.
Is RFID tracking worth the investment?
The need for greater efficiency in inventory management has already prompted larger retailers to invest in high-tech, RFID-based tracking for real-time inventory visibility. Many others have it on their near-term to-do lists. These investments can be justified by the longer-term efficiency gains they promise. In fact, some retailers even see the potential for RFID tagging and tracking to enable them to carry less inventory on a permanent basis, thereby reducing waste, costs, and the retailer’s own carbon footprint. However, the technology remains expensive, so it may be better suited to high-end fashion and lifestyle brands.
Question 4: Is it really necessary to invest in an omnichannel strategy?
The short answer is yes! An omnichannel strategy integrates all of a brand’s marketing, sales and logistics systems to provide a consistent experience for customers. Consumers have shifted from shopping primarily in-store to using a mix of online, mobile and in-store channels. Their shopping journeys often start in one channel and end in another. For example, in 2021, 43% of shoppers bought a product online and picked it up in a store. In 2023, that percentage jumped to 50%, according to Digital Commerce 360’s 2023 Omnichannel Report.2 To ensure optimal efficiency, transparency and customer satisfaction, omnichannel is the answer.
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