How today’s supply chains are becoming more streamlined

With a focus on efficiency and cost-effectiveness, supply chain strategies are changing across Europe.

January 29, 2020

As ever-faster delivery times and financial pressures weigh on supply chains, companies are rethinking the size and location of their real estate to improve their efficiency and better manage costs.

Greater analysis of data, portfolio rationalisation, location analysis and new technology are all forming part of the drive to become leaner, more agile and profitable.

“For most firms, the biggest cost centre is usually their supply chain, as its covers everything from procurement to production to distribution,” says Sven Schuerer, Industrial & Logistics business development director at JLL. “There are multiple ways to improve efficiency according to the set-up and requirements of individual businesses but there are some common steps that companies are taking.”

Real estate optimisation and rationalisation

Having modern facilities in the right location is essential for successful supply chains, requiring some bold decisions on reshaping real estate portfolios. Take German grocery wholesaler Metro, which  has been working with logistics developer Goodman to streamline its logistics network while holding off on the expansion of its stores. It recently condensed its supply chain operations from 13 locations across Germany to eight. Two new centres in Marl were part of the rethink, triggered by the need to modernise.

“These kinds of decisions require strategic thinking and can have an impact on employment across the group,” says Schuerer. “But at the same time, they help prepare a business for the future.”

Avoiding doubling-up on existing facilities after consolidation or M&A is another consideration. And in markets like the UK, where a number of retail businesses have called in the administrators or been bought by rivals, warehousing is one of the first areas that needs to be considered.

“With warehouses across Europe in strong demand from investors, selling off surplus facilities can be a smart move to raise capital,” says Schuerer.

The need to be closer to the end consumer for last-mile deliveries is also impacting decision-making. “We’re seeing more supply chains switch to several satellite storage facilities closer to town in the same-day efficiency drive,” Schuerer explains. “Therefore, streamlining can also mean more, not less.”

Unlocking real estate value

Long-term owner-occupiers of warehouses are increasingly aware of the rapidly growing value in their portfolio.

“In Germany, the many family-owned, mid-sized, so-called Mittelstand firms are sitting on real estate at a time of record low yields,” Schuerer says. “It’s undoubtedly time for them to take advantage and release capital for reinvestment in modernisation.”

However, that will require a significant change of mindset among firms who have been more familiar with ownership. “We know there is no shortage of buyers willing to invest,” Schuerer adds.

Improved data analysis of the supply chain network

Data analysis is playing a bigger role in supply chain directors’ thinking.

“Being able to successfully carry out a thorough and detailed study of a supply chain network can allow business to make more informed decisions – ranging from vehicle needs to energy consumption in the warehouse,” Schuerer explains.

Supply chain software services from the likes of US firm LLamasoft and LOCOM, part of Siemens, are becoming more sought after. And as Schuerer believes: “Investing more heavily in data can only pay off and allows companies to react to business changes in a data driven way, with decisions based on facts and figures.”

Manufacturers move production closer to distribution

As part of their efficiency drive, manufacturers such as cockpit specialist Faurecia are moving their production closer to distribution warehousing, while apparel firms are equally considering nearshoring as lead times for fashion clothing cycles fall from several months to several weeks.

“The fashion industry is moving from traditional spring/fall collection to multiple seasons and therefore a constantly changing output which requires rethinking existing distribution networks,” Schuerer adds.

Getting the timing right

The success of these strategies nevertheless depends on market dynamics in the coming months and years.

“After many years of growth and expansion, Europe’s supply chains could be inclined to adapt sooner rather than later,” Schuerer says.

“The economic slowdowns we’re currently seeing in Europe and globally could accelerate and instigate change more swiftly than at present, as could any increased pressure to decarbonise the supply chain. Successful companies will be looking for, and investing in, new ways to optimise the supply chain.”