Published Tuesday 23rd April 2019
It is one of the key rules of business, underpinning much of modern development: efficiency saves you money. Whilst applicable to almost all industries, it is the cornerstone of any successful distribution network where time is profit. Great strides in technology have enabled distributors to noticeably improve their performance in a range of areas over the last decade. However, there are issues still to be solved by an industry that could find itself at the forefront of one of the next generation’s biggest challenges.
Recent developments have seen climate change again become one of the biggest topics in modern society. Widely referred to as the ‘Blue Planet Effect’ after the documentary that aired in 2018, there is a rapidly growing demand from the public to see improvements made to environmental quality at an industrial level. This is affecting businesses in a myriad of ways and the distribution sector, regardless of its great strides up to this point, will also be expected to change.
The Cost of Pollution to Businesses
An interim report by the National Infrastructure Commission (NIC) at the end of last year reported that whilst vans and lorries only accounted for one-fifth of overall UK mileage, they were responsible for 31% of the UK greenhouse emissions from transport.
However, the motivation for improvements in this area goes beyond eco-initiatives. Congestion in the UK is believed to cost the national economy around £25bn a year as drivers are stuck in nose-to-tail traffic which is further detrimental to the environment.
Modern Shopping Habits Increasing Distributor Pressure
According to Grahame Neagus, Head of LCV at Renault Trucks UK & Ireland, 86% of vans and LGVs are frequently running at under three-quarters of their capacity, and 20% are less than one-quarter full. This is leading to more vehicles on the roads than is necessary, increasing the likelihood of congestion and raising carbon emissions. However, in many circumstances, this is an unavoidable scenario due to modern consumer demands.
As with many industries, the distribution sector has been massively impacted by the modern trend of online shopping. The UK has seen some of the biggest uptakes of e-commerce out of all global economies, which has seen online sales skyrocket. According to Statista, between 2013 and 2017 online sales grew substantially in both B2C (over 50% increase) and B2B (around 30% increase) markets. All of these goods have to be moved from warehouse to destination, and current expectations regarding delivery times and other features mean that distributors are under more pressure than ever before.
Despite the earlier statistics, the NIC report acknowledges that the UK is one of the most efficient distributors in the world, moving over two billion tonnes of goods in 2016. It also has one of the world’s most productive freight industries, which has made significant changes hard to introduce.
The Future of UK Distribution
There is no denying that the distribution sector, like much of modern transport, will undergo seismic changes over the next few decades. However, current indicators could determine in what direction the industry heads. For example, there is a growing belief that advancements in AI technology will lead to rapid supply chain development. There is particular excitement around the potential of Internet of Things (IoT) technology, which could lead to a much more dynamic, pull-based supply and distribution model. This theory involves the customer starting the entire supply process, rather than it being driven by market forecasts.
Whilst pull-based supply sounds like a simple idea, the current infrastructure would need to be much more fluid for it to work effectively. This need for restructuring has led to some, including the aforementioned Head of LCV at Renault UK & Ireland, believing in ‘co-opertition’ as the future of supply. This idea involves logistics firms working together in areas such as warehouse space or last mile urban delivery solutions, all designed to improve the sustainability of the industry whilst retaining competitiveness.
Regardless of what changes may await the distribution industry, its effects are likely to be felt throughout the wider business landscape. This upcoming change means businesses must look at their current distribution models and understand whether they will be fit for purpose in five-to-ten years. Here at ERA, we have many years’ experience in helping some of the UK’s biggest firms reduce distribution costs. Our distribution specialists have worked at the highest levels of the industry and can help to future-proof your procurement strategies. So, if you are looking to modernise your distribution methods, why not get in contact with the ERA team today and see what cost savings we could create in your business?