- Written by David Jinks M.I.L.T, head of consumer research at ParcelHero
This month the Bank of England forecast the UK economy will fall into a recession by October. Governor Andrew Bailey warned the unexpected recession will be the longest downturn since 2008 – and may last just as long. All businesses should study the hard-won lessons of 2008 now rather than be taken by surprise once again.
A highly regarded study, which ran from near the start of the 2008 crisis through to September 2010, charted exactly what happened to retail, logistics and manufacturing companies during that period, and the effectiveness of their actions. Its findings are a clear pointer to the best course of action to help avoid the worst impacts of any new recession.
The study was a collaboration between The Chartered Institute of Logistics (CILT) and Yongmei Bentley, senior lecturer in Logistics and her team at the University of Bedfordshire. Key professionals in supply chains, manufacturing and retail all contributed to the research too – and its results are truly enlightening.
At first, indecision seemed to grip many companies despite the escalating economic collapse. Between November 2008 and January 2009, only 36 per cent of organisations had decided to make any notable changes to their businesses. A remarkable 39 per cent of companies were still undecided what action to take, or whether to do anything at all. Meanwhile, a surprising 25 per cent had decided to take no major action at all.
By April 2009 it was all change. By then 56 per cent of the companies surveyed were making significant changes and only 21 per cent were still undecided. 23 per cent still stuck firm to their pe-crash plans.
So, what steps did businesses take once they had woken up to the crisis?
The most common move was to reduce employee numbers, with 21 per cent reducing their workforce as the recession bit. Today, the unemployment rate stands at just 3.8 per cent. Back in January 2008, even before the start of the downturn, it was 5.2 per cent. By January 2009, unemployment had already risen to 6.2 per cent. By January 2010, it had shot up to 8 per cent, peaking at 8.5 per cent in November 2011 before swiftly falling back.
Looking at these figures it’s not hard to predict many companies will respond by laying off staff this time around as well. This will be an option closely considered by those retailers, logistics companies and warehousing operators who over-extended at the height of the covid pandemic home-delivery bubble. Many of these, including Amazon and Shopify, are now reducing personnel numbers to reflect a return to more typical retail consumer behaviour.
The next most frequent step companies took in 2008 was to decrease stock levels significantly, with 17 per cent of companies drastically reducing their volumes.
Similarly, particularly for manufacturers, 12 per cent of companies slashed their WIP (Work in Progress) inventories. In other words, companies not only reduced stock levels, but also the volume of products being produced for future sale, particularly the number of items manufactured without forward orders.
Increased local suppliers
Much like today the recession of 2008 came on the back of a period of high fuel costs. While the main driver for change was the significantly reduced economic activities over the period, the impact of high fuel costs should not be overlooked. 10 per cent of companies switched to local suppliers when possible, reflecting a desire to shorten product lead-times and reduce transportation costs.
As well as cutting the number of unfinished products going through production lines, 8 per cent of companies also reduced the number of product lines they sold. Retailers cut down dramatically on their range of products as well as overall volumes.
We’re already seeing that happen in our supermarkets this time around, with companies such as Tesco and the Co-op cutting back on the number of different lines of products they sell, both in-store and online.
The next most frequent step taken was to consider the use of third-party logistics providers (3PLs). These companies take on all the deliveries, returns and other logistics functions, leaving organisations to concentrate on their core business. Interestingly, supply chain, manufacturing and retail companies increased their use of 3PLs by 8 per cent to take advantage of cost reductions and reduce non-core activities previously undertaken in-house.
Improvements in processes
Improvements included launching process reviews, setting non-essential travel bans, reviewing networks, consolidating warehouses and implementing warehouse management systems (WMS) and improved IT systems.
Review of contracts
This quite widespread response often included a complete review of contractual and procurement terms, reducing contract rates, renegotiating discount deals and supply contracts, seeking more efficient suppliers and tightening up on credit control.
This was an inevitable reaction, but not always in the expected way. Some companies cut the prices of their goods and services during the downturn to win new customers, but others increased their prices to cover rising costs.
It’s interesting to see that the study anticipated that it might be of use to businesses in the future. It concluded: “It is hoped that the findings from this study have practical implications and can offer suggestions to companies to help manage their logistics and supply chains more effectively in difficult times. In addition, the results should contribute to a better understanding of how companies’ strategies evolve for dealing with significant changes in their external business environment.”
Of course, the survey’s conclusions provide just a few examples of how retailers and their logistics partners can work together to help meet the challenges of a recession. Many are also innovating to reduce costs and maximise the potential of technology in ways not envisaged back in 2008.
To find out more read ParcelHero’s study on Dark Stores and the High Street of the Future here.