Boost Supply Chain Cost Savings. Invest in Structural Supply Chain Flexibility

February 3, 2023

Supply chain leaders invest in technology and networks, instead of assets and leases, to maximize cost savings.

Header Boost supply chain cost savings Invest in structural supply chain flexibility

Retailers experienced mixed 2022’s holiday results. Now they face macroeconomic headwinds in the new year.

Key Takeaways

  • Eight in 10 US adults think 2023 will be a year of economic turmoil. And six out of 10 think prices will continue to rise while the stock market falls. Organizations recovering from peak season face increasing macroeconomic headwinds in 2023
  • To face future unknowns, retailers and brands focus on streamlining inventories, optimizing transportation and strategic CapEx investment
  • Supply chain leaders delay renewals or new purchases amid economic headwinds and record rates. And instead, pursue technology-driven strategies and supply chain visibility tools—from transportation and warehousing capacity to retail distribution and eCommerce fulfillment
  • In an uncertain economic period, Flexe Logistics Programs provide an alternative to risky CapEx investments and help supply chain leaders match needed network capacity with current demand. The result: scalable growth, adaptable networks and no costly term leases

Macroeconomic challenges accelerate in the new year #

Beleaguered retailers experienced mixed results during 2022’s holiday season.

  • While total holiday spend grew 6.7% compared to 2021, rising inflation was a large reason for the growth.

  • Inflationary concerns deterred some shoppers from spending. Others hunted for discounts or turned to credit or pay later options. Personal savings rates dropped to 2.4% in November, down from 6.3% pre-pandemic.

  • More than 196 million US consumers shopped in-store and online over Thanksgiving weekend and Cyber Monday, but a report noted drops in foot traffic for malls and big-box retailers.

Now, retailers and brands recovering from peak season face increasing macroeconomic headwinds in 2023.

Organizations weather uncertainty—and a possible recession—by optimizing costs. One place to start: supply chains.

Supply chain shocks that last for a month or more occur every 3.7 years on average, and organizations now seek to streamline costs in parallel with long-term supply chain investments.

Retailers and brands seek supply chain cost savings #

Supply chain leaders now seek recession-proof cost strategies while preparing for future disruptions. Supply chain shocks that last for a month or more occur every 3.7 years on average, and organizations now seek to streamline costs in parallel with long-term supply chain investments.

To face future unknowns, organizations emphasize three logistics strategies:

  • Streamline inventories

  • Optimize transportation

  • Select strategic CapEx investments

Streamline inventories #

Retailers dramatically increased inventories to meet consumer demand and beat shipping challenges in 2022. Many then battled excess inventories as sales slowed.

Inventories remained high in November and December. To lower inventory holding costs and reallocate capacity, retailers and brands will continue to optimize SKUs and offer promotions and discounts.

Optimize transportation #

Transportation costs account for 50-70% of US logistics spend compared to 3-6% for facilities. Shoppers expect optimal delivery—and speed increases transportation costs. Forty-five percent of retailers don’t offer fast shipping due to high costs.

Retailers offering suboptimal delivery promises lose new and returning customers. Eighty-three percent of consumers switch retailers for faster delivery. Seventy-two percent of consumers skip repeat purchases due to late deliveries.

To improve delivery promises and save on transportation, retailers optimize transportation lanes by first reassessing warehouse locations. Optimized warehouse networks reduce transportation costs by placing goods nearer partners and customers.

Select strategic CapEx investments #

Organizations face economic uncertainty, which forces strategic CapEx management to maximize investment returns.

Reconsider capital investments and industrial leases

First, retailers and brands reassess industrial space requirements and the value of long-term leases. Warehouse demand remains high nationally, but industrial capacity slowly expanded in late 2022. Now the national vacancy rate sits at 2.9%. Demand declined in part because businesses reduced capital expenditures while streamlining inventories.

Savvy supply chain leaders carefully consider whether net new industrial leases are critical capital priorities. Fixed asset alternatives reduce CapEx spend while still expanding logistics networks.

Increase technology investments for the long-term

By reassessing CapEx investments in the short-term, many organizations can invest in operations and technology in the long-term. The right technology solutions maximize labor productivity, boost visibility and create new levels of flexibility as market dynamics change.

Boost supply chain cost savings. Create structural supply chain flexibility #

Supply chain leaders maximize supply chain cost savings. They strategically invest in technology and networks instead of fixed assets and leases.

Instead of making big, fixed CapEx bets amid economic headwinds, focus on flexible, technology-driven strategies and supply chain tools—from transportation and warehousing capacity to retail distribution and eCommerce fulfillment. This investment strategy creates structural supply chain flexibility. Organizations that invest in structural flexibility can rapidly pivot as market dynamics change.

Read more: 2023 Flexe supply chain trends

Deep dive: Economic uncertainty, meet Flexe Logistics Programs #

Traditional supply chain solutions require long-term leases at sky-high asking prices.

Alternately, organizations can invest in flexible, scalable networks with Flexe Logistics Programs. They then access strategic industrial markets and best-fit operators—without CapEx investment or term commitments.

In an uncertain economic period, Flexe Logistics Programs create flexible solutions to match network capacity with demand. The result: adaptable networks to drive scalable growth.

Plus, adaptable logistics networks pave the way for optimized transportation. Where fixed logistics networks don’t adapt to climbing transportation rates or changing customer delivery expectations, logistics programs expand distribution and fulfillment options to move goods closer to demand centers. The result: reduced mileage, improved delivery speeds, increased throughput and lower holding costs.

In action: Cost-conscious company finds 300%+ storage savings with Flexe Logistics Programs #

A national manufacturer sought a cost effective way to distribute its products to retail partners. All while keeping costs low in a tight and costly warehousing market.

The company partnered with Flexe to dynamically expand and contract warehouse capacity from production staging to store distribution. They pay lower-than-market rates amid record low industrial capacity, with facilities in the Southeast offering rates 55% lower than the market average. And the company saves millions via a variable cost model—only paying for capacity used during seasonal peaks. Flexe’s variable cost model saves the company over 300%+ in storage costs.

You might also be interested in #