Unlike in Chapter 1, where attitudes and supply chain leadership have evolved markedly on 2022, in the first mile it is clear from our interviews that there is more continuity over the past 12 months. Our interviews show retailers’ utmost supply chain and IT priorities for 2023 are the same as in our survey for 2022: data analytics and real-time visibility, and achieving more accurate stock levels.

As with last year, too, bringing sourcing closer to the UK is the fifth-highest priority for retail supply chains. A quarter of respondents said this, suggesting Brexit continues to change the shape of globalisation from a UK retail perspective.

However, it is the secondary priorities for 2023 that underline a fascinating shift from last year.

While improving warehouse and factory working conditions, upskilling and reskilling existing staff, and hiring more logistics staff completed the top five priorities in 2022, these have been replaced in 2023 with general warehouse automation, and implementing artificial intelligence (AI) in the warehouse.

Look Fantastic and Cult Beauty parent company The Hut Group (THG) is a good example of a retailer investing in more automation, with its Manchester warehouse now able to process up to 500,000 items a day thanks in part to 250-plus picking and packing robots supporting staff at the site. There are plans to replicate this site in other countries in which the company operates, as THG sees the value in this type of facility.

The most popular solutions for dealing with supply chain transformation in 2023 highlight a growing shift towards technology reliance, too. While upskilling and reskilling frontline store staff to support on fulfilment, and diversifying supplier bases were key focuses one year ago, there is now more demand for investing in tech.

Some 16% said investing in other technology and tech innovations was the main way they were looking to bring about supply chain transformation, while 12% said they would be investing in warehouse robotics automation.

Like last year, collaborating with more third parties, including tech platforms, retailers and industry experts, remains popular in terms of the methods supply chain and IT leaders wish to use to navigate the challenges of first mile.

AI, warehousing and transformative tech

One topic to arise at the Confederation of British Industry Annual Conference in Birmingham last November, at which prime minister Rishi Sunak addressed delegates, was the lack of automation partners present in the UK.

The supply chain industry in the UK is keen to work with the government to develop the sector onshore. This could be an area of development, especially if chancellor Jeremy Hunt’s vision of creating a Silicon Valley equivalent in Britain is realised.

Supply chain solutions provider GreyOrange is one of the companies filling the gap for retailers, working with H&M in the UK and other brands to help automate warehouses and drive efficiencies. The business is also working to demystify AI in the supply chain and make it easier for retailers to understand.

For instance, Akash Gupta, GreyOrange chief executive and co-founder, says AI at the simplest level is machine learning that is helping retailers make more informed decisions with their inventory and avoid grappling with data.

“While it’s mainly the social media giants that we see in the news maximising on AI and robotics, there are many retailers also making the opportunity real,” he explains. “It’s not an if, it’s a when. Retailers need to invest in this area or they will get left behind. Walmart, for instance, is using AI to make ecommerce more affordable. As a retail giant, it relies on optimising large warehouse facilities to meet consumer demand and so it is using GreyOrange’s AI Greymatter as its operating software to support fulfilment.”

Gupta argues that AI investment can enable retailers to manage their inventory and understand what items sell well with others and where those items should be placed. But retailers need to think beyond efficiencies and consider the transformative potential of the technology.  

“AI and robotics are well-established technologies, well-established in multiple use cases from manufacturing to accounting. AI is here to stay so the emphasis for retailers is not on deciding if you need it, but on exploring how best to leverage it.” 

With inflation at its highest levels in the UK since 1981, the cost of doing business is growing for retailers. Timo Boldt, CEO and founder of meal kit subscription provider Gousto, acknowledges this. He says investments the company has made and will make in supply chain tech are helping to keep prices low for its customers – this will be particularly key given the business announced it had to raise millions in additional funding in January 2023 to navigate the volatile trading period.

“It’s no secret that Covid caused a lot of supply chain dysfunction, and Putin’s war is only exacerbating the issue,” Boldt said, talking in April last year. “We’re seeing huge spikes in wheat and beef prices in the UK and across the world. But we have the best people you can have [in our logistics team] and I’m hugely proud of what they’re achieving. And then the ability to trade the menu from a technology perspective allows you to be 50% more agile than any supermarket could ever be.”

Explaining further, he said the tech Gousto has in place enables menus to dynamically change to fill gaps in product availability without affecting the service for customers. There is also a fully automated production facility in Warrington, which opened in the summer of 2022, that the CEO said can be run at a “double-digit lower” cost than earlier production plants, which helps “soften the blows and protect the price point”.

Merging tech and talent in first mile

Despite automation and tech trumping people-specific investment in this year’s survey, it should not be a case of either or in the first mile of the supply chain. Increasingly, retailers are automating certain functions while also finding neat ways to combine tech with manpower.

The most forward-thinking retailers are investing more in their warehouse staff, both to retain and attract sought-after talent but also to make their warehouse environments more appealing to work in.

Aldi UK increased pay rates for more than 7,000 warehouse workers from February 2023, with CEO Giles Hurley saying it recognised “the hard work and contribution our colleagues make in serving communities across the country”.

Meanwhile, Currys invested more than £250,000 in a fleet of robotic exoskeleton suits ahead of peak period in October 2022 to help colleagues from logistics partner, GXO, work safely and efficiently through the busy festive period.

Used at Currys’ tech-enabled Newark site, the suits help staff to carry out their physical day-to-day tasks, putting less pressure on their joints and muscles when lifting heavy loads. The move was to prevent injuries in the manual handling environment, with the suits worn like a backpack to give workers assistance to the lower back with each lift.

The equipment has an AI-based ‘Smart Safety Companion’ ergonomics early warning system to alert of signs of poor posture and incorrect lifting practices. Lindsay Haselhurst, Currys chief operating officer, said: “As the number one technology retailer in the UK, we aim to have state-of-the-art tech throughout our supply chain.”

Fashion retailer New Look is another company investing in first-mile supply chain technology, putting order and warehouse management high up its list of major work in the coming years. The business views this as a key way to build the infrastructure required to serve consumers in new ways. Back-end transformation will enable customer-facing improvements, is the theory.

In a press release issued in March 2022, Tristan Holiday, logistics director at New Look, said he wants to “constantly review our fulfilment network and realign it accordingly, matching the ever-changing needs of our customers”. Investment behind the scenes is expected to be a catalyst for such a model.

However, some retailers are favouring automation in place of headcount. In February 2023, Sainsbury’s announced it was cutting 1,400 warehouse jobs as it rolls out a £90m investment in automation to modernise its general merchandise logistics network. The retailer said it would be offering the “opportunity [for staff] to explore alternative roles within Sainsbury’s and Argos”, with the shift intended to “reduce costs, so we can invest where it will make the most impact for our customers”.

The last mile of supply chain is more complex than ever; retailers are having to battle against consumer demands for the often contradictory fast, convenient – and sustainable – delivery, all while navigating rising return rates. Indeed, the last mile is often reverse logistics carrying an unwanted item back into the business.

So what are retailers doing about making it all operationally sound, and where does the focus lie?

The list of priorities from IT and supply chain leaders suggests first-mile investment comes first, but retailers know they can’t abandon the customer-facing elements of their proposition. The prioritisation could also be because final-mile transformation was high on the agenda during the pandemic so it’s less of a focus now.

Indeed, reducing the cost of returns is a priority for 22% in our interviews, which compares with 28% who said the same thing last year. The drop is probably because there is a movement already well under way in the industry to start charging for online returns.

Making returns pay

In the 12 months since our last report was published, Boohoo and Zara in the UK have started charging customers if they wish to return items via a courier. Boohoo now charges £1.99 per parcel while Zara now charges £1.95 – Zara will not charge if the item is dropped off in a store.

As of 2023, New Look is also trialling charges for online returns with a £1.99 fee to return items via post. As with Zara, customers can continue to return online orders to New Look stores for free.

Rachel Troke, senior product manager for web and mobile at New Look, said at Metapack’s The Delivery Conference (TDC), held in London on 7 February, that the fashion retailer has started testing paid returns as a way of “recovering our costs” online rather than making money from the fees.

“People are returning [items] because they just don’t like the feel or look of it, so actually we’re never going to get that return rate down really low,” she explained.

“Therefore the offset is, by charging for return(s), we can keep our sales price lower, and that is why we’ve introduced it.”

However, charging for returns is not for every retailer. Also talking at TDC was JLP general manager for customer delivery and collection operations Gary Page, and The Very Group’s head of logistics Chris Haighton. Both said they did not want to add such friction to the customer experience and therefore affect purchasing decisions.

Page commented: “I think free returns is a really important part of the proposition, and customers have enjoyed that for several years. If you want to continue providing something that customers value, then free returns are part of that.”

Haighton added: “We want to keep returns free as long as possible. Giving [customers] the confidence they can return quickly, easily and without hassle is a major part of the buying decision.”

Haighton also said that The Very Group trialled paperless returns, meaning customers were directed to an online portal to process any unwanted purchases. However, he noted it wasn’t well received by shoppers, so paper has been reintroduced – albeit temporarily.

“Our ambition is to remove the paper completely because it is better for the environment, there is a cost saving associated, and we get much more control and visibility over the returns chain,” he noted.

“I think in order to implement it effectively, we’re going to have to offer some real value exchange for the slight additional friction we’re adding to the process. Possibly that might be credit for the customer at the point [at the] CollectPlus or Post Office counter rather than waiting for the item to come back before it is credited.”

Next and Uniqlo have charged for online returns for some time now, last year The Hut Group and Mountain Warehouse joined ship, and H&M is considering it in some markets – though hasn’t implemented charges yet – highlighting an industry divide on this subject. Some see it as a necessity to cover operational costs and the rising fees involved with shipping goods, but others view it as something that would be too much of a customer turn-off.

As Jim Rudall, head of revenue at Shopify, said at TDC, there is another way of approaching the returns dilemma.

“Get to the root cause of returns,” he advises. “Do you really understand why your customers are returning? [Consider] how you build an experience which reduces their propensity to return in the first place.”

On-demand delivery and other fulfilment methods

Only 20% of the supply chain and tech leaders we surveyed believe on-demand delivery services to be transformative for the future of their business’ supply chains but for 18% it is currently their top supply chain and investment priority.

Last year this was a priority for 22% of respondents, so the slight dip in interest in this area perhaps tells a story that the industry is moving away from the ‘test and learn’ stage with this innovation.

There has been some significant consolidation in the market, too. Following Getir’s acquisition of rival Weezy in the UK in 2021 for an undisclosed sum, the former also acquired Gorillas in a $1.2bn deal in December 2022. Jiffy – another player in the UK – halted its delivery operations last year, as companies in the space continue to make things stack up financially.

For Deliveroo and Just Eat, though, retail partnerships continue to grow. Asda teamed up with Deliveroo in August 2022, and in January this year Sainsbury’s signed a deal with Just Eat to support quick food delivery from 175 of its stores. Meanwhile Boots expanded its Deliveroo partnership to 750 products and 125 UK stores last August, after what was clearly a successful initial trial period.

Interestingly, enabling click-and-collect from stores is the lowest priority for the supply chain and IT leaders in our survey. There are lots of factors at play here, but many retailers invested in this during the pandemic, so it is likely to be a sign of market maturity.

Moreover, with the continued emergence of companies providing out-of-home pick-up points, the demand for click-and-collect could be shifting into this area.

JLP’s Page said: “Customer behaviour has changed a lot since lockdown. Going into lockdown, about half of our customers used click-and-collect and half home delivery. During the height of lockdown that was down to 20% click-and-collect, and it is only recently that this has begun to rise again.

“Are we at the new norm, or will things continue to change and evolve?”

Teamwork makes the dream work

Some 54% of IT and supply chain leaders we interviewed believe they are working more closely with store staff on fulfilment and operations than they were two years ago, yet 64% believe there is greater staff training needed for fulfilment and supply chain support.

Compared with 12 months ago, not much has changed – although there is a slight move towards retailers saying they are collaborating less with store colleagues. Morrisons, for example, reduced the number of stores it uses for online picking by 50 in 2021 after demand subsided after the height of Covid-19 – which is an illustration of the slowdown in ecommerce since the height of the pandemic.

In another new method of fulfilment trialled earlier this year, Sainsbury’s introduced a drive-through concept.

The Flourish Fuelling Station opened on 25 January, running overnight between 5pm and 8am until Friday 27 January at the retailer’s petrol forecourt in London Colney, St Albans, to support night-shift workers with hot meals. Sainsbury’s is still mulling future iterations of this based on the results of the trial, but it could be a new fulfilment channel to watch out for in the future.

How can global retailers future-proof their supply chains?

According to the supply chain and tech leaders interviewed, there is a disconnect between what is wanted from their retailer’s supply chain investment strategies and where the money is actually being directed. The same problem was found in our 2022 survey. Below, we outline the solutions our interviewees think retailers should be backing.

Solution 1: Warehouse automation

While warehouse automation is among their retailer's 2023 priorities, a significant 38% of the supply chain and IT executives surveyed said their retailers were not making the most of the solution in their supply chains. The reasoning for this was mostly due to a lack of budget.

Retailers risk falling behind, with those embarking on warehouse automation in recent years talking up its impact, including The Very Group.

In October, for example, the group said its highly automated East Midlands fulfilment centre, Skygate, processed 36.2m items in the financial year to July 2022. It also dispatched 14.8m customer orders, with the fastest order being dispatched in 16 minutes, as well as dispatching 102,000 orders on its busiest day alone. As part of the work at Skygate, Very acknowledged it has become more agile in its global sourcing operation by shipping to ports in the north of the UK, with containers heading directly by rail to the site.

Solution 2: Driverless delivery

Driverless delivery was cited as the second most transformative technology (50%), while video streaming and ordering services were the third most transformative tech for supply chains (48%). Co-op Food remains a UK industry outlier in its usage of driverless delivery, and the grocer continues to roll out the use of automated delivery robots to fulfil online customer orders in Milton Keynes, Northampton, Cambourne, Cambridge, and now Leeds.

The Co-op partnered with Starship Technologies and Leeds City Council to introduce the robots to the Yorkshire streets in November 2022. Consumers can make orders on the Starship app, schedule their delivery, then drop a pin where they want their delivery to be sent. They can watch the robot travel in real-time via an interactive map, too, and unlock their goods with the app.

Chris Conway, ecommerce director at The Co-op, said: “Co-op is committed to exploring new and innovative ways to increase access to its products and services. Our members and customers lead busy lives and so ease, speed and convenience is a cornerstone of our approach.”

Boots has taken a step forward in use of aerial drones, testing out medicine deliveries via this method on the English south coast in July 2022 – with goods flown across the Solent from Portsmouth to the Isle of Wight. It is all very much in test mode at the moment, but the retailer expects this type of delivery to arrive in the future.

Rich Corbridge, CIO of Boots, said: “We will be looking at how much time we can save, as well as how we can incorporate drones into our medicines supply chain to create economic efficiencies too. We want to prepare now for the wider use of this technology in the future.” 

Solution 3: Scaling back on micro-fulfilment

In another sign of disconnect between what supply chain and tech leaders want and the approaches their retailers are actually taking, our survey found micro-fulfilment is what leaders believe to be the least transformative future supply chain innovation. However, Walmart in the US, and UK retailers Ocado and Tesco have adopted this format in the last few years.

Tesco opened its sixth smaller urban fulfilment centre (UFC), in its Bar Hill Extra store, in January 2023. Like others before it, it features a dedicated online picking hub for its delivery van fleet as well as click-and-collect. But it has said that it will not open as many as it had previously planned, so it seems there are fewer benefits to this model than first thought.

Our interviewees have told us what they want from their retailers, but what do they want to see outside of their businesses – particularly from government?

Gripes with government

Despite the pockets of positivity already referenced, several years of problems are starting to grate on retail’s supply chain leaders. Many want the government to step up.

Forty percent of supply chain and tech leaders told us they believe the government is not doing enough to alleviate the burden on retail supply chains. This is a marked increase on the 24% who felt policymakers weren’t doing enough in our 2022 survey.

In particular, as the industry looks to the future, leaders want the government to address the cost of overseas imports, remove red tape, invest in more technology, and crucially – according to one – “talk with the industry to support our needs”. 

Another interviewee explained the situation: “Cost of product is at an all-time high for importing from overseas which needs addressing immediately as well as the rise in transport costs such as fuel and labour pay – these need addressing to help businesses thrive.”

To mitigate concerns, the government could introduce cost thresholds, improve import controls, and invest in new technologies to streamline future processes and reduce importing frictions. Positively, the government is currently looking at new models to address the latter and is set to bring in a new controls regime at the end of 2023. The new Target Operating Model will be based on a better assessment of risk and will harness the power of data and technology. It is also launching the UK Single Trade Window – a new digital gateway that will help traders to more easily move goods globally.

Sustainability matters

Each year, retailers are faced with more sustainability-related legislation in line with society’s drive to reach a position of net zero carbon emissions that scientists say is crucial for the future health of the planet.

In February 2022, the European Commission proposed what is effectively an EU supply chain law. Once brought into play, it will require certain companies to meet due diligence obligations with respect to human rights and environment across their supply chains. The directive will apply to both EU and non-EU companies that either have a significant number of staff in the territory or meet a certain turnover.

The finer details are still being mapped out, but it is a sign stricter rules – and punishments – based on how businesses run their supply chains are imminent.

Over the last 18 months, there have been a plethora of retailer announcements relating to sustainability. Amazon has removed plastic air pillows from its packaging, Tesco has rolled out electric-powered vans in Scotland ahead of what is expected to be a wider UK roll-out, while all major retailers are setting individual carbon reduction targets.

Many – including Burberry, Pentland Brands, and Richemont – have aligned with the Science Based Targets Initiative, which provides a framework to follow over several years to take carbon out of their respective supply chains.

Next in focus

Although not referenced by our interviewees, Next is worth highlighting for its supply chain prowess in the UK. The retailer’s Total Platform – comprising its IT systems, warehousing, and general logistics – is increasingly sought after by third parties looking to outsource their ecommerce infrastructure rather than building it themselves.

Reiss (in February) and Gap (in August) joined the platform in 2022, and Joules – which was acquired out of administration last November via a joint venture between Next and the distressed company’s founder Tom Joule – will be fully on the Total Platform by 2024.

As referenced in relation to Amazon, any supply chain leveraged by third parties is an indication of its strength. Next certainly understands the fundamental importance of its supply chain and the need to keep evolving the structure of it to stay relevant and profitable.

Next’s stated priorities in 2022 were nearly all supply chain-related. Alongside driving profitability in fast-growing business areas and improving website performance, it listed: achieve better operating efficiencies in our online warehouse and distribution operations; improve the speed, accuracy and consistency of our online delivery service; push the boundaries of supply base to help mitigate sterling devaluation, through new sources of supply without compromising our ethics, reliability, quality or design.

The retailer will announce full-year results on 29 March, when it is expected to offer an update on progress against these priorities.

The power of partnerships

Whether it is advancing technical capability, reducing environmental footprint, improving ecommerce performance, or simply driving operational efficiency in the supply chain, forging suitable partnerships continues to be a key focus area for UK retailers.

In a complex world, retailers are clearly seeing that opportunity to improve their supply chains comes through being open to change and developing strategic partnerships.