The New Normal is here, in less than four months COVID-19 has changed the global economy forever. One of the sectors with the greatest commitment to change is logistics and the supply chain that will have to move quickly to adapt to new consumer needs and new world order.
Humans are optimistic by nature, whenever there is a crisis, we directly speak of recovery and reactivation. Thus, humanity has overcome wars, natural disasters, and economic crises; focusing on how things will eventually get better again, and people will resume normalcy.
However, because of the coronavirus pandemic, we will face changes in society and logistics that will last, even over the years.
Some of the aspects that will change in the logistics world and the entire supply chain will be focused on the following:
SRM management and supply sources diversification
Before the pandemic, many companies depended on Chinese suppliers, even focusing their entire operation on this factor alone. Searching and diversifying suppliers’ alternatives will be a smart adaptation and resilience strategy.
Companies need to analyze their global supply chain footprint to avoid the risk derived from geography. If this crisis has taught us anything, is that the companies that have developed and implemented risk management in Supplier Relationship Management (SRM) are better prepared to mitigate the commercial impact of the crisis.
It is key to implement risk assessments in the SRM and business continuity plans, not only in terms of geography but also in economic and political risks in the countries where the suppliers are located.
The search for local suppliers will be encouraged, allowing reducing costs and stimulating the European productive terrain. The commitment to automation and robotics will become an irrefutable ally to drive these developments and make them more profitable.
For companies to mitigate the impact of the crisis, it is advisable to have strategic products from multiple sources to reduce dependency on a supplier. When a second supplier is not a possible option, the single supplier has to offer production facilities in different geographies to mitigate possible logistical risks, such as border closures.
Companies will raise their inventories and design “Plan B” for supply
During the confinement and the onset of the COVID-19 crisis, companies with low inventory levels were particularly affected. Learning from this experience, the industry will choose to maintain broader inventory levels as a measure to dampen security. This will happen, above all, in the pharmaceuticals sector. This trend will be reinforced by adding alternative suppliers, generating plans B for both provisions and logistics supply.
Companies with less strained supply chains will be favoured, with the possibility of adapting to changes with a sustainable and resilient approach. The commitment to innovation will continue to be a fundamental aspect to transcend and manage to stay in a market that will continue to change.
E-commerce, the crisis big winner
E-commerce will emerge as the biggest winner of the crisis. Even people who have never bought online before will have tried it. The demand for acquiring all kinds of products online will continue growing so the last mile delivery, development, logistical and technological commitment will be an aspect that we must attack immediately, as the demand increases. Online commerce is booming and will not disappear over time.
This should also be a warning sign for physical stores. So, they do not overlook it and invest in the digitization and diversification of their business, betting on selling online as an alternative way. This will cause convergence of retail with the online world and product “servitization”. For developers, this will be a good opportunity to design suitable alternatives for all types of businesses, of any size.
Inventory management forges a critical role in a company’s flow of operations. As a lesson learned during COVID-19, purchasing and supply chain executives need to closely review purchasing and supply policy and develop supply strategies for critical high-value products. An example: many companies suffered severely from a lack of masks and other industrial safety equipment, which impeded the execution of the company’s operational processes. Companies must stop “optimizing” the work material and ensure these types of articles. As in everything, we must seek the global optimum of the company and not the local optimum.
Another interesting topic is just in time deliveries. With recent supply interruptions, it is important to rethink the strategy to determine what products should be stored to secure the chain and reduce emergencies or disruptions within the organization. We are not talking about anything new, Peter Kraljic already defined it perfectly in 1983 in his reference article: “Purchasing must become supply management”. We have gotten tired of repeating it and it seems that it must happen a global pandemic to make many companies rethink how to do things.
Supply Chain Digitalization
The e-commerce rise gives us the guideline for digitalization. In the case of last mile delivery, delivery drivers have found themselves on the front line of the crisis. Many times, in difficult situations, which have put human capital in stressful, insecure, and even unfair situations. On the other hand, the consumer now demands the maximum guarantees of security and deliveries without contact. These demands will remain for an indefinite time.
Technology here has a fundamental role. To ensure contactless delivery during this time, it is possible to implement delivery by autonomous robots. The company JD.com, a retailer in China, has already implemented it. The company DHL together with the German drone manufacturer Wingcopter will launch the project to adopt aerial drones for last mile delivery.
I already mentioned this in a past article: https://ignasisayol.com/en/last-mile-delivery-the-great-and-imminent-logistics-challenge/
Autonomous vehicles and drones have enormous potential for technological applications. They create the possibility of delivering products to consumers, contactless, and effectively. Several tests have been carried out, their positive results encourage speeding up the technology approval and regulation processes. This takes time to develop, but an important and noteworthy change is that the consumer could previously have resistance and mistrust to the use of robots in everyday life. Faced with a time of isolation, customers may even prefer this option to human interaction.
Another imminent opportunity is the implementation of Artificial Intelligence technologies and algorithms to predict demand. Do you remember the shortage of toilet paper? It never really existed. Supermarket warehouses have around 17 days of inventory. So, what happened? The problem was a lack of communication and signalling for timely replenishment. The algorithms did not have historical data to predict this demand change since they were experiencing an unprecedented business situation.
Learning this AI “failure”, the adoption and adaptation so that this type of situation does not happen again has happened almost immediately. Artificial Intelligence is positioned as an alternative to digitize inventory data. In this case, supermarkets can quickly adapt to changes in demand, since the data can be updated directly and in real-time from the shelves, instead of placing orders manually.
What we have experienced in recent months will bring great changes in all sectors. In the logistics sector, a great responsibility is reaffirmed to be the channeler of new market forms, the creation of much stronger chains, and a world that will adjust to a different pace. We are waiting for many new opportunities and challenges in logistics. But what is clear is that digitalization, “rethinking” the supply chains and the security of our employees, which are the pillars to empower and build winning scenarios in this New Normality that is coming upon us.