The new decade is off to an unexpected start, with U.S. businesses and consumers alike impacted by the COVID-19 outbreak.
Few could have anticipated the scale of disruption we’re seeing throughout the domestic economy. Many industries have been halted with the pandemic’s arrival, while others have been met with excess demand.
The food, beverage, and consumer goods industries have retained and even grown their order volumes, in response to increased buying across the country. To keep up with the surge in demand, CPG shippers have had to work through a series of challenges brought on by COVID-19.
While labor issues aren’t exclusive to distressed sectors, many CPG vendors have had to adjust to workplace disruptions while keeping their operations online. Moreover, shippers in general are striving to keep supply chains moving by focusing on coordination, flexibility, control, and the building of sound strategies with partners.
All elements of the supply chain play a pivotal role in keeping store shelves stocked. Brands should be working to establish good practices with logistics partners, to maintain the flow of essential products as we head further into Q2.
As with any kind of disruption resulting from natural disasters, demand imbalances and trade issues, CPG must ensure that their supply chains remain in the driver’s seat during the effects of COVID-19. This time, however, the impacts of the crisis aren’t limited to geographical locations or business size.
As the waves from the COVID-19-caused shutdown reverberate throughout the domestic economy, it will be critical for vendors to adjust. Those that can diversify material or ingredient sourcing to gain flexibility can offset risk brought on by labor issues or economic hardship.
Diversification of sourcing is especially crucial for organizations that rely heavily on Chinese imports, as manufacturing in that country was significantly interrupted and has only recently begun to come back online.
According to statistics from the American Association of Port Authorities, cargo volumes could be down by 20% or more when compared to 2019 levels. That means producers relying on Chinese imports will need to procure alternative sources to continue operations during the crisis.
It’s also essential for vendors to gauge the current and long-term capabilities of other parts of their supply chain. If they’re using third-party warehousing or transportation services, shippers should evaluate how their partners’ operations are impacted. Are they facing staffing issues, or finding themselves overexposed to downturned industries?
It’s is crucial to assess whether your provider can continue operating in the current climate. Fed Manufacturing Indexes dropped significantly in March, indicating a contraction in a sector of the market upon which many large third-party logistics providers rely.
Because of this exposure, many logistics providers could be at risk of closures or significant disruptions. It’s vital to assess how your providers are positioned for the after-effects of COVID-19. Vendors working with providers that aren’t diversified could themselves face disruptions and substantial risk if not prepared.
Perhaps the most crucial strategy that CPG brands need to employ to offset risk is to build strong, long-term logistics partnerships. As businesses evolve, specialization emerges as a recurrent theme, especially when crafting partnerships.
Vendors working with specialized supply-chain partners can better serve their customers’ needs as they shift in a changing marketplace. Deep partnerships can increase visibility, add efficiency, and mitigate risk.
CPG vendors must look beyond transactional logistics services in the coming months. While it can be alluring to work with the provider offering the lowest rates, there are often unforeseen consequences associated with this practice.
The frequent reliance on multiple providers reduces visibility into your operations, which in turn prevents logistics partners from developing strategies to ensure your organization can meet delivery demands that might fluctuate with the changing economy.
Moreover, opting for low-cost providers can often leave you at risk for service failures. Service will become even more critical as we move past the demand surge created over the past few weeks, and into the next economic phase.
Logistics has become key for brands looking to separate themselves from their competition. Markets today require specialized knowledge to meet stringent retail compliance standards. CPG vendors need to create partnerships with supply-chain partners that are equipped to meet those benchmarks, and excel in the face of disruption.
Andrew Lynch is co-founder and president of Zipline Logistics.
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