With retail storefronts under siege, strengthening the direct-to-consumer channel has never been more important for manufacturers. There is no doubt that retail foot traffic will be down for the foreseeable future, so manufacturers are looking to adopt new strategies to protect the business, better match supply and demand, increase real-time responsiveness, and enable world-class logistics execution capabilities right down to the last mile.
In an effort to improve service levels, create a great customer experience, and increase loyalty and market share, many organizations are revamping how they manufacture and move products in ways they never anticipated.
Consumer-driven needs and behavioral shifts have generated a rapid and ongoing shock to most supply networks since the start of the COVID-19 disruptions. This shift has created structural change in supply-chain networks that has also affected business processes. In many cases, these new processes will become permanent across industry sectors over the next two years.
For example, buying behaviors which may have taken a decade to evolve in normal circumstances, have become front-and-center due to virus-related restrictions. Government mandated quarantines have driven a global increase in online ordering of food, groceries, pharmaceuticals, and other essential needs. Even for non-essential goods, businesses have seen an enormous surge in e-commerce. Where consumers would ordinarily have gone to a local retailer, many transactions have shifted online or are being made directly from the manufacturer.
Forbes notes that there has been a 146% increase in all online retail orders in North America and that “e-commerce and online retailers’ supply chains, order management, and fulfillment systems are all being tested by the triple digit order and revenue growth going on today.” While some consumers will revert to old habits as the situation normalizes, the longer pandemic behaviors persist, the larger the fraction of consumer spending will remain permanently locked in newly expanded direct-to-consumer channels.
Accenture reports that “much of this new e-commerce activity has been from new users. COVID-19 will permanently change consumer behavior. Consumers’ attitudes, behaviors and purchasing habits are changing — and many of these new ways will remain post-pandemic. The trend toward digital commerce is expected to continue post-outbreak with consumers reporting that the proportion of instances they shop online will increase from 32% to 37% after the outbreak, illustrating the clear need for a substantial increased investment in this channel.”
Fast Ramp Up, Ramp Down
To help cope with today’s new normal, many organizations are using intelligent business networks to apply autonomous supply-chain management. Using machine learning and intelligent agent technology, these multi-party digital networks enable organizations to achieve dramatic supply-chain benefits and efficiencies across their ecosystem of business partners. These networks help all partners work together to meet the surging volumes across food retailing, healthcare networks, 3PL’s, and overall direct consumer delivery activities. In some networks, unit, order, and transactional volumes have increased over 100% in just the past few months. The volumetric increases seen these past few months have been unprecedented and organizations are realizing that traditional ERP systems are unable to improve resiliency, security, and performance as hoped.
Of course, certain industries have been hit hard with slowing demand due to the virus, such as the restaurant food service sector. But even there, leveraging a network ecosystem, the entire supply network — from the carriers and distributors upstream through the producers and suppliers — can adjust to the new demand profile in real time. In times like these, where working capital becomes a key focal point for certain sectors, the ability to adjust plans and schedules at any moment is vital.
There have been slowdowns for the automotive, high tech, and industrial sectors, and many now understand that the old hub-and-spoke solutions from ERP vendors were unable to support a nimble network-based trading ecosystem. In fact, there is a strong appetite among businesses that have slowed to invest in supply-network infrastructure since the capability will be a significant market advantage once the economy fully recovers.
Is it really possible to move to smaller order quantities and, at the same time, decrease costs? With modern technology, the answer is yes, provided real-time network visibility and collaboration are applied to reduce variability for all trading partners and to eliminate information lead times across all tiers in the supply chain.
While there are many important variables to consider across tiers in the supply network, front and center during the past few months has been the ability to respond to single item demand generated by the “at home” consumer along with the associated last mile delivery. For example, companies have been challenged to respond to the increased demand for home delivery of food, grocery and pharmaceutical orders. A real-time demand and supply network that includes everyone from carriers to retailers to 3PL’s to manufacturers to suppliers has the ability to flex capacity to execute on the surge in delivery demand. Fleet capacity increases of 20% to 30% can easily be achieved through this type of multi-party planning and transactional network.
Whether medicine needs to be delivered same day/next day or to support a local restaurant though home delivery, those capabilities are made available in a very cost efficient and effective manner. Basically, all the capabilities that enable the entire network to provide the highest levels of customer service at the lowest possible cost are fully extended to the consumer through this modern demand-driven logistics capability
Process automation has, of course, been available for many years in pockets across the supply network. Today, that automation has been extended across the network and into the home with the ability to trigger a response from the network, based on individual home-based orders. Not only have networks enabled one-step home delivery powered by a supply-network ecosystem that meets the demand of the individual in real time across the last mile, it also aggregates this demand in real time across all customers to leverage economies of scale. This allows the network to achieve the highest levels of customer service at the lowest possible cost, even when the orders are home-based for individual items.
The network views inbound and outbound orders as two sides of the same coin. What one trading partner considers inbound another considers outbound. Thus, the only way a last mile solution can benefit both the consumer as well as the companies providing the goods and services, is to optimize all inbound and outbound activities across the network. Providing visibility, control, and math-based decision-making at different supply-chain touch points, trading partners are empowered to make well-informed decisions about positioning and moving inventory.
Real-time knowledge across the network, along with the ability to collaborate between trading partners, is driving superior performance for all participants and helps them to expand their customer base. Capabilities like telematics and full order visibility empower customers and drive satisfaction levels, which in turn drive word of mouth. For companies that measure NPS (net promoter scores), these capabilities are certainly a strong accelerator in driving customer loyalty for the direct-to-consumer channel.
From the shipper’s perspective there are many variables where they feel they have little or no control including understanding consumer buying patterns, fuel costs, supply disruptions, and capacity allocations. Many have tried to apply statistical forecasting techniques or even machine learning but these variables will always be difficult to predict. Regardless of how low shippers can drive forecast error, they will always need to react to problems and alerts during execution, and basically be in “reactive mode.”
Deploying demand-driven logistics capabilities are empowering manufacturers to drive collaboration across their trading partner ecosystem including customers, carriers, and suppliers, leading to improved costs and customer service levels. Transportation management systems (TMS) and real-time supply-network capabilities around visibility, decision making, orders, inventory, and fulfillment all available on a single cloud-based platform provides shippers with the ability to share information and manage transportation and logistics processes throughout the network. Having data in one federated master data management (MDM) repository that feeds upstream planning and analysis helps facilitate demand-driven logistics.
A Real-Time Supply Network
For those who are sourcing globally, failing to communicate in real time with upstream partners creates significant inefficiencies and costs. Trying to do so across dozens of deployed ERP instances is like being tethered to an anchor. Today companies must strive to reach across all tiers and levels in their supply network and work more closely with suppliers and manufacturers to fine-tune production systems and make sure they are in lockstep with downstream processes.
So, what’s really needed for efficient demand-driven logistics to support the consumer-direct supply chain, goes well beyond a basic e-commerce platform. It includes a complete supply-chain solution with integrated multi-tier inventory optimization, order brokering, merge and cross docking, including last mile delivery, and the ability to create an allocated Available-to-Promise (ATP) for order promising to a delivery window in a home within a few hours. And all this needs to be optimized on cost.
Today’s network platforms make it possible, and in this way, the whole ecosystem is able to capitalize on the shift toward direct-to-consumer and achieve a fast ramp in consumer-driven last mile deliveries. Not to mention, the organization and its partners will be fully prepared to take advantage of growing demand and new opportunities as economies recover.
Joe Bellini is chief operating officer at One Network Enterprises, an AI business platform for supply-chain management.
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