Since the pandemic began, global supply-chain management has been at the forefront of the battle against COVID-19. Companies and suppliers were forced to change their playbooks and rely on new methods of innovation, high road networking and asset stabilization to keep their logistics moving forward. Whether warehousing, automation, freight, retail or e-commerce, business leaders needed to evaluate and address many or all in order to maintain their supply chains and keep up with the demand, which in turn, was drastically altered by the pandemic.
As a result, many experts and industry leaders are trying to answer the questions clients and companies are asking or the ones they should be asking. Following are four trends and changes that have been drastically accelerated by the pandemic, and which best-practices companies should adopt now for long-term success.
The Rise of Automation
This year has introduced new logistical blueprints to follow and the push to get work done with fewer employees has grown exponentially as social distancing directives continue to influence the nation’s manufacturing. Many suppliers continue to rely on automation to ensure flexible supply chains and increased accuracy to help meet the demand from their buyers.
“Businesses considering automation should first involve the “experts” to truly understand its functions and benefits with an open dialogue, before integrating new automation systems fully into their business operation,” says Joe Metcalfe, Consultant at Hatmill Supply Chain & Logistics Advisors.
In order to optimize the correct supply patterns, addressing business, needs, specifications and demands are a must. However, anything that touches automation comes with a large price tag. According to MarketWatch, the logistics automation market totaled $49.2 billion in 2018 and is expected to reach $96.2 billion by 2024. The rise of e-commerce and the returns market during the pandemic have only elevated automation to greater heights.
Lockdowns have given a new edge to e-commerce as returns for online purchases tend to be three-fold compared to in-store purchases. As a result, returns have become an enormous problem but are also an opportunity for businesses around the world; data estimates show that returns cost businesses $550 billion in the US, $660 billion in the EU, and $60 billion in the UK. Only a select few companies were prepared to handle the exorbitant shift in consumer behavior given their extremely developed e-commerce platforms. Amazon announced their sales soared to $75.5 billion in the first quarter, up from $59.7 billion the same quarter a year ago — but profits fell 29% to $2.5 billion. Why?
As consumer consumption habits changed, companies like Amazon, Walmart, Target and Kroger were faced with yet another challenge in addition to a higher demand in online purchases and returns.
Returns are posing major challenges for the supply chain. H&M is shutting shops and turning them into distribution hubs to not only get their clothes to customers but to get the returns back to the store even faster. Brick-and-mortar retailers across the country, and the carriers that support them, are feeling the struggle to adapt to e-commerce as foot traffic has slowed and the need to adapt their business strategies to drive traffic digitally or in alternative ways continues to increase.
“The next 12 to 18 months bring a prime opportunity for supply-chain directors to look at return processes from their online strategy to support the next three to five years,” says Neil Jordan, principal consultant of logistics and supply chain at Proxima Group. “For some organizations it might be too late.”
“Sales and revenues are great, but there needs to be real confidence that you’ll get 20%-30% returns,” Jordan continues. “They need to understand what that data looks like and what investments are needed alongside the business strategy.”
Smart organizations are already working to reshape short-term and long-term strategies for the returns market. When it comes down to operating costs, businesses need to plan for significant investment opportunities so supply-chain teams can reset and further ingrain themselves into new developments.
Automation technology is the largest tool in analyzing new business opportunities like the returns market, especially in supply chain. System developers should be the first source of data and research for both buyers and suppliers. Mastering the frequency, efficiency and accuracy of supply-chain objectives are obtainable with the proper performance specifications.
The next 12 months provide an opportunity for businesses to develop products and a commercial strategy that takes returns into account. Supply-chain and logistics professionals should be asking themselves:
Pressures on Warehousing
Warehousing managers are working tirelessly to solve capacity issues and respond to the influx of inventory replenishment, e-commerce orders, returns and inconsistent consumer demand. In March and April, a rush driven by consumers as they stockpiled essentials like toilet paper and hand sanitizer emerged as COVID-19 restrictions disrupted the flow of goods. Consumer behavior in business has never been more accentuated than it is right now.
“The past four months of consumption during COVID [February to June] have matched the same amount of consumption as the previous 20 years, pre-COVID,” says Simon Dixon, CEO and Founder of Hatmill Supply Chain & Logistics Advisors.
Businesses are continuing to stock up and shut down (those that are non-essential). The same is true for consumers. 90% of people are buying for the long term in line with their strategic objectives and 50% related to e-commerce or parcel delivery. A recent McKinsey report suggested a 15% “enduring switch” to e-commerce, from brick and mortar retailers. While the pressure for warehousing expanse increases, the death of some bricks and mortar businesses, although morbid, has helped to counterbalance this fight for space.
Automation and resilience are key. While it can be achieved in nine months, businesses probably need more like 18 months to truly implement a cohesive automation system to utilize modeling to forecast demand and stock efficiently. For warehousing that depends on task workflows and is looking to increase product density, patience is a virtue.
Local and Global Freight Volatility
Global supply chains have been stretched to unprecedented lengths during this crisis, including freights and shipments. Internationally, there were lower volumes of orders, but more backlogging in warehouses in February and March. Domestically, warehouses are working at high volumes and are struggling to meet demand. Many international in-bound imports were able to maintain successful operation through the height of lockdowns — using larger ships with increased capacity to clear up empty container backlogs.
In Europe, the landscape has stabilized, albeit at lower volume levels, but newly implemented COVID-19 related border checks have impacted the movement of goods. The same is true for domestic U.S. markets. Domestically, less than truckload shipments and e-commerce have been stable and growing, however truck freight miles are going down. For areas impacted by COVID-19 like Seattle, freight managers reported periods of 10 loads inbound for every load they shipped outbound.
Profound business restructuring will need to be implemented to stabilize assets like cash flow. Large freight companies will be able to weather the storm and endure the uncertainty of the pandemic, however small trucking companies that depend on two or three anchor clients should be concerned.
With ongoing trade wars between the U.S. and China, there is a preference of domestic made materials in U.S. supply chains, but quality and pricing may deter the conversion in longer term. Experts are still uncertain how deep, how far and how much this trade battle will affect the future of supply chains.
Johnathan Foster is sourcing director and transportation/distribution leader with Proxima Group.
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