A majority of the world is under lockdown due to the unprecedented spread of COVID-19 and businesses are at a standstill to the effect of ‘keeping the lights on’. The expectation across countries would be to get back into action fast, so the reeling economies can deal with the aftermath of the pandemic. One of the key sectors which is impacted massively is the supply chain and logistics industry
Changing consumer behavior and implications for supply chain planning
With the world entering a new normal post COVID-19, consumer behavior is also expected to change:
- Consumers are eating healthy and at home more often. The hospitality business and their suppliers will take a direct hit due to this change.
- Consumers are becoming aware of the various ways in which they can contract any virus and have become sensitive towards how their products are sourced, produced, and delivered. To this effect:
- Transparency in the supply chain will be a critical factor for consumers. Supply chain visibility will take center stage in logistics planning
- Additionally, Direct to Consumer(D2C) model is likely to pick-up with customers being more comfortable paying a premium to purchase their products directly from the producers who they know and trust
- Online shopping for essentials, food, healthcare products, fashion, electronics, etc. will soon become the new norm across the world with consumers continuing to remain cautious over this year and the next. This will put more pressure on the supply chain logistics of retailers.
- Consumers will be wary of purchasing imported products and this will impact the worldwide shipping operations
- Overall spending is expected to reduce as consumer purchasing power reduces on account of the economic downturn and unemployment.
Role of Logistics Industry in running the global economy
A lot of companies especially consumer businesses looking to revive their revenue will need to effectively leverage the logistics industry to cater to the new consumer behavior. The logistics industry has always helped global trade and acted as a fundamental lever of global commerce and economy by:
- Delivering Just-in-time and therefore reducing inventory cost
- Supporting market expansion and penetration
- Ensuring consistent supply driven by accurate forecasting and demand planning
- Reducing the cost of labor, components, sourcing, and infrastructure by low-cost sourcing
- Elevating customer experience by expediting delivery times
All these factors and more are key to revitalize economies, but while the intention of reviving the economy is noble, the plan to do it is of critical importance.
Current Challenges Faced by the Logistics Industry:
With the lockdown in full effect across the globe and only parts of it open for business, the industry is currently undergoing a tumultuous time:
1. A decrease in production, as well as demand (barring essentials), has seen reduced cargo shipments across the world
2. Supply chain companies are struggling to collect data and make an assessment with regards to suppliers, products & sites at risk
3. Many container carriers are also at risk of bankruptcy with contractual payments on hold as force majeure comes into effect
4. Small scale suppliers are becoming victims of the Bullwhip effect with retailers and wholesalers multiplying their cancellations, factoring in the reduction in demand, and existing inventory on hand.
Similarly, when production does pick-up post the lockdown, suppliers are expected to not be able to match up to the scale of production due to simultaneous spikes in production across the globe
5. Given that airlines are running out of business on account of lack of passenger travel; transportation of raw materials is taking a hit especially in the areas of delivering industrial parts and electronics which are generally transported in bulk as cargo through passenger planes. This will subsequently come back to haunt suppliers even more as once manufacturing and trade picks up, the need for transportation will increase significantly, but a lack of resources will stifle any prospect of growth.
6. With an increase in online grocery orders, suppliers are lacking infrastructure with regards to cold-storage
7. Lack of protective gear for delivery agents has led to protests and is showcasing the logistics industry in a poor light
Way Forward for the logistics industry:
While there are signs of recovery for the industry, the following suggestions will help sustain this growth and ensure that we come out of this crisis successfully:
- Prioritization will be the key: We need to look at the revival of the economy holistically and avoid a siloed approach. Simultaneous relaunch of production across the world will lead to an exponential spike in requirements of materials which can lead to a breakdown in the supply chain system.
Governments, economists, and Industry stalwarts in unison with the logistics industry should take measures to help avoid overwhelming the system at the start. The fundamental will be to create a list of priority shipments that will help economies, across the world, gradually return to normalcy and ensure that this is done in a phased manner.
Considering how governments across the world are planning a phased removal of lockdowns, a similar approach must be taken for the restoration of supply chains; industries, economists and governments need to be involved in the decision-making process of ensuring that demand for essential products is met primarily, and work on bringing demand back to normal gradually. This will help in smooth functioning of the industry without overburdening the supply chain system with supply requests across the economy.
- Create Contingencies: Unprecedented circumstances are always to be expected from here on. The company that responds the fastest and thoughtfully, survives. Logistic companies need to create contingency plans to handle a surge in shipment and be able to work together to avoid bottlenecks, delays, and increasing costs. Sales & operations planning will be a key factor in ensuring the company is focused on faster planning cycles in tune with a shorter timeframe of understanding demand. The longer a planning cycle takes, the higher and more obsolete the inventory gets.
- Training & Hygiene: Social distancing and hygiene will be the norm for the foreseeable future. To this effect, companies will have to train employees with regards to handling materials, understanding social distancing norms, cleanliness in the line of work. Industry-wide adoption of training will help customers gain confidence over this industry and calm nerves over the sourcing of materials.
- Strategic Shift from Long-Haul Supply & Trade: Not only are consumers expected to demand more local produce for the fear of contracting viruses from imported products, but governments have also placed border restrictions on the movement of goods between countries. As we enter the new normal, these restrictions are likely to remain in force for the foreseeable future. To this effect, the logistics & supply chain should consider shifting away from the concept of long-haul trade and move supply closer to the customer. This will continue to ensure just-in-time delivery and subsequently aid the gradual increase in demand for products.
- Seek help from technology: Supply chain organisations have already embraced technology in the form of AI and Machine Learning to create supply chain dashboards that offer real-time data to understand the dynamics of demand forecasting, thereby enabling them to take strategic decisions in efficiently running their businesses. With the adoption of similar new technologies, in robotics, data analytics, IoT, automation, cloud computing & GPS tracking, logistic companies would be well placed to face the onslaught of shipping orders.
Historically, companies that have made faster decisions with the right set of data have been able to weather economic storms and the same applies today. To this effect, automation of lengthy processes can help companies make faster and smarter decisions. Delivering employee productivity with the right throughput is another key objective to keep in mind while navigating the business out of the current pandemic situation.
We’re headed into the new normal unaware of what to expect. In such a scenario, flexibility will play a key role in determining how the industry reacts to the changing demands in the market. Software as a Service will go a long way to bring about that level of flexibility in organizations.
With time and perspective on our hands as we come to terms with this pandemic, now is the time to come together, reflect, and act on how we can come out of this crisis stronger and well prepared.