Redefining Global Supply Chain Management
The traditional ways of managing the supply chain may have changed forever as COVID-19 brings heightened awareness of its fragility.
Every shipper, carrier, and logistics manager appreciates there could be a significant paradigm shift for future sourcing and inventory management.
While just-in-time shipment delivery with tight inventory-to-sales ratios were the priorities to lowering carrying cost and efficiency, COVID-19 may shift the focus to a more conservative and safety inventory stock supply strategy. With careful planning, shippers and logistics managers will minimize some of the risks we experienced with the COVID-19 supply bottlenecks.
Container shipping operators realized during the outbreak of COVID-19 that container fleets could become quickly imbalanced and that the dependency of cargo flows from few countries can put the supply chain at risk.
Container availability is now being considered one of the most significant risks to the recovery from COVID-19 economic challenges. This is primarily due to the country border flow impediments that have occurred due to strict quarantine measures.
Shippers have also realized how the overdependence on key primary China suppliers can create significant risk on revenue streams. Just-in-time network designs may become a thing of the past.
Global retailers and suppliers will now have to consider adequate contingency: surplus inventory supply and network integrity. Some retailers and importers may revert to inventory safety stock, higher sales-to-inventory ratios with multiple suppliers, and having suppliers closer to consumption markets to protect the corporate valuation and offer business continuity during the next pandemic.
—Gregory Tuthill, Chief Commercial Officer, SeaCube Containers
Retailers should immediately implement a digital supply chain to manage disruptions. A digital solution can mitigate the impact of the coronavirus in the following ways:
“The uncertainty that COVID-19 is causing has been extraordinary. One thing that is certain, however, is that supply chains have never been more visible and mission-critical.”
—Eddie Capel, President and Chief Executive Officer, Manhattan Associates
Improve transparency and visibility. When planning, sourcing, design production, and logistics are part of one connected enterprise system, retailers can thoroughly assess problems to mitigate damage.
Collaborate globally. A digital supply chain platform helps companies access one “single version of the truth.” Workflow calendars and exception management are critical as companies scramble to update production schedules when factories are shut down.
Improve postponement. Once manufacturing capacity returns, retailers can use postponement tactics to delay critical production decisions until the last possible minute.
Manage raw materials more effectively: A supply chain platform that is digital helps retailers manage raw materials so they can be quickly deployed to the right factories.
Boost vendor management and sourcing. Diversifying sourcing strategies will help retailers manage a crisis like COVID-19. A digital supply chain platform’s features such as vendor onboarding and management will let companies handle multiple sourcing locations.
Provide omnichannel inventory visibility and fulfillment. The coronavirus will impact inventory throughout 2020, so it’s essential to prepare for a variety of fulfillment options.
—Mark Burstein, President, NGC
Stay Agile, Responsive, and Informed
Listen to customer needs, personalize offers in real time, and engage across every channel, digital and otherwise. Make sure to:
Focus on short-term strategic planning. Shippers, forwarders, and carriers have to accept the new reality emerging from this crisis: digital selling. While not a new trend, its adoption will be dramatically accelerated by the profound impact of COVID-19.
Organizations need to be able to work in real time and have tools in place allowing them to analyze and draw actionable insights from customer and market data. Speed is everything when planning and translating this insight into responding to requests and spot bids.
Implement strategic pricing. This is the most effective way to improve margins. With such dramatic volatility in supply and demand, origin and destination companies must have the ability to work in real time and provide tailored offers at the right (profitable) price consistently across all points of customer engagement particularly through digital channels. These companies are also facing significant challenges in optimizing the price of their services while managing their payables.
Focus on responsibly optimizing prices through agile, dynamic management, based on an understanding of market signals, shifting customer needs, volatile supply and demand, and strong pricing discipline throughout the business.
—Richard Blatcher, Director, Industry Marketing & Business Intelligence, PROS
Implement a plan that doesn’t rely too heavily on a single link in the chain. For example, Amazon has shut down non-essential shipments into distribution centers. For a retailer that is heavily reliant on Amazon, this single move is crippling. Retailers should evaluate the flexibility of the entire fulfillment network and work to create alternate options that help keep their business flowing.
If Amazon is no longer an option, create a plan to quickly tap into other fulfillment options such as an e-commerce outlet or secondary fulfillment options like ShipBop or FedEx Fulfillment, for example. Creating these connections now helps with agility later. The faster retailers can pivot and drive more orders to other channels, the less pain they will feel as they transition.
Additionally, retailers need to think about the productivity of each fulfillment point, now and over the next few months. Perhaps it’s worth the work to pivot and turn stores into mini-distribution centers to take some weight off the main distribution center. If a store is able to generate demand, or is experiencing a surge in orders, it could be valuable to retain retail staff to help fulfill orders and help with total network capacity. In the long term, as different areas of the supply chain reopen, brands will be set up to pivot again as needed.
—Meyar Sheik, President and Chief Customer Officer, Kibo
Chief Retail Concerns
To manage during the COVID-19 crisis, retailers should answer these key questions:
“Companies that once had a plan to automate their supply chain in the next 3-5 years are now working toward implementing a more flexible and scalable system as soon as possible. Moving goods faster and more efficiently is needed. For supply chains to survive and get back in gear, they must adopt automation.”
Jeff Cashman, COO, GreyOrange
- Where does my inventory currently sit? Do my customers need to know this information?
- What are my shipping partners’ current guarantees in light of COVID-19? Are there major disruptions? How will I communicate these to my customers?
- If I become aware of a problem with a supplier and/or carrier, how will I communicate and/or mitigate the situation with the consumer? Will I offer the customer the ability to cancel the order at a full refund?
These are questions that, if addressed now, can help you build a loyal customer base and effectively manage your order-to-customer cycle in the long term.
Additionally, if your company can afford to do so, invest in a role dedicated to managing the supply chain, such as a chief supply chain officer (CSCO). This role can provide visibility into the supply chain as it pertains to each area of the business, from marketing and procurement to finance and operations.
This gives the CSCO a unique view of the order-to-delivery process—from managing suppliers to how the product gets conveyed to the end customer. In light of COVID-19, it is critical the CSCO has a prominent voice in how decisions are made, as a misstep in managing these touch points can then have a magnifying effect on how products make it to the end customer.
—Krish Iyer, Head of Industry Relations, ShipStation
7 Immediate Adjustments for Retailers
Here are impactful ways retailers can bring their supply chain and delivery operations up to speed.
- Ensure contactless payment and deliveries. As social distancing becomes the norm, retailers must provide contactless or “tap-and-go” payment options by eliminating cash transactions. One-time-password-based transactions or even payment by touching cards are highly recommended. Businesses also need to follow leave-at-door deliveries allowing customers to choose where an order should be placed and when.
- Leverage crowdsourcing capabilities. To meet unprecedented demand for home deliveries, businesses must immediately optimize key assets such as staff and vehicle capacity. They can leverage advanced crowdsourcing technologies to optimize staff capacity by onboarding temporary or part-time delivery personnel from across disparate delivery provider ecosystems.
- Encourage employees to drive decision making. To respond to immediate supply chain challenges, build a crisis team and give them authority to make decisions. Retailers should have the confidence to leave certain key aspects of decision making to employees below their management levels as these teams have first-hand knowledge about ground-level activities.
- Implement real-time dynamic routing. Businesses must immediately introduce real-time and dynamic routing capabilities to maximize staff-vehicle utilization capacity. Such capabilities not only increase delivery productivity and shrink fuel consumption expenses, but also ensure businesses can efficiently plan multiple drops on a particular delivery route. It’s also crucial to develop capabilities that allow emergency collections and deliveries while a driver is out on the road.
- Control price and reduce promotions. Increasing prices of necessary commodities to manage margins will lead to high levels of customer disappointment, negative media coverage, and hefty government fines. Fortunately, most retailers are shrinking their margins further to keep the prices of essential commodities the same. Retailers need to introduce additional layers of control to ensure prices do not increase even by mistake. Another important strategy is to stop promotions, which can further increase demand and manpower requirements. Shift investments to more vulnerable areas like operations, inventory, and last-mile delivery.
- Embrace the dark store strategy for online orders. Surging demand amid lockdowns makes inventory management extremely difficult. One way to deal with this challenge is to open up ‘dark stores,’ something that U.S. retailers have already started doing. These stores look like supermarkets but are closed to customers. These stores can be treated as mini-warehouses that are closer to customer locations. This ensures that pickup orders are executed faster, and automating pickups within these stores will make inventory even more efficient.
- Onboard new platforms remotely. If businesses are willing to invest in new technologies to ensure rapid scalability, they should look for platforms with short go-live cycles that can be implemented remotely without physical intervention.
—Kushal Nahata, CEO, FarEye
Overcoming Demand Distortion
The demand on the supply chain today is dramatically outside the boundaries of what supply chains are designed for. This is causing distortion.
Products such as hand sanitizers, soap, and painkillers have experienced a 100-250% increase in demand during the initial COVID-19 response. Conversely, in some product areas, such as beauty and cosmetics, the supply side has been forced to adapt and look for new opportunities as sales decline.
Some e-commerce retailers are seeing a 250% increase in orders being fulfilled and supply chains are becoming tangled due to the massive and sudden increase in demand in some areas combined with a significant demand dip in other areas. In addition to worker health disruptions, there is a scarcity of places to cross-dock because distribution centers are currently filled to capacity.
To cope with a dramatic bottleneck all the way from supplier to consumer, here are some tips for shippers, suppliers, and distributors:
- Be incredibly aware of signals. Sense what’s happening both in immediate transportation networks and beyond. When it comes to essential health needs, such as masks and goggles, it’s important to check on inventory levels and in areas with higher incidences. As product demand shifts, establish stronger communication channels for information sharing to more accurately identify regional demand patterns.
- Prepare the distribution center and receiving department equally. Stay on top of personnel on both ends. Have a plan for drivers and shippers on the outbound end, and be just as cognizant of the receiving and on-loading end. A lack of trained personnel creates a need for additional oversight and planning.
- Address the need to adjust labor. With the distribution network in place, be ready to absorb that surge of inbound movement and have a strategy to nimbly get product to all distribution centers including stores and homes. Companies that move high-volume products should also consider identifying non-standard labor options.
- Augment current automated methodologies with human capital. A confluence of record low distribution capacity and an increase in demand has created a need for more human capital. Companies want more shipments to be turned around quickly, which requires more personnel and workers with legacy experience to execute.
—Suketu Gandhi, Partner,
Global Tower Leader,
Digital Supply Chain, Kearney
Building a Pop-Up Hospital in New Orleans
Quick manufacturing response and expedited transport capabilities are proving essential. For instance, expedited shipments of thousands of modular wall panels and life-size building blocks are enabling the rapid construction of a temporary hospital facility in the Ernest M. Morial Convention Center in New Orleans.
The pop-up hospital for COVID-19 patients consists of sleeping pods, isolation units, nursing stations, bed areas, and testing sites from manufacturer EverBlock Systems’ modular building blocks and its EverPanel modular sanitary divider walls.
EverBlock immediately shipped the materials needed to construct more than 2,000 sleeping pods. While the company quickly organized and prepared products, its 3PL partner Echo Global Logistics coordinated the transport, rapidly securing 35 team truckloads to expedite shipments from the Bronx, New York.
Strengthening Backup Plans
By identifying redundant sources of supply in different regions, supply chain managers can save critical time and effort during a crisis.
Another step supply chain managers can take is requesting their suppliers provide contingency outsourcing plans, establishing backup plans as the crisis spreads to impact other areas. If this doesn’t work and companies find themselves in a position where they need to identify new sources of supply due to a crisis, there are steps they can take.
First, supply chain managers can work to identify suppliers in their networks who offer the same or similar manufacturing technology. By doing so, they can shift critical items to these companies to more quickly patch their supply chain. There is always a non-recurring engineering (NRE) cost associated with retooling new suppliers, so it is important to assess the opportunity cost associated with supply chain disruption to weigh the pros and cons.
Second, not all product lifecycle management and supply chain management software enables logging of supplier manufacturing technologies. Another way new sources can be identified is through geometric identification.
This is done by reviewing each component at risk for a delay, then working with engineers to group these components with others that are coming from “stable” manufacturing partners by complexity, material, geometric similarity, and required manufacturing processes. Manufacturers can identify other sources who can make the same parts and avoid delays.
—Jason T. Ray, Co-founder and CEO, Paperless Parts
Embracing the New Normal
Supply chain strategies will shift toward:
Utilizing technology. Expect a rise in the use of AI, chatbots, the Internet of Things, and robotic process automation to facilitate supply chains. This will be done not only as a pretext to bring manufacturing jobs back from China, but also for purely practical reasons, because bots do not get sick.
Deemphasizing the lowest-cost supplier. Companies typically find the lowest-cost supplier, but if you have a single source, you’re vulnerable, and that’s what’s happening now. This will move companies more toward mitigating risk. That requires making investments. They could stabilize their supply chains by boosting inventories or investing in more diverse ways of distribution.
Localizing more manufacturing and transporting. Dependence on China for their manufacturing has put small and mid-sized businesses in jeopardy. The pandemic exposes the vulnerability of companies that rely heavily on a limited number of trading partners. What will result is businesses will look to restructure their global supply chains, and some companies will look at localizing more than they would have in the past. A shift in that direction had already started during the U.S.-China tariff fight.
Planning for future disruptions. The pandemic’s impact on supply chains will compel companies to anticipate disruptions in the future and build in quick responses to their supply chain. This involves a process called mapping, in which companies engage suppliers in order to better understand their sites and processes. It’s imperative for businesses running a global supply chain to be in the know about news that could cause disruptions. You have to be proactive and not reactive. Knowing where the disruption will come from and how that will impact their products allows companies lead time and the ability to create a mitigation strategy.
—Hitendra Chaturvedi, Professor, Supply Chain Department,
W.P. Carey School of Business, Arizona State University
Five Steps for a Proactive Approach
- Take care of people first, then customers, suppliers, and shareholders. The top priority is ascertaining people’s safety and welfare worldwide and implementing business plans to maintain their well-being. From there, companies should communicate with customers to understand their evolving needs, and with necessary suppliers to determine inventory levels and potential issues that may arise in the short and long terms.
“At some point, small businesses will need to consider switching supply chains to accommodate changes. The key is diversifying inbound and outbound options. Frequently, small businesses are single-threaded with one location and one partner, and when things go sideways, they are at significant risk.”
—Steve Denton, CEO, Ware2Go
- Activate a global supply chain command center. The goal of the command center is to actively seek real-time information and feed it into an agile response planning and execution process. This team should create a daily demand review process to understand the impact of disruption across sourcing, labor, materials, and logistics—so companies can not only survive, but thrive in times of crisis.
- Scenario plan, quantify, and develop plans to address risk exposure. Once the command center has been set up, it’s essential to assess the company’s business and supply chain impact for the short, middle, and long term. The command center and its focus on obtaining real-time information to feed into scenario-driven response planning is key to achieving resiliency.
- Harness the entire ecosystem in a response action plan. Trade partners, suppliers, and customers should be included in command centers to develop a view of true demand and supply. When everyone is planning concurrently, and therefore, working with the same set of real-time data, it’s faster, easier, and more profitable to agree on the best plan of action.
- Prepare for the new normal. There’s no such thing as “business as usual” when it comes to the global supply chain. As companies plan their recovery from COVID-19, they must be prepared to navigate future uncertainties, including tariffs, political upheaval, financial crises, and natural disasters.
—Jay Muelhoefer, CMO, Kinaxis
Keys to Resilient Supply Chains
The most successful businesses and supply chain leaders engage customers and suppliers in open and transparent dialog early and often about their efforts—from safety to forecasting and supply chain response. Here are a few best practices:
- Supplier meetings: Gathering raw material, component, logistics, and transportation suppliers together for reoccurring common calls to discuss business continuity efforts and needs is critical.
- Demand planning: Determine now what indicators will best inform your demand forecast as product demand returns. Triangulate information such as complementary industries, proxy industries, or economic indicators that can provide demand-related insights earlier.
- Extended supply chain resiliency: Capture insights on supply node dependencies, gaps, and abilities. As demand returns, identify the capabilities and limitations which impact lead times.
- Transportation strategies: Modal networks are out of their optimized patterns. Shippers are already leveraging a broader portfolio of modes in an effort to minimize disruption today and plan for realignment challenges. For one LTL shipper, that could mean choosing to shift some volume to consolidation due to congestion at LTL terminals resulting from freight that can’t be delivered to closed businesses. Shippers should know there are options for freight to shift across the modal portfolio rather seamlessly.
—Steve Raetz, Director, Research & Market Intelligence, C.H. Robinson
Inventory Lessons from Past Epidemics
Based on my experience working in the retail supply chain in Asia following the SARS and H1N1 epidemics, I recommend retailers take the following actions to prepare their supply chains for recovery:
- Assess total inventory on hand and clearly understand what is still on order. It will be important to identify the key items and most demanded SKUs and prioritize these by channel. Create a new demand forecast that ensures the pipeline for this segment of inventory is protected and correctly projected. The remaining balance of inventory will be imbalanced and probably aged. Build a clear inventory liquidation plan that addresses this product. This will be difficult to manage all at once, so it’s optimal to set monthly goals that progressively drive incremental achievement of targeted total liquidation.
- Re-sort and re-direct offshore goods or those held with brands in order that goods in immediate need are flowing first and can cross-dock efficiently to desired locations.
- Create makeshift relay distribution facilities to handle inbound goods that are in immediate demand and need to quickly be distributed to the point of sale. This will reduce dependency on current logistics structure, and create some immediate efficiencies and cycle time improvements.
- Strengthen current allocation policies so that inventory available for sale is prioritized and focused where it will be most productive.
- As business improves, think ahead strategically so that you have clear, renewed inventory plans by channel, focused on new season goods and basics.
—Daniel Binder, Partner, Columbus Consulting
The audit is a key tool to know the overall status and provide the analysis, the assessment, the advice, the suggestions and the actions to take in order to cut costs and increase the efficiency and efficacy of the fleet. We propose the following fleet management audit.