As companies have figured out how to conduct business during the pandemic, most supply chain leaders have had to adapt to new business realities as they look towards the future. The coronavirus continues to accelerate emerging trends and uncover existing gaps in planning and operation models.
Businesses across Asia have spent the past ten months implementing various health and safety measures to protect their employees and resume operations safely. Now that many have defined provisional ways of working, there are a number of challenges which remain.
Fulfilling more e-commerce orders
One of the clear and lasting impacts of COVID-19 will be the prevalence of the online sales channel. Manufacturers and retailers alike need to revisit (or formally define) their omnichannel strategy. This effort may require strategic shifts in several critical areas:
Packaging: Packaging for the B2C channel can be very different from standard retail. In addition to designing and testing packaging for the protection of higher-touch parcels, one will need to consider such variables as the unboxing experience – assembly concerns, sustainable materials, frustration-free packaging – and facilitating returns.
Warehousing: Orders for the online consumer channel typically come in as an Erlang Distribution rather than as the planned block orders of B2B. Most warehouses are configured for storing, moving and shipping pallets, but e-commerce operations need additional space to break down pallets and to pick individual items. All of this picking will be more labor-intensive and time-consuming as the discreet single orders are prepared for parcel shipment. Resources will need to be allocated for necessary warehouse configuration and staffing changes.
Shipping: The percentage of parcel shipments will be a growing portion of volume versus full truckload and LTL. This makes an accurate determination of parcel transit times necessary because having an real understanding of how many customers can be reached in one or two days (and how much it will cost) is critical to being competitive. New carriers will be needed, and additional warehouse locations may be necessary to optimize delivery times.
Returns: The percentage of returns for the online channel is typically much higher than that from the retail channel. Additional warehouse staff need to be trained, and have a designated, adequately equipped area (or even a separate location) to process incoming volume through the reverse supply chain.
Investing in your future supply chain
A long-term collective focus on supply chain resilience should be a core tenet in all planning and operating models going forward. Some of the strategies and techniques you should consider include:
Sourcing diversification: Geopolitics and potential points of failure should be critical considerations as your company evaluates supply alternatives. The savings of a few pennies per widget might not be worth the additional risk of supply disruption in the event of future crises (political, force majeure, epidemiological, etc.). For most companies, it makes sense to diversify your supply base and the countries where you are sourcing key components — in particular, those with long lead times. And it is essential that your company qualify suppliers in other countries based on sourcing and quality norms ahead of time. As many companies recently learned, it is difficult to go through a qualification and commissioning process during a crisis where there are time and resource constraints.
Multi-tier supplier evaluation: Companies have a good idea of their Tier 1 suppliers and their strengths and weaknesses. Some companies evaluate their networks down to the tier 2 level. However, most enterprises end their evaluation at that stage. In investigating tier 3 to tier 5 suppliers, you may uncover specific supply chain vulnerabilities, which you were previously unaware of. It’s also important to understand the nature of different suppliers and note how local governments have classified them during this crisis. For example, a certain Food & Beverage company’s operations were considered essential and exempt from lockdown. However, their corrugated packaging supplier was not deemed essential. Therefore, after a while, the company could not continue production as they ran out of the packaging, labeling, and warning signage without which they could not ship their products. Consider these factors when developing inventory level norms for suppliers during crises.
Manufacturing location diversification: Certain industries (e.g., Food & Beverage and FMCG) can manufacture a SKU in multiple locations. Historically, the manufacturing cost minimization function has ensured that SKUs are made in as few places possible. However, in the future, you may want to re-evaluate this strategy and manufacture important SKUs in multiple locations to build more resilience into your manufacturing and distribution network.
Supply chain scenario modeling: Several meat-packing plants were temporarily shut down due to increased COVID-19 cases at their facilities. These were handled reactively by companies given the extremely short notice. To avoid such situations in the future, your company should model these worst case scenarios and build risk mitigation playbooks to mitigate the service and cost implications ahead of potential disruptions. For example, when warehouses or manufacturing plants are taken out of service, that territory can be allocated to another facility. Your evaluation of such strategies should allow for the optimal reallocation of raw materials, transport, warehousing, etc.
Production maximization with reduced labor: In future situations that limit the number of workers at a given facility, you should consider options to maximize production levels with fewer people. One option is to reduce the number of SKUs manufactured to minimize changeover time and complexity. This strategy should be built into your playbook as there are upstream implications for raw material procurement and planning. A SKU reduction also helps downstream retailers since, during a crisis, product availability tends to be more important than product variety. It also helps reduce shelf replenishment (which means less labor) without a big dent in customer satisfaction. Other options include optimizing the layout of your facilities to improve efficiency and investing in warehouse automation or other advanced technologies.
Improved visibility: One essential way to mitigate and reduce the impact of supply chain disruption is to collaborate with your supply chain partners. Building visibility through tools and enablers like LCT (Logistics Control Tower) and CPFR (Collaborative Planning, Forecasting, and Replenishment) are items that should land square on the “must have” and not the “nice to have” list.
The need for resilience and the prominence of e-commerce may be driven by the COVID-19 pandemic, but these shifts are here to stay. The investments you make now in supply chain strategy, planning, and operations have the ability to serve you well into the future, beyond the current global pandemic.
A crisis like COVID-19 is an invaluable opportunity to examine and evaluate your practices and priorities. If you need help evaluating your supply chain and preparing for the challenges and opportunities ahead, reach out to us. Chainalytics’ combination of top supply chain talent, proven methodologies, and exclusive market intelligence consistently puts our clients ahead of the curve.
Bennet Nelson Panikacherry is a Sr. Manager in Chainalytics’ Supply Chain Operations practice and is based in Bangalore, India. His expertise covers warehouse operations, 3PL operating model design, implementing transformational programs, and managing the operations of mergers and acquisitions.
