Pandemic Supply Chain Lesson 2: RISK AND RESILIENCE WAKE UP CALL: RETAILERS, 3PLs, MANUFACTURERS, TRANSPORTATION AND LOGISTICS PROVIDERS
--A High-Risk and Resilience Situation for All--
First, the pandemic is creating the
need for transformation. That especially
applies to supply chain management for manufacturers ad retailers. It also applies to logistics, transportation,
and 3PLs. Takeaways for the change include:
·
Reduce risk
·
Build resilience
·
Develop agility
·
Streamline
Risk is listed first. The others tie to and are derivatives of risk mitigation.
This paper reflects lessons learned and adaptation.
Did you notice, even before the
pandemic, there were signs that changes were needed and were coming to
transportation, logistics, and 3PLs? Much
of this is based on e-commerce. And with
the coronavirus isolation, online sales have surged which escalates transformation
needs.
The same Amazon that turned
e-commerce from a minor, retail annoyance into a dynamic new way to sell is the
leader here. Order delivery is driven by
a new supply chain management (SCM) that is strategic and weaponized—and
more. This supply chain management is
disruptive innovation.
Amazon began to bring outside
transportation and logistics services in-house—reverse outsourcing/insourcing. They made these changes in their end-to-end
supply chain and its logistics and transportation. Lease airplane fleet to move
products. Be their delivery
service.
Business Insider
had two articles on April 20. One, by Eugene Kim, "Bank of America
estimates Amazon's own delivery service could be worth up to $230 billion by
2025. This charge shows a growing warehouse footprint that's already as big as
7,300 football fields." The other, by Rachel
Premack, "Bank of America says Amazon is
the No. 4 largest delivery company in the US---here's how it's network compares
to UPS, USPS, and FedEx.
Amazon,
once mocked for what it would take to build its own logistics network, is now
generating concern. To its e-commerce competitors, the power of such
operations, cost savings, and customer convenience, the latter when compared to
click and collect, cannot be ignored.
By removing
middlemen—disintermediation—it can increase the speed of its end-to-end supply
chain and improve its order delivery velocity.
This disintermediation streamlines supply chains. It also builds agility
with fewer participants. Plus, it opens
itself up to greater integrated technology by having fewer players for
visibility, digitalization, and blockchain.
And these improve its control and performance.
For transportation, logistics, and
3PLs, what Amazon is doing is a threat to who they are. And the potential it creates for other
companies to adapt parts of Amazon's approach, the volume/business loss that
would mean, and fear that Amazon could offer its services to other
shippers.
These service providers appear to
be standing firm on their offerings and capabilities despite what is
happening. That ups their risk.
Coronavirus and its impact on supply
chains have redefined the global risks landscape. It has strained and frayed
supply chains, logistics, and transportation. Upstream and downstream. The
efforts by supply chain management organizations and transportation and
logistics personnel have been outstanding.
CoViD-19 has hit retail and many
manufacturers very hard. On the other
hand, e-commerce, with social distancing and other factors, has had a surge. It
has overwhelmed large and small e-tailers and their abilities to deliver
orders.
UPS and FedEx talk about the loss
of B2B business and the increase in B2C during the coronavirus. There are more
stops per truck and that means higher costs. Like everyone, they were not
prepared for something as extreme as COVID and what it has done.
UPS is going to target rates to
customers. Depending on the size and
impact of these rates, it may force manufacturers and retailers to find ways to
offset the Last Mile costs.
The takeaway is that the signs that
were there are more pronounced now. Change
is needed.
For those not bringing
transportation and logistics in-house, there is a need for a new kind of
service. One that is about customer
supply chains, not logistics. The
pandemic has pointed the way to the need for resilience.
This new service—call it 3PSCM or
SCMaaS-- addresses what has been missing— focus on the supply chain and integration
into supply chains for better performance and visibility—not separate
transportation or logistics services. 3PSCM
is a needed evolution from 3PL. SCMaaS is what 4PL should have been.
A fixation on transportation and
logistics—and that is related to the over-emphasis on their costs—has caused
misdirection. This is important. It has taken attention away from managing
total product flows. Instead,
manufacturers and retailers have a stop/start or node/link approach that is
central to their supply chain management.
The new supply chain service business
model embeds and facilitates technology along the supply chain. And it brings a greater focus on supply
chains that helps build supply chain resilience.
Supply chains have been tested
under fire. Their complexity has been
shown, including the non-linearity and supply chains within supply chains. Against this reality, building a resilient
supply chain takes work and is a factor of many actions. 3PSCM/SCMaaS is one of those needed changes.
Resilience comes by letting go of
defining supply chain management by costs instead of performance and by
reducing the players/participants in the supply chain to build stronger ties
and collaboration. In turn, it mitigates
supply chain risk and provides better vision and control—end-to-end.
When coronavirus reaches an end, supply chains must be
reinvigorated, restarted, or even rebuilt. Customers will come back
wanting their order delivery speed. And a new way—a resilient way—will be
needed. And that new service demand and providers will spread across
industries, markets, and the world.
Doing nothing brings risk. Doing it wrong brings risk. To retailers. To manufacturers. To transportation providers. To logistics companies. To 3PLs. The risk of losing business. The risk of becoming irrelevant. This may be a matter of seismic risk and resilience.
The question is—what will you do?
Email me at: tomc@ltdmgmt.com
Check my profile at: https://www.linkedin.com/in/tomcraig1/
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