LOGISTICS STRATEGY IN A TIME OF CONTINUOUS DISRUPTION --Wake Up for 3PLs and Service Providers----

 

What Is Happening.  The world has been in a time of continuous disruption. These are not small events.  They are global.  First, there was e-commerce and its impact on retail from mass merchandising to direct customer orders and shipments. Then, it was the pandemic. Now it is geopolitics—from actual war to trade war. Add the significant disruption coming with climate change.  And nature—floods, drought, and earthquakes. And who knows what else may be coming.

Manufacturers, retailers, and wholesalers are struggling with what to do and how to manage everything. Add inflation and recession to the uncertainty and confusion. The inventory vagaries we have seen validate this. It is a time when companies ask themselves about doing too much or doing too little—and the risks of each.

Years of certainty and fixed practices are being challenged. Topics arise on what to do—resilience, supply chain diversification, reshore, and others. These add to the challenge because they are not quick fixes. The time for creating new supply chains with the ability to adapt generate risk.

Set the Stage. Supply chains drive logistics. It is not the other way around. Logistics is a  derivative of various external events. That places it in a dependent role.

With all that is happening, logistics firms bring their own challenges. Start with freight rates, a key metric for these firms. The extreme swings and their profitability inference.  Add logistics disruptions. Ports. Railyards. Labor strife. Derailments. Infrastructure. Out-dated software. Lack of needed technology. And more.

These compound the disruption and confusion for both supply chains and logistics. And with this is a seeming lack of open discourse on what can be done. There are no national supply chain strategies and logistics strategies that reflect across the transport modes and warehouses. 

Then/If.  If customers are making changes to deal with external events outside their control, then what are logistics providers and 3PLs to do? More of the same while the world and end-to-end supply chains are looking for answers to adapt. Against that background of waiting for leadership and clear direction from customers and the uncertainty and risk, what are logistics firms to do? Borrowing from Shakespeare’s Hamlet, “Ay, there’s the rub.”

Reaction or Strategy. Strategy can be a misused term and is confused with a new program or other action.  Taking something done for one customer and trying to promote it for other customers is a program, not a strategy. Same with being swept along with implementing a technology.

For example, digital is not a strategy. Technology is often a topic that enables and is utilized in the business. And it has gotten much attention with the idea of resilience. But, and there is always a but, technology can be a strategy. If, if it recognizes the below.

Strategy.  Strategy is bigger. Think of it as a new direction, a significant shift.  And the risk and change that means.   

All logistics providers—3PLs, transport, forwarders, warehouses, logistics centers, ports, and others--and whether they are asset-based or non-asset based--should have a strategy.  The strategy identifies challenges, issues, and risks with markets and their dynamics; and, going forward, can set the direction where the company is going for new markets and new business and customers to grow sales and profits.

A strategy does not have to be long-term.  Given the rate of disruption, especially with continuous disruption, five years or less is a good time frame. Longer can also result in being stuck in a rut.

Surprisingly, despite the purpose and benefit, many service providers do not have a viable, current strategy.  Instead, they view developing one as too much work, react to what customers ask or what competitors are doing, or have one that is outdated.  In a way, they letting business vagaries drive their direction and future.  Having no strategy can be risky, especially in a time of continuous change, and if competitors, established and potential new entrants, have a well-done strategy and especially given the reality of global economic change. 

The strategy can be operations focused or it can be a significant change, to transform the company.  Which strategy is developed can be based on and reflect risks for the business or for the service sector, competition, or changing customer and/or market segments.

There are two parts to a successful strategy—first, developing it and second, executing it.  Developing a strategy comes from a serious, formal strategic planning process.  It involves a blend of financial and non-financial objectives.  The plan should also focus on the present business, and how it will adapt to the future and new services and opportunities.  It identifies where the company is going--and where it is not going-- and what it takes to succeed in that service arena.

            Planning.  The starting point is where the business is now as to present dynamics with trends, markets, services, and customers; value proposition, and competitive positioning, coupled with sales and profits.  At any stage of the planning process, at the minimum, a SWOT (Strengths, Weaknesses, Opportunities, and Threats) is useful for the present and potential future scenarios. 

Planning contains mistakes that can limit the ability to develop a worthwhile strategic plan.  Some of the shortcomings that can lead to a bad strategy include:

ü  Firms only go out for one to three years with the plan.  While that span is easier to deal with than looking out five years or so, that is based too much on what has happened, miss-assumes what will happen, over-assumes the company’s position in that future trend and is not strategic.  It is more like a budget or extended sales plan. 

ü  As a corollary to the short-span view, companies confuse goals with strategies.  Increasing sales or reducing costs by a certain percentage is a goal, not a strategy.

ü  Providers try to mimic what a competitor is doing, especially if it is new.  That is not a strategy.  A good strategy separates the business from the competition.  Emulating competitors or chasing the next new logistics service is a short-sighted approach that often lacks an understanding of market niches, operational nuances, and value proposition. 

ü  Companies stay with what they are familiar with, their comfort zone.  This can be a myopic bias against performing the diligent planning analysis that is necessary. ü  It does not identify and address hard questions and challenges, such as how sustainable the present business approach and operations model is.  That negates the concepts of strategy and planning.  

ü  Planning is not rigorous and does not adequately assess both external and internal factors.  Internal analysis does not get the rigorous attention it should get.  Diligent self-assessment is required, but it can be difficult.  Overestimating abilities and underestimating problems short-circuit any serious planning.

ü  Companies oversimplify trends, especially global ones, and their impact on future business.  They let the past dictate too much of what will happen, even against the dynamic and changing global business world.  Firms do not comprehensively deal with uncertainty and look at “what if” scenarios.  It is a dismissive approach based on the past.  Change, with its speed with competitors and markets, is more than local; it is global.

ü  Businesses create a wish list of strategies.  Aggregating a catalog of possible ideas, no matter how worthwhile, is not strategic planning.  The effort dictates potential strategic choices be culled and prioritized and that hard decisions must be made on what to do.

ü  Service providers do not scrutinize how well the strategy positions the service offering to the dynamics of global economic and business forces.  They also overestimate potential competitive advantage—and underestimate its transiency-- that the firm may create with its strategic placement.

ü  Companies keep the planning within the C level and do not extend it down to others who may have a better understanding of the present activity.  There is also an underlying assumption that what a company and its executives do is transferable to the future.  This lack of communication and buy-in with the planning often continues with attempts to execute the strategy—attempts that often fail.

             Execution.  Strategy implementation is critical.  The best strategy, without good execution, will struggle to succeed.  And the more dramatic the strategy is with scope and impact, the greater the challenge for sound execution.  An operations strategy has internal capabilities and requirements, perhaps best-in-class.  The significant change strategy has both internal and external requirements.  Each strategy carries different proficiencies to implement and creates challenges for present executives, managers, and employees to have the skills to implement the strategy.

ü  Achieving the strategy separates planning for the sake of planning and planning needed to advance into the future.  It also demonstrates the conviction that the company has in its strategy. Executing the strategy means communicating the plan within the company and with stakeholders to build support—both operating and financial--and aligning the business with its strategy.  Adequate resources and defined responsibilities for execution are needed, along with corresponding, relevant metrics to track progress. 

ü  The transformation and its rate of implementation to carry out the strategy may require recognizing and dealing with the need for change management.  In reality, there are strong similarities between change management and successfully implementing a strategy.

ü  Tied to the grand strategy are underlying strategies and implementation plans for sales, pricing, marketing, positioning, operations, and technology.  Logistics providers should recognize the life cycle of their services, especially concerning profit maximization and the commodity service view of their offerings.  This service life cycle creates the need for the subset of strategies and their fulfillment of them.  How people within the company grasp and execute these opportunities can have a significant effect on long-term margins.

ü  While direction can come from the top level, carrying out the execution needs clear lines of responsibilities coupled with a coordinated, cross-functional effort by different groups within the company.  There can be no standalone activities for success.  It should be integrated.  The potential for assuming away the need for collaboration can create unnecessary surprises and failure to gain all the market, operations, and financial benefits of the strategy.

      Strategy planning and execution are not easy for logistics providers.  They are a challenge.  But as difficult as they are, doing nothing in the face of dynamic competitive and market changes can be dangerous for all stakeholders.  Logistics providers that do not plan well and implement well let events drive where they are going.  They do not control it.  These providers are market followers, not market leaders.  As a result, these firms do not transition to take full advantage of opportunities.  They miss out on market share, customers, and profits that companies, that have coordinated planning and strategy execution, earn and enjoy.

Think About.  There is a change from logistics being the dominant emphasis in supply chain management.  This could redefine, for example, the 3PL niche to 3PSCM—or SCMaaS (Supply Chain Management as a Service). 

Two, another disruption comes from within the field.  Technology is adding new requirements, and new ways, to what firms must do, from digitalization to artificial intelligence.  It is also developing new competition that uses technology, including platform businesses.  Also, logistics providers in a niche are expanding their reach into other niches.

There is also the dual-use disruptor, shippers who are taking control of their logistics and bringing activities in-house.  Think of it as a type of reverse outsourcing.  In turn, such dual-use actions could mean shippers taking their logistics capabilities to outside retailers and manufacturers—and taking business away from present logistics providers and 3PLs based on proven end-to-end supply chain results.

The results of the disruptions are threats to these firms, including disintermediation.  At the same time, it is opening new opportunities.  Against the perception that logistics is a commodity business, the challenge is how to adapt and transform.

This reason questions what a firm should do, in what context it should be a service, and how to differentiate it.  It is about strategy.  Some say it is being agile, which often means doing something the firm was not designed to do or is within its operations capability. Agile is not a substitute for transformation and strategy.

 

Conclusion.   The times they are a changing.  There is a new reality in supply chains, and as a result, in logistics.  Call it chaos or disruption. Talk about adapting or transformation. 

Customers are doing more and expect more with the new reality they are dealing with. Business as usual is vanishing.  Established practices are being replaced.

There is risk in doing nothing.  The best path forward is to develop and execute a strategy.

PANDEMIC EXPOSED SUPPLY CHAIN WEAKNESS

From a supply chain view, has and is the story about container line performance, not costs?

Shipping is a derivative of inventory movement. The past 2+ years exposed a weakness in that supply chains are designed and operate based on costs. 

It continues as the excess inventory showed. New E2E supply chains designed on performance and adaptability are needed. It drives out inefficiency that increases costs and prices. 

The new supply chain drives changes in shipping. 

There is no moving back to pre-Covid "normal". Continuous disruption is part of the new and moving normal with geopolitical, climate change, and labor. The new supply chain reality.

IMHO

CFOs, Purchase Orders, Inventory, Supply Chains, and the Recession

 

From the pandemic to now and a pending recession. From no inventory to excess inventory—and trying to balance demand and supply. Plus, throw in inflation. And so it went. It is about your upstream supply chain.

Your challenge is to adapt to the coming recession and your spending reduction to deal with it. And add the chance of more disruption. There are the usual suspects here—the same old.  But think bigger on what to do. There are limits to what you can gain from cost reductions with people and pushing for lower purchasing prices and transportation rates.

Emphasize your upstream supply chain—where the supply of supply chains begins. It is the critical, largest, biggest cost, and most complex part of your company and touches more parts of it than any other function. There are opportunities with inventory and process. If you want with.

Procurement and transportation/logistics (whether separate or included with the product buy) are your biggest spend. All that inventory and bringing it in and the capital expenditure. Your international buy is often the bigger slice than the domestic purchase.

Start with whether you have made changes upstream in the past two years, why you did, what they are, and how well things worked out.  Note that the pandemic did not create weaknesses in the end-to-end supply chain. It exposed them. Just as it highlighted that the upstream supply chain is critical and strategic. Remember, the last two years, both directly, and indirectly, have been the upstream segment of your business. And that area is vital for your building resilience.

STEPS:

·       Analyze how much capital you have invested in inventory—your spend. How much money do you have tied up in buffer inventory to cover time and inefficiencies?

·       Think of your inventory-related purchase and cash flow.

·       Assess your inventory as to turns/days of and percent of revenue. What is your ROI?

·       Focus that your supply chain, even your business, begins upstream at Mile Zero and your purchase order.

·       Remember that if you struggle here, you cannot fix it downstream. It is too late.

·       Consider your supply chain is in a time of continuous disruption. Normal is a moving target and time can be your enemy.

·       Go beyond costs. Think how you do the process, total time, and technology.

·       Recognize the inefficiencies that impact your inventory. 

·       Ask yourself. How efficient you are you? How much handling and multiple handling of documents and information are there among all the parties? How easily and well do you prepare and see your purchase orders and what is happening with them?  Now think what it means to your inventory and inventory buffer.

·       Move from Excel to digital—a key to gaining resilience, ESG, transparency for manufacturing and retail/sales, and procurement and transportation efficiency. This is more of a requirement for you than an option.

 

PURPOSE:

ü  Draw on lessons learned from the last two years and improve your operations and technology.

ü  Put your focus where your spend is.

ü  Streamline your purchase order process.

ü  Move to a digital platform.

ü  Gain procurement process efficiency.

ü  Provide visibility.

BENEFIT:

1)    ompress time from PO placement to PO delivery. 

      Mitigate purchase order time variance.

2)     Reduce capital tied up with inventory. Remember interest rates.

3)     Increase inventory turns/reduce days of inventory.

4)     Improve your inventory capital investment ROI.

 

SPOT CONTAINER RATES --Some Thoughts on Curious & Curiouser--

There have been many stories, tweets, and posts about spot rates. Tracking them. Citing them. Citing them to predict a peak season import apocalypse.

First, some context. Context is what is missing in the spot rates stories. The rates are treated as if in a vacuum and are linear with little explanation and drill down of what drives them.

There are no problems getting empty containers and that can reduce pressure on spot rates.  

China exports were strong in July.

1)    What is the significance of these rates? How much volume moves under them? Maersk, one of the largest container lines, has over 70% of its volume locked up in contracts. That puts container shipping under spot rates, as a minor activity for them.

2)    There are two sets of shippers—forwarders and Beneficial Cargo Owners (BCOs). Does one group move more volume now using spot rates? This can reflect selling rates to get business or using contracts to get service to move products for supply chains.

3)    Some of the rate usage reflects how carriers see forwarders taking the rates they “gave” them and selling against them with end customers.  Also, some carriers have a different view of forwarders as customers. They like them.

4)    A note. Pre-Covid, market rates were often below contracts. So playing the spot game was considered a wise approach. Much volume moved with market pricing.

5)    The last two years have been highlighted by high rates and high carrier profits. This contrasts with pre-pandemic when rates were low, and carriers had little or no profits.

 The focus is the upstream/inbound supply chain—where the supply of supply chains begins. It is where suppliers and their suppliers are. Tiers of them. This is the where of the containers whose freight charge is spot or contract rate.

We have had 2+ years of supply chain and logistics continuous disruption. The pandemic. China lockdowns. Domestic issues with chassis and container transportation. Contract negotiations with West Coast dockworkers. Union dissatisfaction at ports in Europe. These have resulted in congestion and chaos worldwide at ports.

 

With disruptions ongoing—throw the Russia sanctions for its invasion of Ukraine and China, Taiwan, and the Taiwan Strait, how long disruptions will continue and, in turn, how long it will take to clear the port congestion are unknown.

 

These impact ship turnaround and the financial impact for highly capitalized container lines, vessel utilization, and, in turn, spot rates.

 

What does all this mean? There is a segment of shippers who want the carriers to renegotiate their contracts because of spot rates.  Why should the lines do it? Why should they give up their power?

 

Some of the renegotiate view reflects that shippers had the negotiating strength for so long. Many do not like the shift. And back when they had that power, container lines did lower contract rates. Implicit here is whether service contracts are really contracts. Take or pay. Or if they have been soft time volume agreements?

 

There are also questions on whether lines will cancel/blank sailings to control capacity and, in turn, prices. This applies to both shippers who want to buy cheap rates and those who want service for supply chains. Blank sailings are not new. Container lines used them pre-Covid--whether it was a reaction or part of a strategy to take control of their fortunes. 

Those who prioritize service know that not every container, not every product in a container is important. Their need for service reliability and speed varies with SKU, product category, demand, seasonality, and other reasons. Think of it as ABC services for ABC inventories And prices should reflect the differing services--and their value.  This would be a change in pricing for varying services. This is more than charging based on port pairs. The validity of this that the last two years validated the strategic and critical importance of supply chain management.

 

So there is more to watch in 2022 and 2023 as to how prices will look. And against a background of other disruptions, such as climate change, and potential lessening of globalization with reshore, nearshore, onshore, friendly-shoring, and supplier diversification. Each of these can mean supply chain redesign and realignment. In turn, this drives what carriers will do.

     All of this means forecasting prices have higher risks. There are so many unknowns and events at           play that the past may not be a strong predictor of the future. Remember too, after decades of cheap         rates and what they meant? McKinsey said the industry lost $100bil over 20 years. Will and why             should container lines give up their newfound power?

WHAT IS NEXT FOR SUPPLY CHAINS? --Realigning Supply Chains--

Depending on where you are in the world, you have experienced China-US trade issues, the global pandemic, and Russia's attacking Ukraine. Manufacturers, retailers, and wholesalers/distributors are dealing with high ocean rates, delivery delays, and sourcing changes that have impacted inventory/product availability, procurement, and more. Also, behind much of the freight rates and operations issues is high demand that created volumes exceeding the capacity of logistics providers to handle it.

Recognition has arisen that we are in a time of continuous supply chain disruption. Add in climate change, geopolitical concerns, and other issues that can affect business continuity.

The awareness that supply chains are strategic and critical has firms asking themselves how they can build resilience or risk mitigation. There are different approaches to doing this. One is to reduce the products they carry, SKU rationalization. Another is to carry more inventory, even overstock. Given all the items a firm may carry, this may challenge warehouse capacity, throughput, and inventory turns, sometimes called inventory rich and cash poor.

Another way is moving closer to end markets where customers are. This means discussions about potential procurement, sourcing, manufacturing, and supply chain changes and shifts. This has become the reshore question

Companies are asking themselves about what they make and/or buy and where it should be done.  The challenges that companies have experienced go against traditional risk aversion with change.

Some talk in terms of deglobalization as a way of building resilience. It is labeled as reshore, onshore, nearshore, and same shore.  It raises the question whether decades of low-cost products will be undone by two years of supply chain disruptions?  Also, will a firm's changes will be an all-or-nothing? Or is there a hybrid path? 

No matter, what we are talking about is not shifts.  No matter the terminology, it is realigning supply chains. This includes sourcing, production, procurement, and end-to-end supply chain management.

The above sets the stage for what comes next—what to do and how to do it.  There are two parts to a realignment project:

Step 1. Call it Phase 0. This is what you are thinking as to reshoring. Do you want to move it onshore, nearshore, or stay same shore? There are points to consider which can vary by industry, market sector, or type of business—manufacturing, retail, wholesaler/distributor. These can include:

·       How critical your products are. This showed early in the pandemic with PPE, personal protective equipment.  Much of these items were made in Asia which had shutdowns. That had serious implications.

·       How valuable your products are. There are costs to making changes. Generating a return on investment, or ROI, reflects the value of what you want to shift. In turn, this dynamic has a different standing with low-value items.

·       A classic battle. Somewhere in all this will be the labor vs capital issue. The labor reflects wages, training, education, supply of employees, and related topics. Where do you put your money? Capital ties to manufacturing and to building resilience through technology as compared to engaging people.

·       The length of your end-to-end supply chain. The shorter it is, the easier it may be to adjust to events. Length is also a factor in the nonlinear, complex supply chain.

Step 1.5. There may be less complicated options. These involve your suppliers.

Diversify. This can be defined as a type of reshore. Look at your suppliers and transport/logistics providers, especially the ones that are very important.  Can you reduce your use and dependence on them? That can mean you pay higher prices by reducing your volume commitments. But it will also spread your risk and improve resilience.

Relationships. A takeaway from the last two years is to create supplier relationships that go beyond price and traditional buyer-seller connections. This can be easier said than done. But continuous supply chain disruptions have shown the need for it.

Step 2.  This is your analysis or assessment. It presents an opportunity to see and understand your end-to-end supply chain—its size and complexity.

You are looking at a range of options—no changes, moving production or sourcing away from certain countries, moving it closer to home, or transferring it to the home country. This also means looking across your product spectrum. It requires a strong analysis of what is required to make sound decisions.

Your work should include:

·       Recognize upstream.  The recurring challenges with the past two+ years have been primarily upstream or the inbound supply chain. That is where suppliers are and where the supply of supply chains begins.  To add to the problem, the upstream is often organizationally bifurcated as to procurement and transportation/logistics.  

For too many, supply chain management is viewed and defined as and by its transportation/logistics elements and not by upstream/downstream or other relevant designations. The two parts are also managed in separate groups in a company.  And the performance of both is often measured by costs.  

·       Say suppliers, suppliers, suppliers.  Detail what you buy from suppliers. What do you see?  What do you not see?

Supply chains have been limited by Straight Line Thinking Syndrome, aka, that supply chains are linear. Think of it as railroad tracks or the modern Flat Earth Society. Something that is an urban myth; it has never existed. 

You see many suppliers for your products, parts, assemblies, and components. Think of your bills of material. One of yours may look like this:

But there is more.

Drill deeper. 

It does not stop there.  Your suppliers have suppliers. And so on.

There is a network of suppliers with interconnectivity. What you have are tiers and layers of suppliers. The granularity of your inbound supply chain. If you are a baseball fan, think of it as seeing a triple play.

All the parts and the movements. Understanding this will prevent you from missing parts at locations that you are moving from.  That can undermine the project.

Tier suppliers as to priority. And layers of who they are, what they make, where they are, and who their suppliers are.

Defining and seeing the supply depth is something that blockchain and supply chain visibility can miss. You cannot with your realignment.

Map your complete supplier network. This enables you to see the size and complexity of your nonlinear supply chain. It also presents a view of what you must understand and assess.

Prioritize Products. Companies can have many products and parts made outside of their home country.  So what do you move? 

Not all your products, like your suppliers, are the same.  You should prioritize your items for the assessment and changes you may make.  Moving everything at once can mean cost and operations chaos which can negatively affect your business.

Even more, you may decide that you do not want to move every product or part. As with inventory, there are A, B, and C items whether based on sales, profit margins, supplier alternatives, or other criteria.  This is important to your project.

Crunch the Numbers.

This is where everything leads. What does supply chain realignment mean to your product costs and margins? 

Landed cost is the best cost to use. This is your buy price from suppliers, shipping, customs, port, insurance, and related costs. An even better number is the landed cost delivered. You should have the data to do the analyses.

Two notes. Presently, you likely have contracts with suppliers and transportation carriers. Changes may mean using non-contract prices and rates for the study. To some extent, it creates apples and oranges. Be careful.

Also, understand the quantity and quality of suppliers and transportation/logistics services and providers. This is important to product availability and the movement of your goods along the end-to-end supply chain.

Odds and Ends.

·       Are similar products or parts moving from alternate ports? Do some research. There may be import data on your products.  This is good for understanding if others are sourcing from wherever there is located. 

·       Time—you need to recognize it to do a thorough study. You need it to implement supply chain realignment. Remember, where we are took decades to happen. Changes and all the inherent details are not overnight adjustments. Ask yourself if your realignment is dislocate or relocate. The answer brings different challenges.

Conclusion. What does the future hold for your supply chain, procurement, and supply chain management?  Will it be framed around reshore, onshore, nearshore, or same shore? Will it be about globalization, regionalization, or global regionalization?

If you are considering supply chain realignment, you have two choices. Just do it. Call it a knee-jerk reaction. Or do a thorough analysis. Choose the latter to gain an understanding of your supply chain, minimize risks, and improve any implementation.

2022: Supply Chain Management & Logistics Landscape—Questions Versus Certainty

The continuing pandemic and reemergence of new strains and variants has thrown much of the global supply chain mechanism and ecosystem into disruption and disarray. The search is now to revert, change and transform.

The year 2021, like the preceding 2020, was another unprec

edented year for global supply chains and logistics. A lesson derived from the ensuing situation was the unpredictability of predictions for supply chains, logistics, transportation, ports, retail, manufacturing, and distributors. Consequently, it created an impact.

The result here is a list of ideas and uncertainties for 2022. They are some of talking points and takeaways that have taken life during all this and what they may mean as things to watch for.

Overview  

The business story of the pandemic has been its direct and indirect impact on the logistics and supply chain management. The result—logistics bottlenecks and chaos, port jams, ocean shipping rates, inventory shortages, lockdowns, shipper workarounds both reshore and onshore.

There is need for trade and supply chain synchronization.  All of these are indicative of disruption and the potential for change, even transformation.

Status

The pandemic validated that Supply Chain Management (SCM) is critical and strategic. This is now globally understood. It also made companies look at the end-to-end supply chain, not just downstream with customer orders and stores.

Implicit and explicit is integrating the end-to-end supply chain. This may mean a new SCM structure than using logistics as the organization breakdown. That said there is still the challenge for firms to see the size, complexity, and nonlinearity of supply chains. What will all of it mean going forward?

Normal

This interrogative has two parts. One, when will logistics and supply chains achieve normalcy? After the upcoming Chinese New Year? Perhaps in the second half of the Year? 

Two, what will normal be and look like?  Will it basically the same as pre-pandemic except for a few changes? Or will there be transformations across supply chains, logistics, and transportation?

Supply chains

Stories about what happened and is happening treat supply chains as a monolith, one-size fits all—a cookie cutter approach.  There is no differentiation by company, industry, market, or regions of the world. That is wrong and creates misdirection for change and what is, can be and should be.

Technology

This is a high on the list issue. Covid has and will accelerate its use. The term, the single word, actually has multiple, different meanings. Start with the premise that there is no universal technology for logistic and for supply chain management. 

However, firstly there is the need for a disclaimer. Technology is not a silver bullet that fixes everything.  It is a process enabler. Its success is directly proportional to how well your process works or does not.

Here are some sure technologies you should have:

Data Analytics

Start with data analytics. There is an incredible amount of data in end-to-end supply chains. No other part of the organization can rival its mass. Tapping into it can provide insights and solutions for what is happening to your supply chain or logistics and possible ideas to improve it.

That can reap incredible benefits as to performance and cost. A trick is to understand what you are seeing—metrics, trends, or outliers. Or are they outliers?

Digitization

Then go to digitization. Moving away from paper and other media is important as we have learned as a step for operational continuity and control. It also aids in data ‘creation’ for analytics.

The length of supply chains and all the participants means this is not a quick-fix programme. Clearly this is mandatory and needed.

Visibility

Visibility was a topic before Covid. There are technologies that recognize it. However, this is more than track-and-trace from transportation-related firms. It is the same with inventory in warehouses. These constitute only a portion of activity.

What must be recognized are the internal and external gaps such approaches have as to players and process that are hidden each from buyers and sellers. These holes are signs of loss of control of the process.

The starting point should be the process related to two key documents—your purchase order and the customer purchase order. Start with creating and issuing your PO and upstream processes where supply chains of supply chain management begin. 

This is coupled with the visibility is the need to integrate it. Then you can use metrics to focus on events and not on all your activities.

Blockchain

Blockchain offers the potential for supply chain visibility. Regrettably, so far, much of it remains hype. There are issues. First, as with visibility and with its linear, transactional view, it misses participants in the supply chain. Those gaps can mean control lapses. Second, for the climate change, green supply chain supporters, there is the high energy used to make bitcoins.

Robotics

This is escalating in warehouses as companies deal with labour shortages and rising labour costs. It is especially for high-volume operations. Using this technology may be a deep-pocket question for firms.

That can mean using outside distribution centers that are technology centric. It may also, for some, mean process improvement to compensate for the inability to use robotics.

Transportation

Depending upon the transport mode, there have been varying degrees of sticker shock with rates. Then there are issues from contract to spot market. How much of the higher prices will remain as things settle? How will you balance contract and spot rates in your shipping?

Second to the cost concern is the service quality and reliability provided by carriers. This may be the most important issue with its impact on production, sales, and customers.

Is all this just a matter of changing carriers? Or is there a need to reanalyze what you do and how to achieve reductions?

E-commerce

It is well known that online sales surged during the pandemic. The question retailers with stores have is how much of that e-commerce volume will come back to them. Amazon has defined the customer experience with its order delivery velocity.

They have done it with a supply chain management by redefining the process. Its supply chain includes logistics infrastructure—now the second largest delivery service in the US, warehouses, planes, freight forwarding, and trailers. They attacked the import logistics chaos by chartering ships to move products. Then there is also the rapid rise of cloud technology.

Last Mile

All this positions them with operations performance and lower costs, including the Last Mile.  How many e-commerce retailers can match it as they pay outside service delivery carriers?

These capabilities have placed many retailers in a competitive quandary. Does Buy Online Pickup In-Store (BOPIS) match the customer convenience of home delivery—for free? Will Buy Now Pay Later (BNPL) offer a way to compete?

But the threat of Amazon also includes transportation, logistics, and 3PLs. The concern is that they would offer/sell their services to other shippers. Besides their logistics capabilities and technology, Amazon also has a competitive advantage with its real-world supply chain management experience and expertise. That opens up 3PSCM and SCMaaS opportunities.

Resilience and Risk Mitigation

These two go together and hand-in-hand. Creating resilience requires reducing supply chain risk, both external and internal. Technology is one tool to becoming resilient. But, as the pandemic showed, it is about more than technology.  Achieving it is also about operations.

A key action is to assess risk spots. How else can you build resilience and reduce risks without understanding your end-to-end supply chain?

These can be infrastructure, technology, participants, and process.  And for end-to-end supply chains, that can mean extensive analysis to identify all activities, especially upstream. These include going deep into tiers for suppliers' suppliers and mapping it.

Other Reflections

There are more contingencies to consider:

The shortage of warehouse space: This demand reflects e-commerce sales and an inventory buffer arising from the logistics chaos of the pandemic.

The future of lean: Lean has been blamed for inventory shortages. Given the length of the pandemic and its end-to-end supply chain impact, this blame is a bit odd. Lean may gain more importance, especially for international, to remove excess time and smooth it.  Value stream mapping is a viable tool for this.

Inventory: Will companies carry more inventories to limit exposure with a future challenge?  Is this being resilient? With the need for more warehouse space, where will this additional inventory be stored? Or, instead of storage, will it mean using lean to move inventory more quickly instead of placing products in storage?

Reshore  / onshore: The inventory and supply chain disruptions have raised questions about reshoring away from certain countries and moving to others. Furthermore, there is the onshore to move production back to destination countries. The latter has potential for products and their materials that the pandemic deemed critical.

The analysis is the cost of reshore / stay the course, even with price increases, versus moving production onshore. Transportation, labor, understanding and defining the scope of products and materials are subjects at stake.  Think also of Bills of Material, suppliers' suppliers and the network diagram that it would resemble.

Net Carbon: Greenhouse gas / carbon reduction will gain more urgency. This will impact transportation, service providers, packaging, and more. 

Capital investment: The question of ports increasing capacity leads to the need to invest in improvements. A challenge to this is that much of the volume surge is historic and may not be sustainable. As such, what would be the return on investment if volumes calm? This question applies to other areas of logistics. Invest or wait for the drop. 

Next global challenge 

First, it looks like CoViD and its variants are not going away. That can mean ongoing lockdowns, logistics, and supply chain issues. Stay alert.

Climate change is a current and escalating global problem. It will have definite impact on supply chains and their underlying logistics, ports, warehouse networks and transportation. All as the world deals with rising sea levels and high temperatures and the effect. This challenge will require fresh thinking and may demand a redo of supply chains and logistics beyond Covid.

Conclusion

All this is a lot to digest, let alone act on. Disruption will be continuous. That means supply chain management and logistics transformation will not be an option.  It will be required.

The question for everything that has happened and may be happening is what are you doing? Are you preparing or sitting and waiting?