The COVID-19 market is uncharted waters in the supply chain industry. Bottlenecks in the major manufacturing pathways, combined with safeguarded consumer spending and unprecedented restrictions on global trade, posed an early shock to the industrial and logistics sector.
But the industrial and logistics sector is defying expectations, as demand for warehouses and distribution centers seems to have recovered quickly, and with unexpected strength. Amid widespread economic uncertainty, e-commerce has been the life raft of the fulfillment and distribution industry. New industries, including grocery, have pivoted to e-commerce availability throughout the course of the pandemic.
According to CRBE’s market research, e-commerce was responsible for 17 percent of last year’s total retail sales in the 10 countries with the highest retail output — a figure that’s expected to skyrocket to 39 percent by 2020.
The ability to digitize consumer demand, and to pivot so quickly to a virtual economy, is single-handedly revivifying the need for supply chain manufacturing. But demand will not be the only thing digitized.
The COVID-19 pandemic magnified major inefficiencies in the multi-tiered supply chain model. McKinsey & Company surveyed manufacturers in Asia and reported on the major bottlenecks in their supply chain strategies:
- 45 percent of respondents struggled with a lack of access to materials.
- 41 percent saw a steep drop in consumer demand.
- 30 percent pointed to worker unavailability.
Change will be accelerated in global supply chain strategy, and technology will be at the forefront of the mass recalibration. In a similar survey, McKinsey ascertained that 93 percent of respondents, who were manufacturing and supply-chain professionals, planned to focus on the resilience of their supply network, and 90 percent plan to invest in talent for digitization.
While the need for supply chain networks seems to be a guarantee, the extent to which the sector can make use of existing technologies—cloud computing, demand prediction, 3D printing, etc. —and engineer a more reliable path from part to product will be the determiner of success, and relevance, for the post-COVID supply chain industry.
Rise of the Digital Supply Network
Years of competitive demand and fulfillment processes have made supply chains highly complex, but the virus has exposed the inefficiencies in the current multi-tiered approach. Because the supply chain process is interlinked, it’s increasingly vulnerable to the risks of global crises—transportation restrictions, labor shortage, lack of access to materials—and less able to account for disruptions. Most optimization efforts to date have been focused on optimizing manufacturing performance and minimizing costs.
But COVID-19 has shifted the priorities.
Enter the Digital Supply Network - a digitally empowered supply chain with end-to-end visibility. Making use of the technologic capacities of today, one can imagine a supply network with synchronized planning, dynamic fulfillment, intelligent supply, and various opportunities where retailers, manufacturers, and distributors alike are able to collaborate and reconfigure to optimize their impact. While the details of such an operation will vary based on the needs of different sectors, an underlying theme will be the improvement of visibility across each step of the network.
Luckily, that’s never been more possible, nor more affordable, than it is today.
The approach to planning in supply-chain operations is often multi-channeled, with demand forecasting, supply planning, production planning, and sales planning all happening in separate places along the corporate ladder. But the erratic COVID-consumer behavior, and the costs associated with both a shortage and an excess of supply, is cause for a more integrated approach.
With more data on hand and the capacity to process it, companies can integrate a more autonomous planning strategy. Autonomous planning would employ artificial-intelligence and machine learning for an optimized demand forecasting that accounts not only for internal data from previous sales, but also for external data sets provided by suppliers, customers, demographic research, and other important economic signals. Centralizing analytics, and looking beyond the linear approach of traditional algorithms, would help corporations better prepare for and adapt to major shifts in consumer markets.
Visibility can also be improved through the operational and logistics processes. The need to ensure health and safety will not end with a COVID-19 vaccine. Digital technologies can help to boost employee safety, productivity, and output quality. Currently, many companies are leveraging high-end contract tracing and wearables technology, and investing in videoconferencing applications to enable remote working.
Furthermore, digital solutions can help manufacturers collect more data and monitor their factory performance. Sensor-based monitors, and programmable logic controllers (PLCs), can automate data collection and display output charts in live time. Supervisors can compile the data to easily understand performance without the errors of in-person assessment, and performance can be managed and optimized at a higher level.
Visibility can likewise be integrated into each step of the outbound fulfillment process—from loading a package in a warehouse to delivering it to a distribution center, to leaving it right on a consumer’s front door. Similar data collection technologies can track transportation routes, offering the most efficient traffic pathways or route structures and monitoring carrier analytics.
This data can help to minimize the time a package spends in transportation, while enabling more points of quality management and ensuring the best allocation of resources from pick up to deliver. With better visibility, any step of this process could be altered to respond to different crises or restrictions at hand.
While the sector seems resilient in the face of a global recession, the pressure to adapt and innovate has never been greater. Digital supply networks will replace the traditional, multi-tiered supply chain approach, and each stage of the process will be made more visible through integrated data collection technologies. In the case of another industry upset, the improved supply chain strategy should see much smoother sailing.
Zain Jaffer is the founder and CEO of Zain Ventures, an investment firm with more than $100 million in assets under management.