The COVID-19 pandemic is reshaping logistics and supply chain operations.
Since COVID-19 was first discovered in December 2019 in Wuhan, China, it has spread rapidly across the globe. Once the WHO declared it a pandemic, many countries went into lockdown to curb the spread of the virus. While lockdowns have been fairly effective in reducing the number of infections, they have also put tremendous pressure on the world’s economy. Millions of people lost their jobs, thousands of businesses have closed for good, and entire industries have been devastated. The resulting recession will possibly be the most severe the world has ever experienced. What does this mean for the future of logistics? Is there anything businesses can do to turn the tide?
The impact of the coronavirus crisis on logistics and SCM
As a result of strict quarantine measures, industrial production in China decreased by 13.5 per cent in January and February compared to 2019, while exports fell by 17 per cent over the same period. A recent survey published by the Institute for Supply Management reveals that nearly 75 per cent of US businesses experienced supply chain disruption due to the COVID-19 outbreak. In Europe, the trade volume between the EU and other countries decreased by more than 10 per cent in March, according to Eurostat. Overall, the WTO estimates that the volume of global trade in 2020 will be approximately 33 per cent lower than it would have been if the pandemic never happened.
What have we learned from previous recessions and crises?
If there’s one shimmer of hope, it’s that we’ve been in a similar position multiple times before and always managed to find our way out. That means that we can look to the past for clues that could help us overcome this recession. According to an analysis published by Kai Hoberg and Knut Alicke, only the companies that managed to protect both their internal and external supply chains by adopting innovative approaches were able to survive the crisis. In their analysis, Hoberg and Alicke outline five key steps companies need to take to prepare for the upcoming crisis: “understand true demand, monitor and safeguard supply, create a flexible supply chain, align inventories to free up cash, and prepare for any post-crisis upswing.”
Structural changes in logistics
The coronavirus pandemic has brought new and unprecedented challenges that are bound to accelerate long-term structural changes in the logistics and supply chain sector. Since it’s impossible to predict the true extent of the pandemic’s impact on the supply chain at this time, companies need to have as many what-if scenarios as possible to ensure they are fully prepared for what comes next. Today’s supply chain conditions tend to vary widely, making it extremely difficult to predict the demand for goods and services using traditional forecasting methods, which aren’t exactly known for their flawless accuracy. Demand sensing, on the other hand, leverages emerging technologies like AI and machine learning to allow companies to accurately predict the impact of economic, political, climatic, and geographical events on consumer demand.
To survive the crisis and have a fighting chance, companies will need to arm themselves with data-driven tools that will allow them to better understand and anticipate future volatility. By employing analytics, AI, and visualisation tools, companies can thoroughly analyse climate change risks, geopolitical risks, and cybersecurity risks to identify alternative sources for materials and intermediate products, evaluate multiple logistics routes, and reposition their inventory to avoid delays. To reduce global trade costs, companies need to invest in digitisation initiatives. This will help transform the traditional supply chain into a smart and connected ecosystem – something that the post-COVID-19 world will desperately need. Robotic innovations will enable suppliers, carriers, and other supply chain stakeholders to reduce reliance on migrant workers and offer solutions to the growing labour shortage.
Visions for the future of supply chain and logistics
No crisis can last forever. The economy will eventually recover and things will start to go back to ‘normal’. However, even when that does happen, we will realise that things have changed. So, what new trends in supply chain management can we expect to see in the future? Carlos Cordon, Professor of Strategy and Supply Chain Management at the IMD Business School, predicts that our supply chain infrastructure will undergo a major transformation in the next couple of years, moving away from a highly globalised system towards a more flexible and adaptable one. Paul Cuatrecasas, CEO of investment banking firm Aquaa Partners, expects the shipping industry to experience a digital disruption in the aftermath of the pandemic, which could act as a catalyst for the adoption of new technologies.
According to futurist & trendwatcher Richard van Hooijdonk, the current supply chains are rather fragmented. There is an enormous amount of ‘waste’ – tens of percent – because supply chain partners are not very well attuned to each other. A lot of capacity is used inefficiently, leading to half empty trucks, container ships, or cargo aircrafts roaming the globe. Artificial intelligence is fast becoming the driving force behind tomorrow’s supply chains. Repetitive and predictable tasks will be performed by robotic systems. The execution of tasks and exchange of products will take place via blockchain-like systems that are accessible to all links in the logistics process.
Hardly any company considered a global pandemic when setting their business goals for 2020. Judging by what happened, most companies never even imagined that the outbreak would lead to mass bulk buying, which would in turn create huge backlogs of orders and increase the need for warehouse space. Businesses that import goods from China experienced delays with Chinese exporters struggling to ship goods overseas. In the future, suppliers will need to explore alternative vendors and shipping companies and consider manufacturing their products in various geographic locations.
Tech solutions like autonomous vehicles, drones, and VR can eliminate unnecessary work and greatly improve efficiency. To ensure workforce safety, research and consulting firm Gartner advises companies to implement data-driven scheduling and vehicle routing solutions. Innovations such as these can help truck drivers identify high-risk locations, which allows them to better plan their delivery routes. To adapt to the ‘new normal’, businesses also need to rethink their last-mile delivery operations, with particular focus on changes in consumer behaviour, social distancing measures, and the growth in online shopping. Since last-mile delivery is the most expensive part of the shipping process, businesses should consider trying locker deliveries and curbside pickups to reduce expenses.
The secret behind organisations that succeeded during recessions was in their fast and decisive response. The same approach can be easily applied to the present crisis. Thanks to advanced cloud technology, companies can get a better view of their inventory across the supply chain and mitigate challenging events using real-time data. Out of 1,000 supply chain executives who took part in the Oxford Economics survey, 51 per cent said they use AI and predictive analytics to generate actionable insights.
To gain access to new markets and expand their customer base, companies regularly seek partners who share similar goals and visions. Before establishing a partnership, a company should first assess their potential partner’s short- and long term capabilities. For instance, IndustryStar, a US-based on-demand supply chain managed services and software technology company, advises businesses to assess a supplier’s facility, equipment, financial position, and forecasted revenue. As businesses grow over time, their operations also become increasingly complicated. Caution is advised, though, because introducing new procedures, hiring more employees, and implementing a myriad of technologies without putting too much thought into it can often lead to excessive complexity.
Case studies & experiments
Despite experiencing considerable difficulties, some companies have actually responded to the pandemic with confidence and understanding. Tech startup Kobo360, often dubbed Uber for trucks, has developed a platform that connects truck drivers to cargo owners or anyone else who may need their services. According to Obi Ozor, Kobo360’s co-founder, the platform helps cargo companies and drivers save a lot of time. For instance, it can help reduce a 1,000 km-long journey – that would usually take an entire week – to just three days.
Throughout the pandemic, logistics workers have been exposed to increased workloads and tremendous amounts of stress. For Kargo Technologies, a startup based in Indonesia, ensuring worker safety is a matter of genuine concern. The company operates a platform that acts as an online marketplace for the freight logistics industry and features more than 50,000 trucks and 6,000 shippers. To reduce person-to-person contact and minimise workers’ chances of getting infected with the coronavirus, Kargo Technologies decided to implement an electronic proof of delivery mechanism.
Now, more than ever, organisations as well as customers are counting on an efficient supply chain. Logistics technology company FourKites recently introduced a tracking service that uses machine learning to track less-than-truckload (LTL) shipments from pre-pickup to delivery and predicts arrival times. LTL shipping refers to the transportation of smaller freight volumes. LTL shipments usually make several stops during their shipping journey, so having access to precise arrival times is of utmost importance to shippers and carriers. Canada-based robotics company Attabotics has developed mobile robots that can handle goods in warehouses. The robots are designed to find and pull items from warehouse shelves and move them to box packers. They are also capable of navigating narrow spaces, which will not only ease the burden on workers but also allows companies to reduce warehouse space by as much as 85 per cent.
The future of logistics and SCM
The logistics sector will undergo a major transformation in the next couple of years, moving away from a highly globalised system towards a more flexible and adaptable one. The coronavirus pandemic will act as a catalyst for increased adoption of digital technology and accelerate innovation across sectors. Artificial intelligence technology will play a crucial role in the supply chain of the future, helping companies smoothly manage the flow of goods and services, identify new markets and best suppliers, track exchange rate volatility, manage risk, and improve decision-making. Companies will increasingly incorporate cloud technology to enable remote workers to access critical systems while working from home.
The autonomous transportation sector will also experience major growth, which will eventually lead to autonomous shipping. There will be a major change in consumer buying behaviour as well, with increased insistence on home delivery and click & collect models. Having gotten used to goods being delivered directly to their homes during lockdowns, people may not want to give up this newly acquired convenience.
Furthermore, people are expected to be more mindful about the goods they buy. They will want to know where their products come from and how they were made. This development will force companies to increase the transparency and traceability of their supply chains, so that customers can make better informed decisions. Being able to track the flow of products throughout the supply chain would also allow them to identify any potential challenges and correct them before they turn into more serious issues.