Supply Chain Redesign: Expecting the unexpected

The global pandemic left some global supply chains in shambles and others looking like the stars of the show. Many companies found themselves somewhere between these two extremes, somewhat satisfied with how their supply chains performed in 2020, but ready to make changes for the new year.

Concurrently, companies were grappling with higher e-commerce order volumes, an uncertain global tariff environment, a tumultuous political environment and stiff competition for both labor and warehousing space. To overcome these issues, supply chain managers more carefully pondered how their people, processes and technology converged to create effective supply chain networks.

In certain cases, companies were forced to tear down the walls of their current networks and develop entirely new approaches that they wouldn’t have considered just two years ago. Immediate reactions included reshoring manufacturing operations to the United States, seeking out new, non-Chinese sources of supply, transforming physical stores into full-blown delivery hubs and investing in more technology and automation.

With the pandemic entering year two, companies are retracing the steps they took in 2020 and finding more enduring ways to shore up their supply chains not only for the pandemic, but also with a longer-term view in mind. For some, this means taking a close look at e-commerce volumes and trying to figure out just how long the current “spike” will last, and how much it will recede once customers can feel safe returning to their favorite brick-and-mortar stores.

“Different sectors are going to experience different movements in terms of what percentage of sales are generated by D2C/online sales versus brick-and-mortar,” explains Bryan Jensen, chairman and executive vice president at St. Onge Company. “Even pure e-commerce businesses may experience a decline in sales as people go back to shopping at their local stores which, once reopened safely, may take sales away from online-only businesses.”

This and other high-level shifts will directly affect the supply chain as it moves goods from the raw material stage and out into customers’ hands. Jensen warns companies that those “hands”—which moved pretty quickly when COVID-19 hit—will be moving again in the near future.

“Some customers will be going back to stores and others will want deliveries made somewhere other than home as employees return to the workplace,” Jenson predicts. “To adapt, supply chain managers should keep an eye on just how much that needle is shifting and then adjust appropriately while keeping their points of customer supply—be it a fulfillment center or storefront—appropriately stocked.”

Facing the forces of change

Right now, companies are holding their collective breath and waiting to see what impacts the new U.S. presidential administration, global tariff situation, Brexit and other forces will have on supply chains this year. They’re also paying attention to the global pandemic and the worldwide vaccine rollout, knowing that these overarching factors may have an impact on their supply chain design strategies in 2021.

Following are five more forces of change that are affecting supply chain design and prompting organizations to rethink how they run their global supply chains.

1. Geopolitical disruption and uncertainty abound. Deep in the throes of pandemic-driven supply chain disruption, companies found themselves wading through a contentious national election environment, uncertainty over global tariffs and Brexit. The latter threw the UK’s transportation environment into turmoil as trucks were stacked up at the country’s border and as major freight providers halted service until the situation was ironed out. Jensen tells companies to expect more of the same at least through the first half of the year, although there could be some tariff relief ahead. “Before midyear, companies should at least have a vision of where the new administration stands on global tariffs,” he says, “and how they affect overseas sourcing and importing.” On a positive note, Jensen says some companies are benefitting from the incentives of sourcing locally within the United States, although he adds that “there appears to be some wait-and-see on that point right now.”
2. China Plus One and other strategic moves. When the industrial city of Wuhan, China became the epicenter for the coronavirus in late 2019, companies and supply chains worldwide were hit hard. As the city moved into recovery mode, and as manufacturing spun back up, a lot of companies started looking around at alternate sources of supply. Some adopted a strategy now known as China Plus One by maintaining their presences in China while also diversifying into at least one additional country. Rosemary Coates, executive director of the Reshoring Institute, expects this trend to continue as companies try to avoid repeating the experiences of 2020. “Those disruptions opened a lot of eyes at the executive level,” says Coates, “where not everyone understood just how much risk and vulnerability existed in their supply chains.” Along with the China Plus One approach, companies are reshoring and near-shoring their operations in order to get more control over their supply chain operations. “For many companies, reshoring has become a very real and recognizable item on executive agendas,” she adds.
3. Balancing cost, service and profitability. After experiencing the 10-year period of economic expansion that followed the Great Recession, many companies were thrown into a tailspin when the global pandemic emerged during the first quarter of 2020. And while an economic downturn was probably in the cards anyway, based on the cyclical nature of the economy, few would have predicted the swift and merciless impacts of a pandemic. To adapt, many organizations revamped their delivery operations to focus on customers who began working, shopping and teaching their children from home seemingly overnight. Concurrently, demand for essential goods went through the roof, leaving companies scrambling to shore up their upstream supply chain operations. Through it all, organizations got a quick lesson in how to balance cost, service and profitability in a challenging environment. Carrying those lessons learned into 2021, companies also realize that there are a lot of tradeoffs when you’re working in a dynamic, uncertain operating environment. “Companies are more closely examining their supply chain and customer experience data,” says Darren Jorgenson, practice leader of the strategy team at Fortna, “and figuring out what they have within their control to be able to improve that experience and meet their customers’ needs.” In response, some companies are converting a portion of their physical store space into micro-fulfillment operations dedicated to buy online/pickup in-store (BOPUS). “Others are picking up now-empty retail space and using it to get their fulfillment operations closer to the end customers,” he continues. “Finally, this trend is being accelerated by the deployment of more flexible solutions, robotics and AMRs at the fulfillment level.”
4. Leveraging advanced tech to improve resilience. The volatility and shifts in consumer behavior as the global pandemic emerged and took hold made predicting demand almost impossible. As panic-buying ensued, Gary Barraco, E2open’s senior director of product marketing, say forecasting errors spiked to levels almost 45% higher than their pre-pandemic baselines. Things leveled out about halfway through the initial response phase to create a “new normal” that was nearly 30% higher than the pre-pandemic error levels. “In short, the effect of the pandemic was to make it 30% harder to forecast than it was the previous year,” he adds. By combining that now-historical data (that companies previously lacked) with artificial intelligence (AI), companies can design their supply chains to withstand future shocks and disruptions, all in the name of creating more resilient networks. “Combining AI with real-time data can help organizations sense disruptions and predict what’s going to happen,” says Barraco, “and then create a forecast that reflects the current realities and act on that without the need for human intervention.”
5. Preparing for more macro and micro shifts. Any company that didn’t already put its customers at the center of every supply chain decision found itself in a real predicament in 2020, when those buyers’ habits and preferences shifted wildly as the year progressed. Now, more companies are redesigning their supply chains with their customers front-and-center, knowing that both B2C and B2B buyers have the upper hand when it comes to vendor selection, cost, and shipping preferences (among other things). To compete effectively, Jorgensen says supply chain managers have to ask themselves questions like: What are our customers’ expectations? How does our supply chain measure up, based on those expectations? And, what actions can we take or what trade-offs can we make to improve upon that? Involve the C-Suite in these discussions, Jorgensen advises, and then use the input to make good investments in technology, processes and/or people. “There are multiple different pivot points coming—both at a macro and micro level,” he adds. “Sure, we know that e-commerce will continue to grow, but apart from that the certainties are very few right now. Your best bet is to focus on shorter-term investments and on building flexibility and adaptability into your solutions.”

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