Supply Chain Design for the New Normal

2020 underlined the immense Supply Chain challenges of the past decade – from growing trade wars, technology disruptions, rapid eCommerce growth, to the global pandemic, leading to a decline of 4.5% in global GDP that year. While business leaders remain optimistic about 2021 and expect a 5% recovery in GDP, it is highly dependent on COVID containment and global vaccination efforts. We are yet to understand the true impact of these challenges, but it is evident we are not going back to status quo.

We also witnessed significant disruptions in global supply chains. The historical focus on logistics costs at the expense of resilience and flexibility has caused global networks to become incredibly fragile and prone to disruption. To be better equipped for future disruptions and grow flexible supply chains, therefore, rethinking and redefining our supply chains now is crucial. And leveraging emerging technologies, such as machine learning, IoT, and robotics and automation, can help us do so.

We identify five strategic focal points for supply chain design in the New Normal.

1. Resilience: Making your Supply Chain Anti-Fragile

Traditionally, supply chain design has focused on cost minimization. The recent volatilities we’ve experienced (changing trade patterns, shortages in supply, lockdowns) stresses the need to prioritize agility and resilience across the value chain to ensure stability.

Despite political and economic risks, China is still a dominant player in global value chains with 35% of global manufacturing output. To mitigate these risks, companies have been diversifying sourcing partners and are manufacturing closer to the point of demand. This has given rise to a China+1 strategy, where companies earlier dependent on only China for sourcing and manufacturing, are looking to add capacity in additional markets. This has pushed Vietnam, Thailand, Malaysia, Cambodia, Indonesia, and India to become regional manufacturing hubs in APAC.

This strategy is also leading to the growth of regional logistics hubs, with governments across APAC, Latin America and the Middle East increasingly investing in logistics infrastructure, free trade zones, customs efficiencies and up-skilling their labour force.

Companies should also evaluate alternative modes of transport (air, ocean, rail) and secured transport capacity (charted flights, long term freight contracts). This provides flexibility across key lanes, reducing the risk of disruption if one or two lanes face delays or capacity constraints. In the long term, multimodal solutions will be more cost effective as they reduce transit time, improve reliability and improve customer experience.

2. Sustainability: Moving From ‘Nice-to-Have’ To Top of Mind

Over the past decade, sustainability has moved from being a ‘nice-to-have’ to a key focus area for employees, customers and investors. Across industries, from FMCG, pharma to retail, companies are committing to ethical sourcing, decreasing waste and targets to reduce carbon emissions. A key catalyst for this change is consumer demand, with over 70% of consumers globally willing to pay a premium for sustainably responsible brands.

Packaging leads to huge amounts of waste today, which also hurts a company’s brand value. Hence, we are rethinking how we do packaging – focusing first on reducing, then re-using to recycling. Returnable and reusable packaging using durable materials are gaining traction. Containers such as ISOBIN, which are collapsible and returnable, are widely adopted as they are effective and easy to use. Now similar solutions are available for the last mile, such as ‘Loop’, offering customizable and reusable packs for delivery and return. Packaging automation will further reduce empty space in boxes, driving both waste reduction and cost-efficiency.

Reducing carbon footprint is another key focus area with many companies committing to cleaner fuel and fleet electrification. DHL is committed to being carbon neutral by 2050 and has deployed fleets of electric vehicles across Europe and Asia for last-mile delivery.

In the future, companies will also rely on technology for smart buildings and warehouses to ensure energy efficiency and waste reduction. Demonstrating transparency and traceability across the value chain will further assure customers that the products they purchase are sourced sustainably.

3. Digitalization: Unlocking Humanity’s Full Potential

Over the past five years, digitalization has become the disrupter across businesses. From sensors, smartphones, to digital apps – it has changed how we live and work.

IoT and wearable technology has made warehouse and process automation common across operations. DHL has implemented several such solutions with wearable technology (augmented reality glasses, ring scanners, and smartphones) from improving picking efficiency across warehouses to dimensioning for fast and accurate freight measurements. Such solutions are cost effective and can be retrofitted into existing facilities without major changes.

Networks of low-cost sensors are also enabling real-time visibility across the supply chain, tracking both assets (from parcels to warehouses) and its conditions (temperature, humidity, tilt indication). This is enabling connected warehouses and digital control towers with a myriad of apps for predictive maintenance, yard management, to route optimization. Though this is just the tip of the iceberg on how digitalization will ensure efficient and optimized operations. Moving forward, we will create a real-time simulation of operations with a “digital twin” network.

Growing digitalization has also changed consumer behaviour with people becoming accustomed to receiving services online and via mobile apps. Seen as the “Amazon” effect, consumers expect a highly personalized and customized journey with seamless transition across online and offline channels.

Services like on-demand delivery allow consumers to change delivery date and location via apps (such as WhatsApp and WeChat) or online portals. The need for last mile flexibility has seen the wide adoption of parcel lockers for consumers and is now emerging even for B2B models from delivery of medical devices to spare parts. Going forward, robots and drones will also be used for automating last mile delivery (given the success of recent trials) but are still some years away from large-scale adoption.

4. Data Science: Optimizing Your Today and Predicting Your Tomorrow

As supply chains go digital, we are generating massive amounts of data. Most companies now use internal data to understand past performance and conduct stand-alone diagnostics. While essential, this approach is largely reactive. Now with real-time data visibility and improved analytics capabilities, we are able to predict and prepare better future scenarios. For example, collecting real-time global lane incident data (such as natural disasters, socio-political cases, traffic/transport delays, air freight patterns, etc.) will improve insights for comprehensive risk assessment and event prediction.

We can quickly move from concepts to tools and solutions that ensure smarter, faster, and error-free operations. From optimizing inventory, forecasting demand, to predicting & preventing disruptions, such tools will allow businesses to take data-driven decisions.

We can expect rapid adoption of analytics across most industries, as they are usually implemented without major infrastructure changes or investments. Moving forward, advanced analytics and artificial intelligence will become integral to supply chain design and planning.

5. Shared Economy: Prioritizing Access Over Ownership

One of the biggest social trends to emerge in the past decade is the shift from ownership to sharing of goods, assets, and services. Emerging digital platforms, information visibility, and decentralized trust have led to the “uberization” of services. Sharing economy has seen staggering growth with the market estimated to be $15 billion in 2013. Airbnb and Uber today have more than $200 billion in combined market capital, with most of the shared economy remaining un-organized.

We are seeing a steady increase of both B2C and B2B sharing models for deliveries. Platforms like Saloodo, a digital freight marketplace seamlessly connecting shippers and carriers, allow companies to choose a provider based on their needs and budget. As more companies adopt omni-channel strategies there will be a need for flexible warehousing and dynamic fulfilment models – new platforms are emerging to meet this growing requirement.

Another area of rapid growth is the gig economy. Crowdsourcing platforms have tapped on part/full-time staff to offer services in a flexible environment (independent, choice of hours, location, off-line). It is not uncommon across supply chains to hire additional staff for cyclical high demands, holiday seasons, etc. Companies using such platforms must ensure fair payments, safety and well-being of gig workers, and a good physical and psychological working environment. A shared workforce platform may become a future model to meet volatile demand.

Is Your Supply Chain Geared Up for the New Normal?

To thrive in the New Normal, businesses will need to make one simple change – question the status quo.
An end-to-end supply chain review focusing on key business priorities with these five elements in mind will help us answer the following:

• Which of these elements are most impactful for our organization’s future?
• Which initiatives should we prioritize?
• How ready are we to adopt?

We are always looking to collaborate with forward-thinking organizations to build the Supply Chain of the Future and would love to hear where you are on this journey. So, please get in touch with us!

Keep a look out for our upcoming content as we continue to deep dive into each of these elements and their supply chain implications for the New Normal.