2020 was a year shaped by the Corona pandemic. In terms of supply chain execution, it provided 10 key learnings, which will matter in the years to come.
Being asked to look back and reflect about 2020, we surely must all agree that 2020 has been a very special year. What started with Trump, Brexit and Sustainability as major headlines, quickly became the year of the Covid-19 crisis. Personally, being ordered by HR on Tuesday the 25th of February away from a customer meeting in another country directly into the taxi and plane to confine myself immediately in home-quarantine, because I had been spending the weekend before in Milano, to me was shocking and seemed drastic. I then quickly learned that the CAMELOT management was right in taking those early and decisive actions, which were followed by sending all employees into home offices to work remotely.
What followed had been to all of us a demanding journey pushing many of us personally and professionally to our limits. But every crisis – how dramatic it might be – also reveals opportunities and drives change, which is why I believe that 2020 has been a very innovative year for logistics. Not only because the importance and role of logistics in everybody’s daily life became much more transparent to the public, but also because it boosted developments that long had been lying dormant.
So, looking back on the Corona crisis in 2020 from a supply chain execution perspective, the following key learnings come to my mind:
1. Nearshoring and alternative sourcing
With China suddenly closing their borders and tremendously slowing down export shipments, companies were cut off from their suppliers in China and production lines globally were coming to a halt. Even our society desperately demanding for masks was confronted with the dependencies that come naturally with global trade. Surely those companies that either were prepared for such risk with alternative suppliers e.g. in Eastern Europe or those working in a production network that allowed balancing production volumes had a tremendous advantage. They were definitely able to cope better with the early phase of the pandemic. Nevertheless, with the sudden closure of the borders and passenger flights being cancelled, for some days or even weeks only domestic sources were available. Consequently, companies learned to revise their risk evaluations and investigate nearshoring and alternative sourcing.
2. Partner management with 3PLs
In the meantime, the third-party logistics providers (3PL) had to re-think airfreight due to dramatically shrinking capacities and the shift to sometimes exclusively dedicated cargo plans. What began as a threat, led to an opportunity for even higher margin business under the asset light 3PL providers like DB Schenker, DHL, and Kühne & Nagel. Bringing airfreight demand and rare capacities together as well as helping to create short-term solutions under time pressure proved to be a win-win. 3PL and 4PL service providers commissioned based on ‘partner-like’ agreements and covering sea- and airfreight as well as land transport turned out to be of tremendous help to their customers.
For the warehousing part of the business, those 3PLs working with back-to-back agreements were mostly able to cover their fix cost and when working across multiple verticals, financially balance between customers with high and low throughput volumes. In contrast, shippers working with 3PLs on a purely transactional commercial model were facing much greater challenges. They had to prove by themselves the capability to adjust and act quickly, identifying alternative transport modes or even warehouse providers, as some loss-making transactional operations contracts were canceled. Where more stability in the collaboration with LSPs is required to somewhat balance the extreme fluctuations in volumes, commercial models combining fix components with volume commitments as well as different transactional rates per volume bracket should find acceptance on both sides.
3. Digital twins
The required decisions for changes in the network often had to be taken quickly and management was in a strong need for analytics within days or even hours. Instead of cost and service optimization other questions came to the front such as: “How long will our inventory last?” or “How long will it take to ramp up production again?” Most companies were not prepared for this. Others had costly network analytics tools that had to be heavily adjusted or proved to be useless for such exercises. From those that had already invested in powerful tools and teams or quickly decided to build respective digital twins we can learn what is needed in this world of ever-increasing complexity and global supply chain networks – in short: the VUCA world (VUCA = volatility‚ uncertainty‚ complexity and ambiguity).
4. Close to real-time visibility
With analytics tools strongly supporting tactical decisions, operationally it became key to have near to real-time visibility of order and shipment status as well as inventory levels. Of course, it has been possible for years to track shipments or look into the ERP for the order status or stock level. However, when trying to find ways to react immediately, you want to be able to easily access the required information, which ideally relates different data sources. It quickly did not suffice to have the shipment number and its ETA, if the load on that supplier shipment was unclear and the ETA was based on “historical” shipment schedules. Suddenly, the event management and consequently the close to real-time tracking combined with the purchase order content became a daily necessity. Beyond that, it was extremely helpful to understand the infection levels in each country or even county as well as the respective counter measures taken in order to derive related predictions.
5. End-to-end supply chain responsibility
Additionally, tools and data need to be supported with the respective organizational structure to drive quick and effective decision-making. Over the past years, we have already been observing that companies tend to centralize supply chain responsibilities more and more on a global level. This, paired with harmonizing processes and systems as well as limiting the number of logistics service providers, surely helps reduce complexity and cost. Nevertheless, does it provide the agility needed to respond effectively in a crisis like Covid-19? Harmonized processes, systems and responsibilities simplify communication in a crisis and increase the ability to react and balance work load or make use of alternative production or warehousing sites. Still, combining this with a process or customer- centric end-2-end responsibility even increases the visibility of cause and action and accelerates effective decision-making.
6. Peaks and drops in demand
While originally it was the shortage on the supply side that affected production networks, the crisis soon turned into a peak in demand for certain consumer products such as toilet paper and pasta. Other segments like apparel were faced with a severe impact on demand due to the lockdown of shops and retailers. It is important to distinguish this impact from the previously mentioned constraints on the supply side. But what to do when orders have already been placed, but sudden drops in demand occur? In this case you need flexibility on the procure/supply side. Cancelling or adjusting orders, keeping stock at origin levels at lower cost, re-directing volumes to other markets or shifting to slower or cheaper transport modes might be options. Same as above, this requires close to real-time visibility of orders, shipments and their content. In addition, a strong presence at the suppliers’ origin, especially in China, can make a huge difference trying to remain profitable. This can be inhouse solutions or outsourced to a 4PL with local presence.
7. Online shopping
Closed-down city centers and malls resulted in an enormous boost for online retailing and a harmful blow to local shops and e.g. the bakery around the corner. Interestingly, this was not just to the benefit of Amazon &Co. It was also an opportunity for the smart and agile, as the situation accelerated the need for omni-channel solutions across ALL retailers. Some known retail brands like ReWe, DM, Douglas, MediaSaturn, IKEA as well as Migros in Switzerland are leading by example. Omni-channel capability means for the supply chain to be able to quickly adjust to customer demand, full transparency in the supply chain, direct communication, intuitive user interfaces, and a variety of service options that result in a seamless integration between online and outlet sales. Consumers as a result can order online or in the shop and either take the product with them, receive the delivery at home or pick it up where convenient, be it in the shop, at a pack station or an alternative drop-off points like e.g. a gas station.
8. Public-private partnerships
When the Corona virus somewhat suddenly hit Italy and quickly the rest of Europe, we had to learn about the need for masks and our dependency on the supply mainly coming from China. Our established wholesale-based supply chain was obviously not prepared to satisfy this demand, and everybody turned to our government. It was only until public-private networks and collaboration kicked in that the procurement of masks started to work out. Suppliers were identified, tremendous order volumes placed, and cargo plane capacities booked to bring – no matter the cost – protective masks and artificial respiratory equipment into the country. Well, it seems our governmental bodies have learned from this and are hopefully better prepared for the next pandemic to come. And surely within the industry opportunities for more partnership approaches are being investigated which aim at reduced risk, increased speed as well as cost and knowledge sharing.
9. Vaccine distribution
The Covid-19 crisis also led to a tremendous public interest in the provision and logistics of vaccines. Not only did we see a historic global effort of research institutes and the pharma industry to quickly come up with a vaccine, but also many publications and even YouTube videos explaining all the required steps from clinical trial phases through temperature management to global as well as final-mile distribution. In this course, step by step many questions had to be answered. When planning for the demand, volumes had to be procured without knowing the outcome of the clinical trial phases that still had to be passed. Supply chain transport capacities had to be secured, without knowing from where to where specifically the airfreight shipments would be needed and the volumes that would be required. Together with the LSPs, pragmatic answers to the required temperature management had to be found, including packaging, transport containers, icing, temperature monitoring, storage, and re-packing all the way to the final-mile distribution to either vaccination centers or clinics. Looking to the UK and the US, we now start to learn how this is working out and where we need to re-adjust to ensure that we will safely and quickly get as much vaccine as possible to as many people as possible – both here as well as globally – to have a chance to overcome the virus.
10. Remote work
Finally, we are doing all this remotely. Business travel for meetings, fairs, conferences or negotiations that used to be a “must” were suddenly replaced by video conferencing out of home offices and webinars. Meeting colleagues and customers became a privilege and having the fanciest virtual background the new fun. “Can you see my screen?” seemed to be THE question of the year, and “You are on mute!” somewhat THE answer to many questions. It was first scaring and then very surprising how working from home and collaborating remotely with customers and colleagues became the new normal. Although having the experience and the related tools and trainings already in place at CAMELOT, it has been a steap learning curve for us as well, and very quickly, it was possible to agree with clients on fully remote consultancy and even software implementation projects.
With 10 learnings, there is no need to come up with an 11th. Nevertheless, I want to close with a general one that applies to all the above. Confronted with such a historic and global crisis that so far has cost more than 1.6 million people their lives and will create further harm through indirect impacts like e.g. famines, we need to see the positive. I would therefore like to acknowledge the incredible work done in hospitals and through any caretaker or person that helped to keep things going. I would also like to underline the creativity, smartness and speed of the industry and their supply chain managers to quickly react and find solutions to the challenging questions. I therefore end this post with a personal note of saying: “Thank you and stay healthy!”