Connected Commerce: Supply Unchained
This article was originally published by David Howell.
One of the starkest impacts the pandemic has had on some business sectors is their supply chains. Massive disruption and retail behaviour changes have meant enterprises have had to completely re-evaluate how they organise their supply chains to meet customer demand and ensure future resilience and security.
In the past year, online retailing has exploded. According to the NatWest Group, nearly half (46%) of consumers made a purchase online. Richard Lim, Chief Executive, Retail Economics, said: “As consumer expectations shift, retail and hospitality business must pivot towards a digital-first proposition that align to a new normal. Nimble businesses who are able to react quick can grasp new opportunities in emerging markets, retain loyal customers and thrive as the industry is reformed.”
However, the Achilles heel of this shift to online sales can be the supply chain, which can then have a considerable knock-on effect on the fulfilment levels a business can maintain. One trend that may expand is to move the logistical supply chain closer to a business’s core retail space. Near-shoring (using suppliers closer to domestic markets), re-shoring (re-engaging previously used domestic supply chains) is a clear trend that will continue. Retail Economics found that 70% of retailers surveyed had conducted a review of their supply chains due to COVID-19.
The supply chains that businesses rely upon have been in a state of flux for over a year. As the world has adjusted to life with COVID-19, the supply of goods changed to meet new consumer demand. And in the UK, Brexit has proven to be a challenge to maintain supply chains that had been in place for decades.
New supply chains In a new age of supply chains, the pandemic will usher in throughout 2021; data will be the foundation onto which these new channels will be built. Monolithic, show-moving supply channels will be replaced with smaller, more agile systems that can react quickly to customer demand.
“AI-powered prescriptive insights will allow businesses to understand individual customer demand patterns like never before, reaching new levels of convenience and personalization and providing products and services that meet people’s needs,” the Supply Chains in the Age of Instinct report from Genpact concludes. “As paths to purchase collapse, companies can build unprecedented levels of consumer intimacy.”
Also, speaking to Silicon UK, Simon Mardle, senior director at Capgemini, says: “The seismic shift to online has brought to light the many elements of supply chains that are not industrial strength. The shift has also shed light on a key issue for supply chains today: How do you forecast the future when there is no precedent or historical performance to base it on? Where before companies relied on historical data, according to a new report from Capgemini 68% say they faced difficulty in demand planning due to a lack of any useful historical information. These companies are now looking to “demand sensing” and other technology solutions to help anticipate consumer needs.” One aspect of logistics that has been steadily expanding is Direct to Consumer (D2C). As supply chains have been impacted, alternative supply channels have rapidly developed to meet the new consumer demand that shows little sign of slowing.
Ciaran Bollard, CEO of the E-commerce platform provider, Kooomo, explains: “As with any business or retailer, growth can be extremely rapid, but eventually a glass ceiling must be shattered in order to get to the next stage of the lifecycle. Similar to switching from wholesale to D2C E-Commerce, the pain points lie within the supply chain, including warehousing, distribution centres, order management and delivery.”
Bollard continued: “The biggest challenge for retailers to overcome is efficiency. To meet the ever-changing needs of customers, retailers need to provide quick and reliable operations. Inventory management of B2B completely differs from that of D2C. B2B logistics deals with pallets, standards and larger orders to fewer customers, whereas D2C manages single item orders, personalized orders and potentially infinite customers. The warehouse has to change, resembling something closer to a supermarket than a B2B warehouse.”
However, Chris Newbery, industry consultant, Retail/CPG EMEA at Teradata, warns: “It’s important to consider all the various sales channels and not see one as a ‘silver bullet’. For example, Unilever is one of the world’s biggest CPG’s, but still, their DTC business is only 9% of their total sales. The models need to reflect the products and each customer’s shopping needs, it’s about getting to a granular level of detail and treating each customer as an individual, a segment of one.”
No discussion of supply chains would be complete without mentioning Brexit. Tom Fairbairn, Distinguished Engineer, Solace says: “The pandemic and Brexit have in a sense affected businesses in similar ways, both demanding more flexible, agile and instantly reactive supply chains. It is no longer sufficient to wait overnight to update inventory.”
Fairbairn continued: “Stock stuck at ports could mean all baking flour is in 25Kg sacks while the supermarkets have run out of 1Kg bags. In addition, if the ship needed to deliver high-demand toilet rolls is delayed, the resulting empty shipping containers could instead help move the stuck 1Kg bags of flour, but this can only happen if the company can react the moment, it knows there’s a delay. Solace has seen savings of over €10M a year for an organization simply by optimizing the allocation of 1,500 shipping containers in motion worldwide at any one time.”
Many businesses have made sweeping changes to their supply chains as consumer purchasing habits changed. Many enterprises are now asking whether these alterations in buying behaviour will be permanent and what this means for their supply chains.
The NatWest Group’s research concludes just under a third (32%) of consumers believe their shopping habits will change permanently as a direct impact of COVID-19. A higher proportion (40%) of 45-54-year-olds believe this to be the case. And not surprisingly, the motivation for a more permanent behavioural shift towards online shopping was strongest for the most affluent households, particularly for those aged between 25 and 44 years old.
How the new supply chains businesses are building right now use technology is critical. Speaking to Silicon UK, Teradata’s Chris Newbery, explains: “We need to think of technology as an enabler, not a solution. We need to flip the question and focus on what is needed to make our supply chains more efficient and effective, then employ technology to deliver that where appropriate.”
“We need supply chains that are agile and reactive when things go right or wrong, ideally in real-time, and ones that can rapidly respond to the changes in customer demand,” Newbery continued. “The ability to see what is happening across the whole ecosystem, pick up on changes as early as possible, and understand what those changes are going to mean is the first step. Once we have sensed these changes, we can take lots of small course corrections, continuously matching supply to demand rather than only reacting when the in-balance has grown to major levels.”
The supply chains that need to be built today are a reaction to the past year as retail – on and off-line – has been transformed. Consumer behaviour has also radically altered. Whether this behavioural change will be permanent remains to be seen. What is certain, however, is that supply chains will never be the same again.
The Genpact study concludes: “To succeed and thrive in this future, supply chains must shift from fragmented control to networked resilience. By moving away from monolithic, siloed ownership to become hyperconnected ecosystems with automation and AI at their core, supply chains will respond to change by sensing customer needs and foreseeing risks and opportunities.”
Digital warehouses, connected factories, automated ordering, AI-based interconnected consumer intelligence will all form part of the new supply chains that must be built. Already predictive insights are changing how logistics are organized.
And the ethical and sustainability impacts of supply chains have become a critical differentiator for many consumers. These aspects of the supply chain can’t be ignored. Indeed, though enterprises that factor in their supply chains’ impact on the environment will be coveted by consumers and given their commercial loyalty.
Silicon in Focus
Sean Sherwin-Smith, Post Purchase General Manager, HelloDone.
With more than 30 years of E-commerce and logistics experience, Sean’s expertise spans a range of disciplines such as product, operation, IT and customer experience, having worked at a senior level for companies such as United Parcel Service, TNT, Ceva, Pall-Ex, InPost and most recently Narvar where he led EU Operations to onboard customers like Nike, Pandora, Louis Vuitton and Foot Locker.
What is your assessment Brexit has had on UK companies’ supply chains now we are coming to the end of the first quarter outside the EU?
“The initial disruption can’t all be laid at the government’s feet. Every company knew for a long time what was coming but many had hoped a trading agreement would be achieved, rather than taking steps to prepare their businesses. It’s easy to assume that this disruption has been most keenly felt by UK companies exporting into Europe, but I would argue the reverse is true. Brexit has caused major disruption to imported goods coming into the UK. This is obvious from the limited supplies of certain products in our supermarkets, even now at the end of the first quarter.”
Together with Brexit, how has COVID-19 also impacted global supply chains?
“Unfortunately, it has created a perfect storm. High demand for FMCG, especially for products manufactured outside of the UK, has seen congestion growing not only at UK points of entry but ports that service long-distance exports which have also reached capacity and or dwindling empty container availability. This means that a lot of shippers are refusing to dock in UK ports, instead opting to drop containers at EU entry points – further compounding Brexit border challenges.”
Many have pointed to technology as a way to ensure that supply chains are efficient. But is technology the logistics panacea many seem to think it is?
“Supply chains flow on three key factors: information, goods and money. If one of these elements becomes blocked, then the others also start to bottleneck. Technology can remove friction around information flow and potentially (with blockchain) smooth the financial bumps. But if the capacity to handle and process goods are lost, this is a physical challenge that technology alone cannot solve.
“Better planning and route optimization will chip away at capacity issues and accelerate recovery, but I’ve not seen anything that can prevent these issues from happening in the first place. There are too many moving parts and too much-siloed knowledge or data.”
The pandemic has shifted how customers now make their purchases. What has this move to mass online retailing done to the supply chains of many companies?
“A major source of frustration for consumers is a lack of information about online orders and when they’re due to arrive. Home delivery providers offer visibility through their own systems but, when retailers hand this relationship over through a carrier-branded experience, it leaves customers confused and unsure who to turn to for information or help. Retailers need to take ownership of the customer experience throughout the full lifecycle of an order, not abandon them after the checkout page.”
Is the direct-to-customer supply chain model a practical solution to the disruption many enterprises see in their supply chains?
“Success for any direct-to-consumer retailer relies on the ability to have two-way conversations with customers. Yet, shoppers are too often expected to visit a carrier’s web portal, download a specific app or interact with a frustrating generalist chatbot to get essential updates about their order. This creates friction in the post-purchase journey and extra pain for retailers as customers inevitably resort to phone calls or email, more often than not to the carrier rather than to the retailer, eroding customer loyalty!
“Some of the most popular apps on the planet, like WhatsApp and Facebook Messenger, are still chronically underused as E-commerce channels. With consumers telling us they want simpler ways to shop, forward-thinking retailers are embracing technologies like AI to create seamless purchase and post-purchase experiences via the apps they use and love the most.”
Some say supply chains need to become supply ‘networks’. What’s the difference, and could this new approach resolve the current supply chain issues many enterprises are suffering from?
“Open collaboration has and will always be the most sustainable way to move goods from A to B. In an isolated way, shared user networks prove more efficient than dedicated networks because the resources are being shared across many customers. The challenge for customers is accepting a standard level of service or capability.
“Expand this model across multiple supply chains and we get closer to the panacea of a Common Global Logistics Standard. Imagine a world where a shipping label is compatible across all carriers under a common barcode standard. Goods would pass seamlessly between logistics providers, maintaining visibility from A to B regardless of who carries them. A good example is postal operators which are able to operate within the Universal Postal Union standards, enabling different domestic operators to scan and share tracking data using a common barcode format.”
As customer demand moves to more personalization and sustainability expectations, how will supply chains change to meet these needs?
“Personalisation and sustainability will often pull in different directions, as to personalize something means it becomes bespoke. To meet demand, customers must change their behaviours, moving away from consumerism and having the latest model or style.
“Instead, the customer motivation behind ‘investing’ in goods needs to have sustainability at its core, with personalization built around the experience of acquiring the goods, whether that be in a one-to-one sales consultation in-store or the pre and post-purchase experience online.”
Will AI, automation, edge computing, IoT and 5G will be included in the mix to deliver new-age supply chains?
“Without a doubt. Sustainable demand-driven supply chains must use technology to capture data at every step of the way. This doesn’t mean collecting data for the sake of it. Data is worthless unless it has meaningful value. The danger we face is that there are already oceans of supply chain data, but we operate in supply chain deserts. All these new technologies enable quicker, deeper data collection but what we need are insights and to understand the value of this data – otherwise, it just becomes digital waste.”