9 Themes That Will Dominate Logistics and Supply Chains in 2022 and Beyond
This list explores essential strategies and tactics organizations can adopt to thrive in the chaos and shortages that lie ahead.
At no time in history have supply chain and logistics leaders faced so many significant challenges. Many of these challenges came to the forefront during the pandemic but, in fact, started prior to it and will be with us when it is gone. With challenges like global conflict; overheated demand; a shortage in people, equipment and inventory; increasing costs and customer expectations; and a greater focus on the de-carbonization of supply chains - supply chain leaders need to rethink their strategies in what is looking increasingly like a permanently disrupted world.
There’s also not been a time in history when recognition of the importance of supply chains has been so high and widely understood. Supply chain and logistics leaders have a greater say in business decisions now more than ever, and will in the future as company success is closely tied to supply chain performance. Those organizations that understand and act upon these nine supply chain and logistics themes have a significant opportunity to not just survive but thrive in the chaos and shortages that lie ahead.
Adopting new strategies and tactics and innovative technologies will be essential to get past the challenges and capture the opportunities that exist today and beyond.
Tensions between nations have always existed, but have been on the rise in the last decade. The globalization of supply chains makes the logistics related impact of even regional events severe, highlighting the underlying uncertainties and the need for more resilient supply chains. Instead of physical combat, countries are responding with economic regulations to reign in aggressors, and cyber warfare has become a staple of all combatants.
Sanctions take the supply chain impact even further as not only can countries be banned, but so can companies and individuals—both locally and across the globe. Either through government edicts or social pressure, companies and their supply chains must make tactical and strategic decisions to weather today’s conflict and minimize the impact of future ones.
While individual events are hard to predict, the buildup to conflict is usually quite evident and evolves over years, so there is time to minimize supply chain disruptions before they happen. Business relationships are more intertwined and, in the case of “bad actors”, deliberately obfuscated to allow them to continue to conduct business or shield assets from seizure. One of the greatest challenges supply chains face is examining trading partners and sanctioned individuals to determine if it’s possible to continue to conduct business with them and avoid penalties or reputational damage if interactions are made public. In addition, supply chain resiliency, which was once defined as the ability to physically respond to disruptions, now must include the ability to withstand attacks to the IT infrastructure that runs today’s supply chains.
Alternate logistics and sourcing strategies need to be part of the company’s annual risk analysis to diversify the impact of regional or trading partner restrictions should conflict be considered probable, not likely.
Global Shipping Crisis
The pandemic has had many business consequences, including the global shipping crisis. What originally started out as a temporary shutdown of global supply chains has turned into an escalation of global consumer purchasing that doesn’t appear to have an end any time soon. Many consumers have continued to do well throughout the pandemic and government stimulus money has helped those who have struggled. In effect, the pandemic has given many consumers a lot of cash, but not the traditional avenues to spend it. Many services, such as travel, leisure and dining, have had spending curtailed while consumers redirect money to buy all kinds of goods, such as appliances, electronics and recreational gear.
Buying patterns have changed since the start of the pandemic. The U.S. for example, imported 22% more ocean containers of goods in 2021 than in pre-pandemic 2019. The dramatic imbalance between shipping capacity and consumer demand has strained global and domestic supply chain and logistics operations. This does not appear to be a short-term situation. The implications for global supply chains and logistics operators are significant and cannot be ignored. Supply chain risk, sourcing and logistics strategies all need to be reevaluated. Shipment visibility, transportation cost optimization and seamless border clearances have become more important than ever.
Amid the global shipping crisis, supply chain risk, sourcing and logistics strategies all need to be reevaluated.
With much more freight on the move, current logistics infrastructure cannot effectively keep up with demand; however, there is more to the situation. A large imbalance in logistics assets is keeping goods [from] flowing consistently. For instance, ocean containers to move goods to the Far East are scarce; they are being immediately returned to Asia empty to take advantage of the extremely high shipping rates ocean carriers can command to move goods to North America or Europe. The explosive growth in ecommerce during the pandemic has moved the capacity crunch to last mile trucking and logistics as consumers buy more online and less in-store. Add a shortage of logistics workers—already a challenging situation pre-pandemic—to the mix and there are no easy ways to quickly put back, but at a much larger scale, the streamlined and consistent supply chain operations that existed previously.
While there will be infrastructure changes across the world in ports and roadways to address the unprecedented growth, the impact will produce benefits in the long-term. Today, supply chain and logistics operations need to be more productive and effective with resources that already exist. This means that better visibility to assets will be required to maximize their utilization and rebalance their location over time. Optimization will also be critical to reduce warehouse and transportation inefficiencies and increase the effectiveness of currently available assets.
The network effect will be critical to take logistics operations to a new level as companies working together can unlock trapped transportation capacity, creating efficiencies that never happen in individual supply chains.
There are simply not enough workers to go around. Demographic changes are driving a resource challenge that companies will face indefinitely. “Baby boomers,” the largest percentage of the job market, are retiring at accelerated rates due to the pandemic. Millennials are the next largest working population; however, many are shunning logistics jobs. Most of the Western world countries have birth rates that are causing their population to shrink. Immigration, as a way to address the shortage, is not seen as an option by many societies.
Companies have to understand that “do more with less” will be a key strategy forever. This means that automation of manual processes is an imperative to address the need for scaling organizations. Companies need to reduce their dependence on manual labor and focus resources on higher-value work that improves financial performance and customer experience. Automation that allows customers to self-service book and track shipments, schedule delivery appointments, eliminate manual paper-based manifests and proof-of-delivery, and that directs workforces to scale warehouse worker productivity will be essential. Even traditional white collar and knowledge worker roles need to be automated using robotic process automation, machine learning and optimization technology to free those resources to address exceptions and focus on continuous improvement and new business scenarios.
Successful businesses know that they need to do more with less resources. This means automating manual processes and optimizing existing resources with best-in-class technology.
Another resource there is simply not enough of is inventory. The increased demand for consumer goods, the global shipping crisis, lack of transportation capacity and paucity of human resources to plan and move the goods—all have led to a lack of inventory. As a result, retailers, manufacturers and distributors are having their top-line curtailed because of inventory shortages. In some cases, it’s actually worse due to the increasing uncertainty surrounding the capacity shortage in global supply chains and logistics. Retailers, manufacturers and distributors want to increase the inventory they carry but cannot procure enough of it or get it moved in a timely fashion.
Gaining better visibility to inventory in motion and at rest across the supply chain is critical for manufacturers, retailers and distributors and their logistics partners to make the best decisions about how to deploy it to maximize revenue and minimize costs. In addition, knowing the condition of the inventory is essential to ensure what is available is properly maintained to minimize loss. As inventory becomes available, the velocity and efficiency of its movement through the supply chain and customs processes for cross-border commerce becomes that much more important. Once in retailers’ hands, inventory accuracy becomes paramount to ensure a differentiated customer experience and not oversell what is available or miss a sales opportunity.
Visibility across the supply chain is critical to maximizing the value of limited inventory.
Across the board, costs are rising dramatically due to increased demand, goods shortages and inflation. Probably nowhere has the impact of higher costs been greater than in ocean shipping. In some trade lanes, container shipping costs are 10 times higher than pre-pandemic levels. The scarcity of materials (e.g., computer chips), increasing salaries and other factors are driving inflation to levels not seen since the 1980s.
The focus on growth in the last decade is now turning to cost containment. Companies are looking for ways to reduce the impact of escalating logistics cost and inflation by more efficiently using the resources they have, eliminating non-value-adding activities and changing service policies. Factors including supplier sourcing, logistics and supply chain optimization and automation, and cost-to-serve analysis are challenging organizations to find lower cost supply options, do more at less cost and rationalize how they serve customers to improve margins.
Companies are looking for ways to reduce the impact of escalating logistics cost and inflation by more efficiently using the resources they have, eliminating non-value-adding activities and changing service policies.
In all the chaos that exists today, the customer is still king. Companies that can deliver a differentiated experience can attract and retain more customers, resulting in stronger growth and greater profitability. Supply chain and logistics operations have moved to the forefront of differentiated customer experience strategies. Superior experience is no longer only about reliable and consistent delivery service. The ability to impact the buying experience, engage the customer through the entire delivery lifecycle and provide the customer with valuable delivery information in real-time is what differentiates market leaders from the rest of the pack.
A digitized logistics operation has the ability to transform the end-to-end customer experience because it touches entire the purchase-to-delivery process. Providing customers with delivery options and value-added services while they are buying allows companies to increase revenue and reduce delivery costs. Real-time delivery status updates keep customers informed about their order, helps ensure they are available to receive it when it arrives and verify that it is what was expected. For B2B customers, this information becomes very helpful in determining in advance how they want to deploy the delivered goods and maximize the utilization of their resources.
Today’s customers have expectations for a digital on-demand experience with service options and continuous communication. Those companies that can deliver what customers expect are better positioned to succeed.
At no other time in history has there been more concern about the future of the planet. As more governments put environmental plans into action and consumers make purchasing decision based upon a company’s sustainability performance, supply chain and logistics operations are tasked to be a big part of the effort to reduce greenhouse gas emissions. Rather than viewing this as yet another problem to address, CO2 reduction is an opportunity. It’s time that performance improvement programs in supply chain and logistic operations get the sustainability credit they deserve as they almost always results in less CO2.
There are a myriad of ways that these performance improvement programs can help reduce greenhouse gas emissions and other polluting activities. Significant positive environmental impact can come from providing the most eco-friendly delivery options to minimizing distance and fuel consumption with optimization solutions to digitizing logistics processes that eliminate paper documents to reducing wasteful vehicle congestion, idling and speeding. The opportunities go well beyond individual organizations and supply chains to multi-party collaboration that reduces deliveries to malls and shopping areas and “empty miles” due to inefficient matching of shipments to carriers. If there were ever a place where companies can improve their performance and help the planet, it’s with their supply chains and logistics operations.
Companies need to recognize that improved supply chain performance and betterment of environment go “hand-in-hand.”
A convergence of new business models and technology advances are redefining how companies leverage supply chains and logistics operations to achieve new levels of business performance and create competitive advantage. Not only has supply chain performance become a boardroom discussion, but so are the technologies that help maximize it. Benchmark studies show that companies perform better when their executives see the strategic importance of logistics and associated technology.
Now there are so many ways that technological innovation can advance supply chains and logistics operations performance. Cloud computing is allowing supply chain and logistics solutions to scale to solve complex problems that go beyond individual enterprises and use real-time data to make better decisions. Artificial intelligence (and a subset of it called machine learning) and analytics are being applied to the large stream of data from real-time GPS and transactional data that supply chains and logistics operations generate to glean deeper insight into operational performance, more accurately predict outcomes and tune systems. Supply chain and logistics automation, in combination with customer-facing solutions, are giving customers the ability to interact on-demand with their logistics partners, retailers and others to create a seamless and differentiated customer experience. Many of these technological advances can be used to augment existing solutions as opposed to forcing wholesale replacement which hinders their adoption.
Supply chain performance has become a boardroom discussion along with technologies that help maximize it.
The essence of these nine themes is that many of the issues highlighted by the pandemic aren’t going away and there is a lot of work ahead just to stay in business. They also, however, point to strategies, tactics and technologies that can make more than a small difference in addressing the challenges. Supply chain and logistics leaders who master the part of thriving in uncertainty, doing more with less, making their supply chains customer-facing and ecologically friendly will be the ones looked upon to make their companies more successful in the post-pandemic world.