Logistics Management Group News Editor Jeff Berman recently caught up with Richard Howells, VP of Solution Management for SAP Digital Supply Chain. Howells provided a detailed overview of how the COVID-19 pandemic has impacted logistics and supply chain operations, as well a key aspects of inventory management, and what we may expect a year from now, among other topics. Their conversation follows below.
Logistics Management (LM): What do you consider to be the biggest shifts, or changes, in the logistics and supply chain sectors, as they relate to thing like retail shippers handling unexpected challenges, such as the COVID-19 pandemic, among others?
Richard Howells: It started with supply shortages out of China. We have outsourced everything, and our supply chains are global and striving to reduce costs for the last 10-to-15 years. That meant that we outsourced manufacturing and went to the cheapest places to get raw materials and also increased the risk associated with supply chains as a result. That has come home to roost, unfortunately, in our current climate.
LM: In what ways?
Howells: We started with shortages in supply, because the manufacturing center of the world shut down, and the borders were closed. There was a whole host of volatile demand of critical components. We have all lived through it, and we have all now bought the 20 or 30 products that everyone was looking for at the same time, and there was panic buying of vital commodities. And companies that were making luxury items saw demand drop off a cliff. We also had capacity issues and constraints, in logistics, due to a lack of port openings, and reduced flights taking place, which would usually be full of cargo to be shipped across the globe, and also shortages of people, as people were not able to go to work or were restricted to stay at home. Even if they went to work, there were capacity constraints within manufacturing facilities and supply chains, as social distancing was enforced and rules related to safety and environmental health. All of this has brought supply chains to the forefront. I would not have predicted [in March] that supply chains would be part of any presidential or gubernatorial update. Supply chains are now a boardroom discussion and a dining room discussion, among families, too. They are now front and center, and some of the risks in supply chain have been exposed, as well as some of the flexibility that some companies have had to adapt to, for changes to manufacture products they have not manufactured before.
LM: Can you please provide some examples of that?
Howells: One is retailers’ having an online presence, with the volume increase and uptick in online sales has been amazing, which has jumped exponentially in recent months. And it is amazing, in terms of the different demographics that are embracing online purchasing out of necessity, and I don’t think they will go back.
LM: What do you think are some of the key supply chain and logistics “lessons learned,” related to handling and dealing with the pandemic, to date?
Howells: One is that you cannot have a single sourcing strategy, for vital products or materials. Companies are looking at their manufacturing plans and off shoring versus near shoring. I think there will be a mix there, and I think we will see more local manufacturing, and people will look at where they position inventory across the globe, as in where safety stocks are and where to put buffer inventory. Another thing will focus on do companies manufacturer to bulk with their outsourced manufacturers and finish orders closer to consumers so they have more flexibility and more assurances of having access to the inventory where and when needed. We have seen a lot of planning tools that can assimilate “what if?” analyses, to see how companies can adjust and respond to change. The reality is that, yes, this is the biggest disruption that, hopefully, we will ever have, but there are always disruptions in the supply chain. There is always hurricane season, there are always snowstorms, and, more recently there are trade wars and port closures, and strikes. It is just that it all happened at once. Nobody was prepared for that. I joke about how everyone came up with the same pun of 20-20 vision, but nobody had a 20-20 vision of what was going to happen. Nobody got it right and predicted a global pandemic, coupled with the speed and the scale that it affected supply chains. But the supply chains that have done well had a risk mitigation strategy in place and also had plans for where to source from and did not single-source or manufacture in one location, so they were more risk-averse and had to tools to make better decisions and to have the visibility, if something is happening. It is one thing to have the visibility, if something is going on, but is just as restraining to have the information and not do anything about it. That relates to putting it into the right business context to make the right decision and have the flexibility within the supply chain to make the physical changes as well to respond to the changes.
LM: The ongoing changes in e-commerce, due to the pandemic, have seen parcel carriers do a full year’s worth of work in half the time, in advance of the holidays. What is your take on that?
Howells: It is not just having an omni-channel sales strategy; it is also having an omni-channel logistics strategy as well. You have just changed the way you do business and not shipping in bulk to a retailer. You may now be doing direct-to-customer orders, and you need to have the logistics processes in place to do that. Some of the biggest retailers are in the best position to have an e-commerce strategy, because they have inventory all over the country. They just need to have a last-mile delivery [plan] and use their retail stores as distribution warehouses, as well as retail stores.
LM: Looking at inventories, there has been consensus that retailers, in a sense, are making bets, to a large degree, based on what they think is going to happen over the course of the holiday shopping season. That said, what does inventory management, or allocation, for things like having buffer stock and others, mean from a logistics and supply chain planning perspective?
Howells: We are seeing lots of companies look at things like pop-up warehouses, to have inventory closer to where they think demand is going to be and having that finished goods inventory closer to the end consumer, especially in a direct-to-consumer model…that becomes important. The concept of having inventory optimization logic and having ways of determining what products I should be keeping more of and less of and where they should be located across the supply chain. It is not just a case of stockpiling finished goods close to the demand. It is making a network decision of where I should be keeping finished goods and where I should be keeping intermediates, or semi-finished goods, so I can finish them to order, based on customer demand. And sometimes you carry more inventory of some items and less of others. When you talk about inventory optimization, it isn’t always a case of eliminating inventory out of the supply chain, and, in fact, at this time, it is probably the opposite. It is reducing inventory of the products you don’t think you are going to be needing based on your predictive analytical capabilities and increasing the [amount] of the stuff you see you see as high volume, or the base products that are going to be finished for high volumes.
LM: Do you think that scenario may spell the end of Just-In-Time inventories, at all?
Howells: I think some people are going from Just-In-Time to Just-In-Case and keeping extra inventory if they see that there is a possibility. That becomes a risk discussion: do I take the risk of Just-In-Time and have the infrastructure in place for that or am I better served to keep the inventory of 20% of the products.
LM: What would be the preferred, or ideal, outcome, say one year from now, for the supply chain and logistics sectors?
Howells: From an environmental perspective, I think the pandemic has shown, first of all, that a lot of things can be done remotely, and I think that it will drive companies to look at their manufacturing strategies and look to have a combination of global supply chains and local supply chains. Some manufacturing will come closer to the consumers, and I think that will have an impact on carbon emissions and carbon footprint. Before the pandemic, that was the hot topic, with climate control and environmental regulations, and I think that will continue to be a hot topic both in consumers’ minds and environmentally conscious businesses. The pandemic will actually help that cause, with fewer logistics miles, and I think things will be done in a smaller supply chain, or a controlled supply chain, to reduce the risk. And with the e-commerce boom that has happened, I think it will continue. People are seeing the benefits of it, as are logistics operators, with smaller trucks on the road. Companies that don’t have an e-commerce strategy and a logistics strategy to go with that will lose out.
About the Author
Jeff Berman, Group News Editor
Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. Contact Jeff Berman
