COVID-19 exposed what happens when supply chains are too rigid: goods can’t get to where they’re needed, and previously loyal customers are willing to go to a competitor to find what they need. Traditional supply-chain strategies that prioritized efficiency and razor-thin margins over agility won’t work anymore. Brands must now prioritize resilience.
In order to succeed and cultivate supply-chain resilience, businesses must achieve operational readiness, understand changing customer behaviors, and optimize inventory for last-mile delivery. With the Q4 holiday peak looming on the horizon, businesses that prepare now will earn a larger market share and be set up for a successful 2021.
Prioritize Operational Readiness
There’s a lot we can learn about supply resilience from the pandemic. Whether it was a lapse in manufacturing process, shortage of warehouse capacity for unsold inventory, or delays in ocean freight, it’s crucial to identify past mistakes and ensure that the same thing doesn’t happen during the next inevitable disruption.
However, analysis is not enough. Retailers and brands need to build operational readiness year-round. Stepping back from the world of logistics for a moment, think about Zoom. The company rapidly increased its market share as more companies shifted to working from home. Because their business was already hosted on Amazon Web Services, they were able to quickly spin up additional computing power, and thus create more capacity when demand surged. This was only possible because they were operationally ready before the disruption occurred.
This notion of readiness also applies to logistics. Quickly creating more capacity in the supply chain is possible, but even the fastest solutions take time. No company wants to manage technology integrations, contract negotiations, and new capability launches during a disruption or a surge in demand. Not to mention that moving physical goods takes time.
As we gear up for the Q4 holiday peak, now is the time to identify the right solutions and start running pilot projects to learn through execution, and thus be ready to better manage uncertainties in today’s environment. It’s impossible to predict what the next few months will hold, and this is precisely why explicitly planning around this uncertainty is so critical. Prioritizing operational readiness makes it possible to move fast and stay ahead of the curve.
Understand Buying Behavior
A key component to operational readiness is understanding consumer buying behaviors. This has always been critical, but COVID-19 disrupted key buying channels. Store closures rapidly moved sales online; in just 10 weeks we saw the same amount of growth in e-commerce sales as in the previous 10 years. While those volumes may decrease in part as stores become fully operational again, higher e-commerce penetration will certainly endure. COVID-19 has forever changed buying behaviors.
The variability of buying behaviors puts businesses in a challenging position because different channels require different logistics. If a company previously did most of its business in stores, the shift to online will require a different set of tools and solutions to support e-commerce fulfillment. Businesses must evaluate whether they need to make long-term adjustments to their supply-chain strategy or look at shorter-term solutions.
There’s no one-size-fits-all solution that will be optimal for all scenarios, because consumers’ buying behaviors constantly shift. Each business must assess and identify what solutions are right for them and their customers.
Optimize Inventory for Last-Mile Delivery
No business has been immune to COVID-19. Every company has been put on the defensive. But with the initial triage period of this shock behind us, now is the time for offense. By deeply understanding consumer behaviors and having operational readiness, determining how your supply chain can better support your business becomes much simpler. You can start to determine what will help you be fast and flexible moving forward.
Getting goods to customers is critical, but stakes are higher during disruptions when consumers put a premium on immediate availability. Amazon’s Prime one-day shipping option has yet again raised the bar for delivery promise. The best way to do that quickly and efficiently is by putting inventory close to customers. Shortening the last mile can provide major savings on transportation costs, and also provide better delivery promises to customers. Most importantly, it positions the business to respond in an agile way, and ensure that customers get goods when they need them most.
As businesses continue to navigate this volatile market, they must evaluate if they are equipped to respond to uncertainties. To realistically deliver on this, they must solve both the physics problem of creating a broad physical network of fulfillment locations, and the math problem of optimizing their more broadly distributed inventory.
Ready, Set, Go
The world has changed, and so must the supply chain. The first months of COVID-19 were incredibly destabilizing, and many of the impacts have created a new normal in countless ways. The best companies in the world have, and will continue to extract, critical learning and insights from this disruption so that they can start playing offense sooner, and out-compete their rivals by adapting more quickly.
The logistics operations, infrastructure, and mindset that previously supported businesses have quickly become outdated and insufficient. Yesterday’s single-minded focus on supply-chain efficiency must evolve to more aggressively prioritize agility and resilience. To be sure, the COVID-19 pandemic is an extreme event. But other, less extreme surprises like changing consumer-purchasing habits, channel-mix shifts, and demand-forecasting errors are becoming more common due to the acceleration of core technological innovation. The winning formula going forward is to plan for this uncertainty, and build capabilities designed to navigate it. Now is the time to build a supply chain that’s ready for whatever comes next.
Karl Siebrecht is cofounder and CEO of Flexe Inc.