5 Supply Chain Trends for 2021

This past year has created many new challenges for everyone, causing consumers and companies to adapt. We expect some of the supply chain changes to be temporary but that many of them will have a lasting impact on the supply chain industry going forward. Below, we discuss some of the trends that we expect to see in 2021.

Fulfillment and Logistics as a Competitive Tool

Every year we continue to see consumer behavior change, and in no year has that change happened as rapidly as in 2020. People want to get quality goods for a reasonable price and quickly. Unorganized supply chains will become increasingly exposed as companies will have to choose between bad service levels or unsustainable costs to meet customer demand. The most obvious example of this trend is Amazon's move to achieve next-day or same-day shipping. As stated above, consumer expectations for service continue to rise. This means businesses that have systems in place to forecast well, stock optimal levels of inventory and fulfill efficiently have a significant advantage over those that do not.

Focusing on E-Commerce, Service Levels and Omnichannel Development

The shift from brick and mortar retail to e-commerce has been growing every year, and COVID-19 only expedited that growth even more. It's no surprise that consumer’s extreme shift to e-commerce seen in 2020 will have a lasting effect on the way people do business moving forward. In addition to the e-commerce shift, service levels are also becoming a higher focus as consumers are going to choose the quickest and most reliable option. To keep up with these shifts, companies are going to have to continue to focus on developing their omnichannel strategy. This means using support systems to create an interconnected network of stores, warehouses and 3PLs, providing the flexibility to fulfill both large wholesale purchases and small e-commerce orders. Companies can then leverage this interconnectivity within the network to optimize fulfillment strategy on an order level basis.

Shifting E-Commerce to a 3PL

Another industry trend we expect to see is a significant shift for e-commerce distribution towards third-party logistics companies (3PLs). The e-commerce industry, in comparison to brick and mortar stores, presents a complexity that is hard to tackle for smaller companies. 3PLs provide an option that will allow companies to set up much quicker than if they opened their own warehouse and allow them to avoid significant fixed costs, have access to an already established network and get specialized processes based on their needs.

Making Procurement a Focus

COVID-19 complications and global trade friction with China mixed with consumer’s increasing expectations for better service have signaled to the supply chain world that now may be the time to focus on procurement. By moving suppliers closer to home (near-shoring) and prioritizing the procurement process to make lead time and flexibility priorities, companies can improve their fulfillment times and overall supply chain. Developing a regional supply chain offers the better potential for mutually beneficial relationships and improves both time and proximity to market. This confidence in relationship management and product could challenge the prior approach of low-cost country sourcing.

Freight Normalization – A New Baselinne

COVID-19 has caused overwhelming increases to volume causing capacities to be tested and costs and rejection rates to skyrocket. As the freight companies profit on these higher rates, it can be expected that they will reinvest into capital expenditures, such as more trucks, increasing capacity to meet market demand and normalizing from the economic shifts of 2020.

 We wish everyone a safe and healthy 2021.

Supply Chain Network Optimization – How to Do it Right

The time is right to re-align your Supply Chain Strategy, for many reasons including:

• Logistics and fulfillment are the new storefronts and sales tools

• The explosion of direct-to-consumer business forces all companies to have an omnichannel strategy.

• The sourcing landscape is rapidly changing with more near-sourcing and risk minimizing.

• Sustainability awareness is increasingly unavoidable - and transportation is a big piece.

The traditional approach very often leads to more of an endless data crunch and, in best case, a mathematical answer that minimizes the theoretical logistics costs but does little to create an implementable supply chain strategy.

But you don’t do a network optimization to relive the linear programming classes from college and show your mathematical acumen. Well, some of us may. For the rest of you, here are some crucial hard-earned learning points from many network optimization projects:

1. Avoid Spending Time and Money Feeding the Monster with Data

Nobody has perfect data. A proper strategy for cleaning and curate the data will be one key to the success of the project.

The important thing is to know what data really matters and how to curate the imperfections into a usable dataset.  The most critical data for the outcome is the shipment data and it is often the hardest data to get. If you don’t have access to this data internally, the carriers do have it. They are not always keen on sharing it, but they are still the best source. The order data is usually readily available and can be used to recreate shipments though the dim/weight can complicate things. This is an area where data-enrichment from firms specializing on this can work and also item profiling to reduce the complexity to where it matters.

Most advanced models require much more data to run, but the impact of other data is less critical and can in many cases be handled with benchmarks to get a starting point and sensitivity analysis where you rerun the model with the critical datapoint varied until you find the breaking point where the recommendation changes. It is much easier to make a call when you see where it really matters and have clear choices.

2. The model will not give you a strategy. It will only tell you which alternative is mathematically the best.

Before you run the model; use the data that has been collected to profile your supply chain. This will enable you to evaluate relevant solutions.         

• Customer profiles and requirements: Delivering to the big retailers demands a different solution than direct to consumer deliveries. Two separate networks?

• Inventory profile: Certain products may have demand patterns very tilted geographically or being critical from a supply perspective. Slow-movers vs best sellers. Examples of facts that would determine the eligible alternative network structures to optimize such as Central DC, Regional DCs, Satellites, Forward Stocking Locations, etc.

• Order profile, supply profile, product profile are other examples of facts that are important to analyze pre-modelling.

3. Sensitivity Analysis

Instead of trying to create the perfect dataset. Use the model to find out with what value on critical but uncertain data that the recommendation changes. This saves a lot of time and makes the decisions relevant.

4. Use the Right Software Tool for your Challenge

The most advanced optimization tools are expensive and require a lot of effort to configure. You’ve spent a lot of time and money before you are ready to run the model. This is totally worth the investment if your supply chain is very complex and you intend to, once configured, use the model frequently. Those software tools are sophisticated and awesome with all their possible add-ons.

Most companies have a more straightforward supply chain or can optimize the network in North America, or Europe, Asia, etc. separately and then piece them together. If this is the case, the most complex tools are complicating things without the added value. Spend the time and money you save on an adequate optimizing tool to focus on strategy development instead.