2022 Top Trends in Supply Chains

H.L. Lee mentioned that the best-of-breed supply chains pursue the Triple-A platform and pointed to the rising importance of agility, adaptability and alignment in supply chain management over conventional barometers of cost and efficiency improvements.

And now more than ever, this discussion becomes highly relevant in the realm of retail and supply chains. My agenda today will cover 5 trends that help or will help retail supply chains thrive in the new normal.

The 1st trend is "From Efficiency to Resiliency". This is about making a paradigm shift from controlling cost to accepting the cost of better control.

The 2nd trend is building and using better "Tools of Trade". In most cases today, business strategies now include having more visibility of their supply chains through information technology tools across the enterprise.

The 3rd is going from "On-site to On-line" (O2O). This has to do with growing the Omni-channel despite the great uncertainties and challenges met so far.

The 4th trend is "Nature Calls". This is giving back to mother earth or the environment and promoting ESG initiatives.

And the 5th and final trend is "Two Become One" where businesses achieve better scale and sustainability through mergers and acquisitions.

Disrupted, Reinforced and Reinvented

The retail industry is rapidly changing in order to address the growing uncertainties and risks from the pandemic. Many of the business strategy shifts we see in retail today are accelerated changes that have been slowly incubating in the past.

?01 From Efficiency to Resiliency

The biggest paradigm shift in supply chains is changing from reactive to proactive approach. Let’s examine this further.

In the past, the default in gold standards is achieving supremacy in operations efficiencies. This mostly involved Japanese industrial methodologies such as Lean, Just-In-Time and Kanban systems. All these concepts were all good until a black swan called COVID-19 heavily disrupted the global economy.

The pandemic underpinned the volatility of supply chain networks and required an extreme shift in direction and priorities. The immediate concern gravitated towards resiliency – having more safety nets made more sense when uncertainties and risks kept rising.

Multi-sourcing became one necessity for the most part. Putting all your eggs in one basket will simply be too risky with the predominant bottlenecks happening from factories, ports, shipping lines until rail and trucking networks. More vendors mean more chances of getting replenishments or getting your merchandise home. Amazon and Walmart have used this strategy very skillfully in trying to meet their stock availability objectives.

Reshoring, regionalization or localization are another set of strategy that has become popular. Key is to shorten the touch points in supply chains. From a far-stretching global network, many companies like Tesco have opted to relocate their factories and suppliers in-country or at least from within the region. This results to shorter travel time between nodes and reduces the risk of disruption.

Diversification may involve changing some of the components or ingredients needed for a product to align with available resources or supply. In-sourcing on the other hand, can mean directly handling previously outsourced activities or services. And one of the most unstable and highly expensive activities has been the movement of goods in the first mile which covers shipping.

We have witnessed industry giants such as Amazon, Walmart, Target, Home Depot and Ikea charter their own ships to gain better control over the supply and rate swings. These retailers who were able to manage the supply better were the most rewarded as the stock availability gradually improved and paved the way to strong revenues.

So, in the end, the dominance of resilience over efficiency is rooted in improving dependability in the business performance. ??

02 Tools of Trade

The pandemic brought a different kind of war with the retail industry. To equip the supply chains, technology became an enabler to reaching better visibility and control.

Information management strategies which integrated with the over-all business strategy using technology to boost performance became the staple during the pandemic. This compensated for the recurring road blocks brought by very stringent health protocols and mobility restrictions.

Supply chain control towers have dramatically improved the back-end management of the supply networks by enhancing visibility of incoming shipments and providing windows whereby interventions and course-corrections can be made. Retailers like Walmart, Target and Amazon have all implemented certain degrees of control towers to stabilize their supply flows. The use and its value could not be over emphasized especially during the pandemic when factory shutdowns and port congestions are very common.

The Internet of Things or (IoT) is another technology trend that some retailers took advantage due to the limitations on physical reporting at work. This covers the use of vast technology options in collecting information across digitalized equipment functionalities and being able to harvest this and translate into actionable steps. Target used CCTV equipment together with motion detectors at every store entrance to enable an automated counter of customer visits per store. On the other hand, Walmart was able to connect its back-end equipment such as refrigerators and chillers so that it can remotely monitor temperature and humidity in the pursuit of providing the best quality and freshest fruits, vegetables, meat, ice cream, among others.

Machine learning or artificial intelligence were among the most popular jargons we have heard during pre-pandemic times which hit the peak in the last two years. This involves the continuous improvement of a running service by using algorithms or trends that is fed from a live data collection source – either from website, app, kiosks and data transmitters like RF tags and barcodes. One good application of this is the customer preferences and buying habits. From what color of shoes is popular to what day of the week shoppers are excited to see new products go on sale, ML or AI is able to redirect supply chains to be more aligned with the customers.

All the major retailers and market place platforms have used this capability not only to understand customers better but to also help boost sales from a scientific perspective – statistics. Amazon, Alibaba, Walmart, and Target have been all regular users of this technology.

Finally, the 4th Industrial Revolution (4IR) is the next big thing in technological evolution. It is the merging of physical, digital and biological components into one cohesive approach in addressing a particular requirement. We can consider this as an amalgam of all the things previously mentioned as it uses big data analytics to drive digitally connected networks and move towards a dynamic goal in the supply chain that which constantly aligns with demand and other elements such as supply, risk and capacity. So far, the most successful attempt we see in this arena is with Amazon. It attempts to actively re-align replenishment sources with the best possible options considering the latest consumption or sales figures from its website. It is as if the whole supply chain is alive and thinking on its own. ?

03 Onsite to Online (O2O)

The challenge during the pandemic is to find the perfect balance while the digital disruption in retail got accelerated.?

So, the existential question is not to choose between physical store formats or e-commerce. There will be no mass extinction event that will take-away brick and mortar for good. A large majority still prefer still being able to visit real stores while there is growing following for the digital platforms due to convenience, health and safety reasons. One successful strategy is combining the best of both worlds which is generally called as Clicks and Bricks.

There are a couple of variations to this such as:

Buy Online and Pick-up In Store (BOPIS)

Buy Online and Curb-side Pick-up (BOCPU)

Buy Online and Deliver (BUD)

Check Onsite, Buy Online and Deliver (COBOD)

ACE International saw its revenue break records for the past 20 years by adopting several of these Clicks and Bricks options to customers. The key word here is giving back “control” to customers in what they want.

Omni-channel strategy is maximizing the sales potential from different channels and platforms and adopting a unique and dynamic fulfilment methodology that is the fastest and most reliable route – the physical stores.

Target and Walmart have all harped about the benefits of tapping this potential and being able to maximize their brick-and-mortar stores to also fulfil and deliver online, telemarketing and social media sales.?

?04 Nature Calls

Profit, People and Planet – that is the usual order of business in doing business and following the triple bottom-line principle. However, the environment and its care became very prominent during the last 2 years of the pandemic.

Both consumers and businesses have put environmental initiatives more weight as awareness has become more widespread on our responsibility to protect the planet we live in. Perhaps, it is because of the long isolations which got people thinking how temporary and fragile life can be that got this movement gain more momentum.

There are many ways to support environmental programs and the most popular is by way of the 3R’s - Reduce, Reuse and Recycle. In our office, we try to reduce use of water and electricity. Bringing in canisters and mugs helps avoid usage of PET bottles.

For check out counters, many retailers have begun using biodegradable plastics, paper bags and promote the use of eco-bags with shoppers.

Carbon foot-print management is another promising area as energy consumption is tracked from facilities to transport equipment including trucks, trains, ships, among others. Ultimately, the goal will be to reduce the number of trips and/or shorten them by exploring drop shipments, direct importation in regional areas, co-loading to reduce trips, among others.

An alternative would be renewable energy sources like wind, solar, thermal and hydro to reduce the consumption of fossil fuels. This can also be applied in the use of eco-friendly electric vehicles to transport goods.

And finally, information cascade to employees and partners will always multiply the effort and impact by several folds. Partner-collaboration would be the final pay-off when similar cause-oriented companies join hands in protecting mother nature.

To some extent, having a corporate social responsibility about protecting the environment can be a value add in brand building and equity. We have observed some companies capitalize on this and openly market themselves as eco-friendly.

05 Two Become One

The last but certainly not the least is "Two Become One" which is all about mergers and acquisitions. To survive and thrive in a crisis, it takes two to tango... or sometimes even more.

The pandemic has truly shown the worst and best in supply chains. And being big and agile has shown a lot of benefits in survival and in securing the future. As profit margins continue to be challenged due to the rising cost of coping with uncertainties, scaling up will be one sure way to thrive moving forward.

Some key industry examples that are susceptible to M&A targets are:

Shipping Lines and Forwarders (MLO and NVOCC’s)

Last Mile Logistics Providers (On-demand and Traditional)

3PL/4PL service providers

Online Market Places

Technology Platform Enablers

Distribution and Retail Companies

This will be the default path for companies still aggressive for growth while the global economy is still grappling towards recovery from the impact of the pandemic.

As a parting note, let me leave you a message from Franklin D. Roosevelt: “A smooth sea never made a skilled sailor.” So, let’s also look at the bright side of the pandemic. It has shaken the retail industry and changed many established practices in supply chains but seems to be a bitter pill we needed to swallow.

BE CHANGE POSITIVE! Let's start the revolution in recovering, rebuilding and reframing retail supply chains.