In 2020, the COVID-19 pandemic presented an unprecedented shock to global supply chains. At the same time, it challenged businesses to adapt. By understanding and learning from the major challenges and changes of retail logistics, businesses can build up resilience and fully adopt crucial new technologies in anticipation of future shocks.
To confront the pandemic—as well as ongoing environmental, social, political, and technological changes—businesses in retail logistics must critically assess their existing capabilities and build resilient digital supply chains.
How retail logistics has evolved
Even before the COVID-19 pandemic, retail logistics was facing rapid and unrelenting change. This change has sped up in the past few years as the evolution of technology and digitization has accelerated. From the widespread adoption of the internet to the advent of big data and the Internet of Things, technology has permeated the supply chain. Furthermore, this trend shows no sign of stopping.
Three main categories of factors drive changes in retail logistics. First, there are environmental factors, such as risks related to the climate and sustainability. Second, there are social and political factors, such as trade tensions and the recent trend toward protectionism. Third, there are technological factors, such as the widespread adoption of the technologies mentioned above.
Emerging as a fourth factor, the COVID-19 pandemic has irrevocably altered the landscape for retailers, suppliers, and logistics companies.
Environmental factors driving changes
As the global climate warms, extreme weather events are occurring on a more frequent basis. These weather events, such as fires, hurricanes, and typhoons, impact transportation and damage physical infrastructure. They can therefore severely disrupt global supply chains.
In a related vein, sustainability initiatives have also become increasingly important. Greater customer awareness about the environment—along with current and potential legislation regulating carbon emissions—mandate sustainability. For shipping companies reliant on various forms of freight to ship goods, this can be a challenge.
Monitoring—and cutting—carbon emissions at every step of the supply chain is imperative. Agility, for example, provides its customers with carbon footprint reports that are certified by the Carbon Trust.
Mitigating risks against the environment and climate is also essential for companies to maintain a competitive edge. For example, retail companies need to plan for various scenarios that could arise due to seasonal extreme weather affecting different parts of the world.
Christopher Knittel, economics professor at Massachusetts Institute of Technology, describes how companies must prepare. “Companies that are going to be ahead in the game are hiring risk-management consultants that are tooled up in the impacts of climate change and can give an idea of what portions of their company are more at risk going forward,” Knittel says.
Social and political factors driving changes
Retail logistics has faced rapid changes in the competitive landscape, as well as in consumer expectations. Retail companies are racing each other to provide the fastest, cheapest, and most reliable shipping. Accordingly, consumer expectations are evolving in tandem.
For example, retail customers now expect faster shipping than ever, with real-time tracking at every stage of the fulfillment and delivery process. This sets a high bar for retailers and suppliers, who must have accurate and robust data collection systems in place for tracking and for removing inefficiencies. Risk mitigation plans and backups can safeguard against even the slightest shipping delays.
Increased trade protectionism brought by political changes and tensions is one of the most important trends affecting retail logistics in recent years. According to Chris Price, CEO of Agility Global Integrated Logistics (GIL), “When the pandemic dies down, trade protectionism will become the biggest threat to global supply chains.”
Protectionism can lead to higher uncertainty, costs, and delays for globally integrated supply chains. In particular, the past few years have seen a marked increase in adversity between the world’s two economic superpowers, China and the United States. This has had global repercussions.
China produces everything from high-tech goods to low-cost items. But despite the advantages of manufacturing in China, many companies are rethinking their supply chains to avoid dependence on it. This is, however, not straightforward. Overall, these tensions contribute to increasing uncertainty and geopolitical risk in supply chains.
Technological factors driving changes
Digitization has revolutionized the retail logistics industry, like so many other industries. Supply chains heavily rely on digital technologies and effective data acquisition at every step of the way. All stakeholders—from suppliers to focal retail businesses and customers—have (and demand) greater access to real-time information about goods and shipments than ever before.
A simple example of technological change in the industry is online ordering or supply tracking. Another example is digital counterfeit protection measures. According to the Boston Consulting Group, between $75 billion and $200 billion in fake pharmaceuticals are sold worldwide every year. By using technology such as blockchain, companies can combat the long-standing problem of counterfeiting.
When a company like Agility helps its customers deploy blockchain, they are able to track products, shipments, transactions, document submission, payments – all the milestones required for a safe, secure supply chain. Retail customers gain confidence in the integrity and durability of their supply chains.
Digitization is an ongoing process, and it can be difficult for large, established businesses to fully implement it. But it has become absolutely essential for retailers and logistics companies. Digitization allows for greater control and optimization and better decision-making through increased information.
According to Roland Berger partner Jens Kilimann, a retailer must “transform their supply chain into a fully digitalized system.” Furthermore, the process of digitization must be comprehensive and far-reaching in an organization.
Managing and successfully implementing digital initiatives can be accomplished through specific practices and processes, such as agile management practices and DevOps. Implementing these processes requires an organization-wide change in mindsets.
COVID-19 as a factor driving changes
When the devastating novel coronavirus emerged in late 2019, it took the world by surprise. As the COVID-19 epidemic grew into a pandemic, it disrupted supply chains globally and forced change on the retail logistics industry. Its effects on retailers and businesses were dramatic and uneven, causing uncertainty to spike.
For instance, demand for some retail items (such as hand sanitizer and face masks) suddenly increased, while demand for other retail items (such as apparel) dropped. As lockdowns hit during the coronavirus pandemic, unexpected swings in demand combined with capacity shortfalls.
At the same time, the pandemic accelerated an already-existing trend in e-commerce: as more consumers stayed home, online ordering increased. In many ways, the pandemic served as a catalyst for existing trends affecting retail logistics, both positive and negative. For example, it forced many companies to digitize (which many consider good). At the same time, it also exacerbated protectionism (which many consider bad).
How businesses can prepare for common challenges in retail logistics
Businesses facing the changes in the retail logistics industry today can easily feel overwhelmed at the pace and scale of disruption. Luckily, there are many strategies for successfully dealing with these changes—and emerging stronger as a result. Anticipating challenges is one of the best ways to fight against them—before they have a tangible effect on your business and bottom line.
Given the complexity of global supply chains today, adopting a holistic view is crucial so that you can identify which areas are potentially problematic. Conducting risk scenarios with area experts who have an outsider’s eye is a great way to spot errors that you may have overlooked in your organization or supply chain.
Using digital analytics
Perhaps most importantly, retail logistics companies need to have strong digital analytics capabilities. In today’s fast-paced data-driven world, having a strong analytics capability helps businesses not only maintain a competitive edge but also identify and mitigate specific issues before they happen.
Supply chains are becoming less linear and more like dynamic ecosystems. As a result, an analytics capability, along with complementary risk planning and big-picture thinking, is a necessary competence for managers today.
Analytics and technology allow businesses to tackle old challenges in innovative new ways and simplify existing processes. For example, businesses can use big data and machine learning to predict changes in customer demand or to spot patterns in unstructured data.
Big data offers a way to see relationships between data points—relationships that would otherwise be easy to miss. Logistics planning and implementation are no longer static and linear processes: they are dynamic and data driven.
Building a robust digital supply chain
Four specific technologies have emerged for building a comprehensive digital strategy and implementing a robust digital supply chain. Known by the acronym BIRD, these four technologies are blockchain, the Internet of Things (IoT), robotic process automation (RPA), and data science.
The first of these digital technologies, blockchain, are decentralized ledgers that businesses can use to securely track products and verify information. Their security makes them a better alternative than other types of databases.
They are being used to track the end-to-end milestones of shipping transactions – from order through to delivery. One of their better-known uses in the supply chain is for tracking the origin and movement of a given product. This is highly relevant to fighting counterfeiting, as well as building trust in the food supply chain.
The second of these digital technologies is IoT. Oracle Corporation defines IoT as “the network of physical objects—‘things’—that are embedded with sensors, software, and other technologies for the purpose of connecting and exchanging data with other devices and systems over the internet.”
Although IoT is a broad concept, it is crucial for the digital supply chain, which uses data from many different types of sensors and other monitoring technologies. For example, you can deploy track and trace sensors to collect data throughout your retail supply chain. The information they provide can then help you ensure the success of your retail logistics operations.
The third digital technology, RPA, is the use of software to conduct specific tasks. (Robotic refers to software “bots” rather than actual robots.) These tasks are often repetitive and would otherwise require manual (human) labor. RPA is therefore a crucial way to save time, money, and energy, as well as to free up human workers for other tasks that are less easily automated.
Finally, the fourth digital technology is data science, a broad term that refers to the statistical tools and methods that are used to make sense of tremendous amounts of data. In the context of the supply chain, IoT sensors, RPA software, and other input points such as sales software constantly produce data, which must then undergo analysis.
Artificial intelligence and machine learning offer methods for not only understanding data but also for providing predictive analytics. This can be hugely valuable. For example, it can help businesses anticipate delays much more quickly than by just relying on human intelligence.
To summarize the insights from all your data and keep a big-picture perspective, it may be useful to develop a supply chain control tower. This centralized data hub aggregates real-time data from all the relevant points in your supply chain. Plus, it uses artificial intelligence to dynamically generate insights and recommendations.
How the landscape of retail logistics is changing in the 2020s
The COVID-19 pandemic will leave its mark on retail logistics for many years. While there is hope for a strong global economic recovery, the challenges posed by this health crisis will have a lasting impact. In the context of these pandemic-imposed challenges, there has never been a better time for companies to critically examine their strengths and weaknesses in retail logistics.
Predicting and preparing for the next great challenges
Agility has identified four specific risk factors stemming from the COVID-19 pandemic. These include: a collapse in capacity, fluctuating demand, geographic risk, and inventory management. These factors have affected everyone from customers to retailers and their suppliers and logistics providers. The risk is especially acute for those with complex international supply chains that rely on different countries and forms of freight.
One thing that has become clear is that having agile capabilities, along with a strong digital supply chain, is crucial. Being agile means that you can quickly adapt to unexpected changes—even large shocks such as the current pandemic. According to Gartner, there are three pillars for building an agile supply chain: strategy, cost, and talent.
Agility GIL’s chief digital officer sees both agility and a digital supply chain as crucial ingredients for success because they allow companies to quickly and successfully adapt. “We’ve found that the customers that have a high degree of digital supply chain already built in were able to flex a lot better and more quickly with us.”
Adjusting the approach to retail logistics in response to COVID-19
The COVID-19 pandemic has affected every stage of retail logistics. According to a McKinsey & Company survey of business executives around the world, the COVID-19 pandemic accelerated digitization by a full three to four years, including for supply chain operations.
Changes for business-to-business (B2B) operations
The COVID-19 pandemic laid bare the need for retailers to expand their supplier options. For example, the first round of lockdowns imposed in China imposed a sudden crisis for retailers with Chinese suppliers. This translated into a sudden and unexpected hit to supply chains.
A dynamic response capability to these types of shocks is critically reliant on having strong data capabilities. Such data can show potential issues in the supply chain in real time and can help pinpoint alternatives.
Changes for business-to-consumer (B2C) operations
B2C delivery modes were already shifting online, both for goods and services. And as consumers stayed home in accordance with pandemic-related lockdown orders enacted globally, there was a further acceleration in the shift from bricks-and-mortar shopping to online shopping.
The pandemic even forced small businesses, such as local restaurants and pubs that had never gotten around to implementing online ordering, for example, to rapidly adapt and digitize. After the pandemic recedes, these small companies will still have a crucial digital infrastructure they did not have previously.
Changing in the workplace
Finally, the pandemic highlighted the difficulty of relying on in-person work. Workplaces such as fulfillment warehouses have had to implement strict safety precautions, including social distancing and the wearing of masks. To maintain the flow of retail goods, managers implemented creative new solutions. An example is the integration of microfulfillment centers into their supply chains.
Many large e-commerce companies, such as Amazon, also hired more workers to meet the increased demand from shoppers staying home. According to the New York Times, Amazon hired an average of 1,400 workers every day in 2020.
Widespread staffing difficulties during the pandemic further highlighted the need to further automate warehouse processes. Robotic package “pickers,” for example, are one way warehouse managers can decrease reliance on their staff.
Accommodating retail logistics to changing customer expectations
Customers expect orders to be delivered faster than ever, and they also want greater access to information (such as tracking at every stage of the fulfillment process). Generally speaking, customers expect everything—including information—to be more customized, tailored to meet their specific needs.
The pandemic has brought about new changes in customer expectations and has rapidly accelerated other changes that would otherwise have happened over a long period of time. According to an April 2020 McKinsey & Company survey, consumers plan to continue using new delivery and order models, such as home delivery of groceries or in-store pickup, even after the pandemic is over.
How to overcome today’s challenges in retail logistics
Retail logistics will continue to face significant challenges. Beyond the COVID-19 pandemic, its far-reaching economic results are other long-term factors. For example, protectionism and geopolitical risk have been steadily increasing in recent years.
Luckily, businesses can use today’s challenges to enact long-lasting structural changes that will build their resilience now and in the future.
Facing today’s biggest challenges
The pandemic and the resulting global recession remain the biggest challenges immediately facing retail logistics today. The BBC reports that, according to the International Monetary Fund, the world is facing the worst global recession since the Great Depression in the 1930s. Despite heavy injections of monetary stimulus, a high amount of economic uncertainty remains.
The full effects of the pandemic on society and economics remain to be seen. Furthermore, the timeline of how long the health crisis will last is still not entirely clear. This is true even with the rollout of vaccines, which is starting to bring a semblance of much-needed normalcy to certain parts of the world. At least for now, planning will remain difficult for retailers and their suppliers and partners.
Additionally, long-term geopolitical tensions, specifically the trend of increasing protectionism, continue to pose challenges to suppliers and retailers.
The US–China relationship is of high relevance to retail logistics, given China’s importance not only as a global manufacturing hotspot but also as an increasing powerhouse in e-commerce. As of February 2020, more than half of all online e-commerce transactions globally were in China, according to an article published by the Cornell SC Johnson College of Business.
And in Europe, uncertainty about the long-term effects of Brexit—the United Kingdom’s exit from the European Union—continue to be felt. At the start of 2021, shipments between the UK and the EU started to require customs clearances.
Strategizing for successful retail logistics
Given the speed of technological change, the vast uncertainty currently facing retailers and suppliers around the world, and the possibility of future shocks, it is imperative that businesses build strong digital infrastructures and agile processes. A great first step is to work with an experienced global supply chain logistics company, such as Agility.
Companies must not merely accept change and uncertainty as part of the COVID-19–induced “new normal”; rather, they must actively prepare for future shocks. This may require a mindset change. And for established organizations that previously found success by “doing things a certain way,” it may pose a challenge—one that is important to overcome.
As you plan for the future of your business, there are some specific actions to avoid:
- Don’t get stuck in old habits, patterns, and frames of mind.
- Don’t resist digitization and applying new technologies and processes.
- Don’t ignore key lessons of the COVID-19 pandemic, such as the importance of embracing a digital strategy for your entire organization and supply chain.
Learning to think like a start-up, or applying start-up methodologies to your company, can help you build a more agile, dynamic, and adaptable mindset.
How you can step into 2021 prepared
Following the unprecedented difficulties brought on in 2020 by the COVID-19 pandemic, 2021 is an excellent time for retail companies to take stock of their capabilities and assess how prepared they are to face present and future challenges.
One of the main things that will help differentiate companies from their competition is the capability to fully adopt and embrace a robust and fully digital supply chain. Managing risks is becoming increasingly complex, so new tools and methods of analysis, such as big data, are imperative. It is also crucial to work with supply chain experts who have outstanding experience and expertise.
Agility, a leading global provider of supply chain logistics services, offers solutions for a variety of categories. These include visibility, network, cash flow and cost management, cargo management, hub and logistics, primary and secondary distribution, procurement, and supply chain modeling and consulting solutions.
With analytics and expertise, Agility can assess your business’s strengths and weaknesses and help you develop a comprehensive strategy for the future. Start building a more robust and flexible digital supply chain today by contacting Agility.