COVID-19 has sent shockwave after shockwave through every facet of our lives, and for ecommerce businesses this was no different. Juggling enormous spikes in demand, supply chain disruption and deterioration, shipping delays, and rising costs was no easy feat. The businesses that survived are not eager to repeat the experience. So what changes made this year will last for years to come?
If you’ve ever had your commute home affected by an accident, you know how big of an impact just that one event can make. It can clog up traffic for hours afterwards, and for miles in both directions – it can even cause additional accidents because of the unpredictable flow of cars. The supply chain during COVID is experiencing that kind of unpredictability, known as the bullwhip effect, and instead of seeing the impact play out over hours, we’re going to see it for years.
Many things will change because of COVID, and every change increases the likelihood that the supply chain will be affected. Many experts have predicted that higher eCommerce activity will shape the foreseeable future, which means that businesses will be playing catchup with their suppliers and distributors. Some companies may choose to make changes — add backup suppliers, disperse inventory, etc. — and each adjustment can cause delays to an already overloaded system.
Business owners are not blind to this reality. In fact, according to a recent study, over 50% of respondents expected these changes to last through 2021, and 23% into 2022. In the end, expect to see “we are experiencing COVID-related delays” messaging on websites for a long time.
Growing Adjacent Industries
It’s not all doom and gloom, of course. When eCommerce grows, so do adjacent industries that can meet new demands. Here are some of the industries we expect to grow post-COVID:
- Warehousing real estate. Increasing warehouse real estate will not only support the storage of additional products to meet higher demand but will also help businesses increase their safety stock to ride out supply chain delays and spikes in demand.
- Software. When real-time accuracy is paramount, software is the hero. Many areas of the tech sector are struggling due to the pandemic (and will likely take a long time to recover afterwards), but tech services that support people and businesses during the pandemic, including software that supports the logistics industry, will be in higher demand than ever.
- Last-mile delivery. The most costly and relatively most time-consuming step of the delivery process, the last mile, is often the target of adjacent services. This is where we see various courier services pop up to support this last mile effort, whether they are done by independent contractors or drones (although we’re not quite at drones yet). This last-mile stretch will continue to be a major focus post-COVID.
The bottom line has been top of mind for years in the logistics world. The implementation of lean supply chains, just-in-time inventory models, increasingly fuel-efficient transport, and LTL software are just a few of the many innovations that have trimmed costs. COVID has exposed the fragility of supply chains in a way that most of us could not have predicted; a side effect of constantly seeking the lowest cost is that resiliency was sacrificed. No more.
With unpredictable supply chains expected to last for the next year or two, businesses will be turning their focus to how they can mitigate the associated risks, like long stockouts of their best selling products. Nearshoring is a change we can expect to see across the board. With nearshoring, instead of searching the far reaches of the globe for the cheapest possible products and labor, it becomes more acceptable to spend a little more for products that are made closer to your distribution center. Having materials, manufacturers, suppliers, and producers that are closer to the company can avoid the huge losses we saw due to lockdowns around the globe in Q2 of 2020.
Spreading Out Inventory
Similar in theory to nearshoring, having the entirety of your inventory stored at just one warehouse can spell big trouble if it happens to be near a hotspot or in a location that goes into severe lockdown. COVID will spark a de-centralization of warehouses in the coming years to be more resilient to these sporadic and unpredictable disruptions. Businesses will likely turn to third party logistics companies (3PLs) that have more warehouses, or more strategically placed warehouses, in order to mitigate their risks.
Even better, by having products stored closer to customers, businesses can also save on shipping costs. This will also go hand-in-hand with an increase in safety stock. More inventory, more warehouses, more resiliency.
Diversification of Suppliers
Bulk buys are a well-known strategy to cut costs, and at the start of the year, many businesses had just one or two suppliers that supplied the majority of their components or products. Many of these suppliers are in China. In January of 2021, we all witnessed close to a worst-case scenario of the pitfalls of that strategy.
In the next few years, we’re likely to see big moves towards diversified supply chains, and even a move away from China, as importers realize their best bet is to spread out their risk amongst multiple suppliers. When businesses put all their metaphorical eggs in one basket, their entire supply chain falls apart if just one egg is broken (so to speak). Noticing a trend here?
For many companies, the pandemic revealed just how segmented their organizational setups were, and how hard it was to make informed decisions when collections of data were inaccessible to the people who needed them. This phenomenon of isolated data is called a data silo, and data silos are the natural enemy of agile business strategies.
While executives were attempting to react swiftly to the unprecedented changes at the start of the pandemic, organizational data silos impeded their efforts and caused their business to be slow to react and change. COVID was the iceberg ahead, and by the time the danger was spotted and to the helm, it was too late to turn the ship out of harm’s way. In the next few years we will hopefully see a major increase in information sharing and the dismantling of data silos, so that the next time there is a disruptive global crisis, companies can adapt before too much harm is inflicted.
There is a major theme emerging as we slowly but surely move towards a post-COVID world, and that is resiliency. Many companies found that they were entirely unprepared for the magnitude of changes that occurred during this pandemic. While some damage was unavoidable, there will be a natural focus on how we can be better prepared in the future–because the response can and should be better the next time an event of this scale happens. A focus on risk mitigation and resilience will mark the evolution of the logistics industry in the years to come.