UPS Webinar Highlights: 5 Trends Driving Supply Chain Innovation in the Pandemic

UPS

 

As the coronavirus tests the global supply chain, the pandemic is highlighting the importance of supply chain innovation during these historic times. 

From a desire for greater resilience to the accelerated adoption of warehouse automation and alternative transportation modes, the crisis is throwing open a new world of challenges and possibilities.

Here are five trends outlined by UPS president Philippe Gilbert and Boston Consulting Group (BCG) senior partner Rich Hutchinson in a UPS webinar on the demands facing the international supply chain—and the strategies available to address them. 

1. Managing Supply Chain Disruption

2. Improving Supply Chain Visibility

3. Deploying Advanced Automation Technology

4. Diversifying Transportation Modes

5. Reconfiguring Supply Chains

 

1. Managing Supply Chain Disruption

The shock to the international supply chain since the pandemic broke out has been unparalleled.

In April, global air freight capacity was down 38.7% year-on-year as passenger flights were taken out of commission, causing air freight rates to surge. 

"Almost all trade lanes across the world are seeing double-digit air cargo capacity declines compared to last year," says Gilbert, UPS president of Supply Chain Solutions.

Transatlantic air cargo capacity was down 44% from the United States into Europe, and 58% in the reverse direction.

Charter rates are running four to six times higher than normal, though we expect rates to come down as passenger air capacity recovers some ground in the coming months.

Despite a gradual easing of restrictions, many countries are in for the long haul as scientists around the world race to develop a vaccine against the virus.

It may take 12-24 months before we officially transition to the “new reality” and have a vaccine in widespread distribution, says BCG's Hutchinson. Between now and then, expect renewed episodic lockdowns as countries encounter fresh outbreaks as they fight the virus.

"For all of us managing supply chains , the need to handle the situation dynamically is something we must be prepared for," he says.

It’s not only about improving supply chain resilience but driving innovation at the same time. Companies that double down on innovation now will maximize their chances of emerging from the pandemic in good shape.

Innovation and iteration will improve supply chain resilience and maximize your company's chances of emerging from the pandemic in good shape.

Consider the 2008 financial crash. The most innovative companies headed into the crisis "dramatically outperformed" the pack in the years following the market collapse, according to Hutchinson, citing BCG research highlighted in the webinar. 

Perhaps it’s a medical device company that pivots its business model to achieve sustained growth and bring about less complex supply chains. Or an airline that streamlines its fleet, simplifying its supply chain operations and securing efficiencies.

Whatever the sector, explore opportunities for testing new ideas and embracing new ways of doing things, and iterate from there.

 

2. Improving Supply Chain Visibility

For many firms, the global crisis has revealed a lack of visibility into the further reaches of their supply chains.

Expect to see a move toward improved visibility as the pandemic unfolds. “We will witness a greater focus on controlling the end-to-end supply chain up to the raw material vendor,” says Gilbert.

Technology has a key role to play here. Advanced data analytics will prove pivotal in helping firms gain more visibility into their supply chains and better mitigate anticipated disruption.

Proactively develop relationships with alternative manufacturers to diversify your operations and quickly respond to supply chain disruptions.

Strengthening communications with Tier 1 suppliers is another vital element of improved visibility. When dealing with primary suppliers, it’s important to properly understand where they source from and any supply chain risks  associated.

For example, if your Tier 1 supplier is dependent on a raw material manufacturer located in an emerging COVID-19 hot spot, you want to know about it. Being able to act on this information will ultimately increase the resilience of your extended supply chain.

This may mean diversifying your supply chain by proactively developing relationships with alternative manufacturers, allowing you to more quickly shift operations in response to disruption.

It may even involve permanently relocating portions of your supply chain to parts of the world deemed less risky looking forward.

Nor is it only about building resilience elsewhere in the supply chain but about companies becoming more resilient themselves.

Gilbert anticipates a greater focus on inventory management, with lights-out warehousing and redundant inventory becoming commonplace.

The adoption of lights-out warehousing, where facilities depend increasingly on automation and require few staff, alongside an emerging appetite for redundant inventory—or excess stock—mark what some suggest will be a swing away from an outright emphasis on efficiency to a more nuanced approach to supply chain health.

"Supply chain expense to revenue is expected to increase as companies build more flexibility into their inventory policies," he says.

 

3. Deploying Advanced Automation Technology

The trend lines were already in place, but the reality of managing supply chains in the era of COVID-19 has dramatically upended old ways of doing things.

As part of such innovations as lights-out warehousing, the deployment of robotic process automation (RPA) and autonomous vehicles for moving and storing products will only accelerate in response to the pandemic.

Take physical distancing and stay-at-home orders, which are already having a deep impact on distribution and logistics, says Hutchinson. Warehouses that use robots may not only be more efficient but might be less likely to shut down if workers get sick.

"This crisis is profoundly changing how businesses look and act. Companies are experiencing three years of innovation in the space of three months.”

It is important to recognize that innovation can be challenging.  Make sure you have the right resources to implement. 

Partnering with experts on how to revamp your supply chain strategy and how best to introduce technological innovation within your facilities can speed success.

 

4. Diversifying Transportation Modes

Further strengthen your supply chain by reviewing your transportation strategy.

As demand for personal protective equipment (PPE) continues to dominate already constrained air freight capacity, look to alternatives for cross-border transportation, such as sea-air, LCL (less than container load), and rail.

Embrace data-driven technologies that recommend different ways of moving your goods.

"Advanced analytics and AI will help increase agility and minimize impact on transportation operations," says Gilbert.

And, while passenger air capacity is expected to increase in the second half of 2020, carefully plan your air freight requirements for the rest of the year and get slots booked sooner rather than later, he remarks.

 

5. Reconfiguring Supply Chains

Supply chains are already changing in response to the pandemic.

Some manufacturing operations are shifting from China to South-east Asia, a trend set in motion by the U.S.-China trade dispute and increasing labor costs in China. The shift to countries like Vietnam and Indonesia is generating additional demand for ocean freight there.

Relocating operations to regions where free trade agreements are in place will also likely grow in appeal for companies now reviewing the finer detail of their supply chains, says Gilbert. 

For similar reasons, an increased appetite for shorter supply chains is expected to drive a rise in near shoring. The implementation of the United States-Mexico-Canada Agreement (USMCA) will likely prompt renewed interest among U.S. firms in developing trade relations with their neighbors both to the north and south.

Notwithstanding the crisis, customs clearance around the world remains highly stable. This is largely due to advanced technology, an area in which UPS continues to invest.

 

Navigating the Supply Chain

Amid unparalleled uncertainty, one thing is clear: the situation remains highly fluid. Hear updates on the global supply chain from Gilbert and Hutchinson as they explore the importance of innovation during a time of crisis.

To view the webinar in its entirety, watch this video.  

 


 

Republished with permission, this article was originally written by UPS on May 22, 2020. 

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