Supply Chain Report 2020: A Wake-Up Call for the Future of Consumer Goods

Supply Chain Priorities Before and After COVID-19

By Alarice Rajagopal

The supply chain has always been extremely intricate. There are so many moving parts, operating in tandem with third parties along the way, all of which have to be connected and working together, seamlessly and without interruption. It seemed as though the beginning of 2020 started out smoothly; however, as the pandemic began to unfold, media headlines ran the gamut of scenarios. We heard how there’s plenty of supply, to consumers’ pantry loading, to a shortage of toilet paper, to the supply chain is fine, to the supply chain is breaking, and everything in between.  

We also heard about the massive technological changes on the horizon, within operations and supply chain management, such as increased use of heat sensors, Bluetooth technology for contact tracing, artificial intelligence and automation. Consumer Brands Association's CEO Geoff Freeman predicted that in-person inspections would be conducted using Google Glass-style glasses, with regulators viewing facilities remotely from their agencies.

While omnichannel fulfillment, robotics, 3D printing, drones and other emerging technologies have been on CG executives’ minds, in many cases those areas of investment have now been fast-tracked to use in order to respond to demand quicker and in a contactless way. And, in fact, Madrecki points out that “this is probably unsurprising given that ‘consumer’ is in the name of this group of companies, but they’re always thinking about how to meet consumer demands and expectations. That was true before COVID-19 and surely is the case right now.”

Similarly, Steve Sigrist, VP Customer Service & Customer Supply Chain, NA for Newell Brands, explains how his group was operating pre- and post-pandemic: “For my specific customer service group, we were giving the greatest focus to our CRM applications to understand customer activities, to identify what business processes can be optimized, and how we can better understand how our people spend their time. The shift after COVID is to make certain that environment remains stable (which it has been) and then to cascade that info across our business teams so we can immediately collaborate on where adjustments are needed.” 

Of course, it’s fair to say that this pandemic has markedly changed the landscape and will have a long-lasting impact. “Supply chain performance will be a key differentiator going forward,” Madrecki says, “and we believe that the pandemic will likewise accelerate certain trends already underway, like the expansion of e-commerce, grocery delivery, SKU rationalization, etc.”

It will also encourage greater collaboration between retailers and manufacturers, he says, such as through data-sharing platforms to drive better ordering and fulfillment processes, and it will encourage technology and network investments as supply chain concerns remain top of mind with the C-Suite.

Regardless of their focus before the start of the pandemic, many leading consumer goods brands have certainly taken a step back to simplify and refocus their supply chains in order to meet demand. However, when the dust settles, these companies have to ask themselves whether or not they want to take a “business as usual” approach to managing their supply chains or completely start over with new strategies and models.

Also encouraging is the number of organizations banding together at a national level to strengthen supply chains and the timely flow of critical goods. While it remains to be seen what it will look like in the long term, all eyes are on the supply chain — from those in the White House to those of the end consumer.

By Jordan K. Speer, IDC

The events of spring 2020 have cast supply chains in the spotlight like never before. No country, business or factory — nor a single node along the product-to-consumer journey ― has been untouched by COVID-19. In IDC's 2020 Supply Chain Survey, 83.3% of companies responded that COVID was already having or expected to have a major impact to their supply chains this year.

The coronavirus exposed many vulnerabilities and gaps throughout the supply chain, including, across the ecosystem, a lack of visibility and connection, whether in sensing on the demand side or executing on the supply side. For example, when COVID-19 hit, many companies scrambled, manually, to identify their tiers of supply to determine whether or not their suppliers or their suppliers' suppliers (and so on) had factory locations in Wuhan, or other affected regions, discovering in the process that unmapped, unconnected supply chains are not agile or resilient. What should have been a quick online check-in instead turned into hours of phone calls and emails. Companies struggled to identify new sources of raw materials and production, to shift to new sources of supply, to move quickly to scale up production.

On the flip side, the ability to respond to shifts in demand of both channel and product ― online shopping was skyrocketing, nonessential businesses were shutting down, certain consumables (e.g. toilet paper) were in higher demand from some sources (retail stores and homes) than others (sporting venues, office buildings and restaurants) — requires agility in identifying sources of demand and reallocating product where it's needed, which requires a view into transportation, logistics and fulfillment capacity, ideally meeting customer preference while optimizing across inventory location, time to and cost of delivery, and natural resource savings. 

The coronavirus also revealed the dependency on a human workforce to move product from here to there, the vulnerabilities that come with tightly packed workforces in warehouses and retail stores, and how a lack of agility is an impediment to scaling up and shifting omnichannel fulfillment.

COVID-19 cast a light on what supply chain executives have known for some time now: that connectivity and automation are crucial to operating today's complex global businesses — that digital transformation (DX) across supply chains and software to manage specific processes, combined with technologies that can sense, gather, secure, cleanse, compile, and analyze the data that runs through them and interleave it with data from external sources, such as weather, traffic, and event patterns, in real time, will be best positioned to move quickly to keep pace with a wide variety of changes while pleasing both the retail customer and the end consumer.

These goals are not new, but recent years have generally found consumer product goods companies more focused on the waste reductions, cost savings and productivity gains that DX initiatives could bring to their supply chains while mostly paying lip service to concerns about risks and disruptions. COVID-19 has laid bare the wreckage that can ensue when risks in the supply chain are not prepared for, when crisis management teams are not put in place before a disaster lands, and how a business can be rendered helpless when it does not have visibility into the information it needs to pivot quickly to respond to new challenges. 

Even before the coronavirus reared its ugly spikes, supply chains around the globe were increasing adoption of automation and technologies that improved visibility into their inner workings and data, enabling real-time analysis and better decision making. At the close of 2019, IDC Manufacturing Insights predicted that by the end of 2021, half of all manufacturing supply chains will have invested in supply chain resiliency and artificial intelligence. COVID-19 will accelerate adoption of technologies and processes that will connect and automate supply chains to make them more agile and intelligent. This will not only turn on the competitive advantage that digitally connected supply chains provide; it also will enable consumer goods companies to mitigate risk by responding quickly to disruptions as they occur.

As such, the following are five trends you can expect to see in supply chains in 2020 and beyond.

1. Mitigating Supply Chain Risk Is Top of Mind

This hardly requires explanation. Businesses have now seen, first-hand, how areas of vulnerability in supply chains wreak havoc when they are exposed to circumstances beyond the ordinary. Weaknesses vary from company to company, but the one common thread that tends to characterize all of them starts from a lack of visibility into circumstances that would permit the ability to recognize a problem in near real-time, understand its potential impact, assess, analyze and even model possible alternative scenarios, and quickly act to make changes to minimize harm to the business (and possibly even improve it) — whether the problem is a shuttered factory, a broken-down truck or an unforeseen spike in purchases of hand sanitizer.

So it comes as no surprise that companies included in the IDC 2020 Supply Chain Survey ranked "Overall Supply Chain Visibility" as their No. 1 focus when it comes to mitigating risk in the supply chain (see Figure 1). Without the ability to see the problem, you've lost the opportunity to ask the right questions and to answer them quickly.

Visibility is one thing. Action is another. COVID-19 has also revealed how companies that already had emergency preparedness teams in place, such as Texas grocer H-E-B, were far ahead of the curve in terms of putting measures in place to keep business moving while safeguarding associates and meeting customer demand.

Ideally, companies will be able to not only see and address problems quickly (this is driving many companies to implement Control Tower platforms to gain that end-to-end insight) but also anticipate and prevent them, which derives in large part from underlying artificial intelligence engines that can analyze massive amounts of internal and external data to recognize patterns and help make prescriptive recommendations to address problems before they happen. 54.9% of survey respondents say they are already doing this to improve supply chain visibility, with 37.8% intending to implement that capability within the next three years.

2. New Business Models Drive Digital Transformation

It's the flip side of the same coin: Respondents likewise noted that the lack of ability to adapt to change and quickly react to it due to lack of visibility was the No. 1 gap in their enterprises — and the one that would likely be most problematic if not addressed.

Even years ago when the world moved in more linear fashion and the Internet was just a twinkle in Al Gore's eye, supply chains would have benefitted from greater digital connectivity. Today, the world has changed, with smartphones in the hands of consumers and the shopping journey moving with them, wherever they happen to be. Moreover, consumers are not the only entities operating on the “edge” with devices. Today's factories, warehouses, trucks, containers, machinery, stores, and products are increasingly equipped with technologies such as sensors, computer vision, RFID, AR/VR and other devices that measure, read, report and analyze data far from centralized database hubs.

Consider the advantages that come from receiving information in real time from sensors on trucks ― knowing that, for example, the temperature has dropped in a reefer and that a shipment of pharmaceuticals is about to dip below its required threshold. Think about the benefits to inventory turns, omnichannel capabilities and loss prevention that can be gained from in-store smart shelves, perhaps using RFID, that know what inventory they contain and report that in real-time. 

Edge technologies enable companies to glean much more knowledge at the end points of their operations but require new business models that employ complementary operational technologies, processes and infrastructure to function. All of these technologies must be not only digitally enabled themselves (a smart shelf reading its contents) but able to communicate with the software systems that can understand what their data means and enable action that benefits the business (a sales associate restocking the shelf), and able to communicate that data further into the supply chain where it can be used to spur other processes (we need to plan for, make, ship more razors).

Edge technologies allow for more demand-driven supply chains (pull models) vs. supply-driven (push models), which are less wasteful and more innovative but require agility and speed that are not possible without digitally enabled supply chains that can quickly gather, use and analyze data. New business models are the No. 1 driver of DX (see Figure 2), with the related pace and scale of innovation coming in a close second.

3. Increasing E-commerce Accelerates Hyper-Localized Fulfillment

E-commerce is spawning many of those new business models. Already totaling 11% of retail sales before the pandemic hit, online shopping has experienced a surge in the pandemic, escalating the need for fulfillment operations (at a time when people must remain six feet apart). Moreover, the escalation of e-commerce combined with the consumer demand for ever faster delivery ― which Amazon created — is accelerating the need for hyper-localized fulfillment, which many companies have been pursuing either through expansion into smaller, more local DCs or through the partial or full conversion of retail stores into micro-fulfillment centers. That latter activity has picked up tremendously in the wake of COVID-19, driving some “non-essential” retailers to convert their closed up dark stores to fulfillment locations to alleviate pressure on warehouses and to use up languishing inventory. Some “essential” retailers are converting some stores to fulfillment centers for the same reason and adding or scaling up channels such as BOPIS and curbside delivery.

A multitude of forces are converging to put strain on logistics and fulfillment. Meeting the demands of these swift changes is so crucial to the success of businesses today that respondents to IDC's survey ranked it as a top three focus when it comes to supply chain risk mitigation, at 34.1% (see Figure 1), regarding this as one of the areas where disruption can have a very high cost in lost profits and abraded customer loyalty. Automation and robotics can help.

4. AMRs and Robotic Arms Provide DCs and Micro-fulfillment Centers with Flexible Automation

Well before COVID-19, labor shortages and the (related) rising cost of labor were driving companies to pursue automation in warehouses and DCs. Automation not only reduces the amount of labor required in these locations but also eliminates work that is not ideal for humans. Long hours of walking to the far reaches of warehouses to pick product, hefting heavy boxes or performing repetitive physical tasks take their toll on bodies. Automation can eliminate or modify these tasks to reduce the amount of physical labor needed in the DC and free up people for other tasks that are needed and require less movement — such as packaging the multitude of e-commerce orders.

Specifically, some advancing robotic technologies are particularly well suited to managing the SKU-dense, small-order, variable-basket characteristics of e-commerce fulfillment, in traditional DCs or micro-fulfillment sites. Autonomous mobile robots (AMRS) that do not need to follow “fixed” wires or magnetic strips, that can learn and maneuver around objects in their path, and that can collaborate with humans (say, by following a picker around and holding items), as well as robotic arms that through machine learning (ML) are increasingly able to “see” and grasp different objects quickly and with correct force, are rapidly gaining interest and are likely to see an uptick in investment. 63.8% of companies surveyed say robotics are either important or very important to their organization today, and 72.8% say the technology will be important or very important to their organization in three years.

The need to attract and retain skilled people is also a core component behind these changes (see Figure 2). Automation works in two ways: It eliminates the need for people to do jobs that can be wearying, but also modernizes businesses, making them more attractive to potential employees.

5. Supply Chains Become More Collaborative

Improving supply chain resiliency and responsiveness was identified by survey respondents as the No. 2 most important driver of change in their supply chains. It's the underlying driver behind everything mentioned above: the need to respond to risk, to digitally transform, and to fulfill closer to the customer with speed and agility all build resilience.

Speed and agility and the ability to innovate require greater collaboration among manufacturers, brands and retailers ― among all of the players in the entire ecosystem of a supply chain, internally and externally (see Figure 3). This requires that they share more information, which requires that they build more trust. Trust can't thrive on a shaky foundation. It's a paradox: (Profitable) speed and agility are only possible when built upon something solid and steady. (This is true beyond supply chains and extends to families, institutions, governments and relationships of all sorts.)

Today's supply chain partners will need to communicate and get to know each other through collaborative technologies and processes. But then they'll need some secure ways of backing up that trust. This is good for each party to a partnership but also to inspire trust in the end consumer, who increasingly wants a view into the people and processes behind the products she buys.

Technologies such as RFID for tracing products or blockchain platforms that can bring all parties together in a secure place to share information and verify its source and authenticity will grow in use. Indeed, close to half (46%) of respondents to IDC's supply chain survey identified blockchain as important or very important to their organizations today, while 67.5% said it would be important or very important in three years.

Collaboration provides visibility to consumers and also enables the elimination of waste across the supply chain, both of which contribute to enterprises that are both more sustainable, and more able to convey that message to the consumer, which bring us full circle: Sustainability was identified as the No. 2 focus when it comes to mitigating risk in the supply chain (see Figure 1).  

Defining Logistics Outside-In

By Lora Cecere, Supply Chain Insights

Strong supply chain capabilities are essential to drive a COVID-19 economic recovery. Logistics will be more turbulent, and suppliers are ramping-up capacity. There will be many ups and downs.

Today 83% of companies are working on visibility. However, the term means different things to different companies, with most lacking a clear definition. Without clarity, it is almost impossible for companies to be successful in implementing a visibility project. In Figure 4, we share the gaps. The most significant weaknesses are in the areas of inbound logistics and shipments within the enterprise. Companies do better on outbound shipments to customers. However, all of these forms of visibility matter because reliable outputs require precise inputs.

What Did I Learn?

In the process of tabulating the data and reviewing it with business leaders, we learned three things and share recommendations:

Companies Dependent on 3PLs Rate Themselves Significantly Worse On Logistics Visibility Elements. Pre-COVID data available at the speed of business to drive logistics decisions was significantly worse for companies more dependent on 3PLs. (90% confidence level for companies reliant on 3PLs in North America for more than 65% of volume.) Visibility will become worse post-COVID-19. How so? The more nodes and the more parties in the supply chain, the harder it will be to get data. Data latency and interoperability with 3PLs is a barrier. Recommendation? Simplify networks.

No Easy Answers. The dance with shiny objects is dangerous. There is no one technology to close the gaps. While companies brief me with over-zealous promises for their approaches, I struggle. Most technology innovators are over-zealous without a good understanding of the supply chain. Don't fall victim to platitudes. My advice? Be cautious.

Organizational Gaps Are the First Place to Start: Shown in Figure 5 are the gaps in organizational capabilities. While companies speak of customer-centric process flows, they are not clear for most teams. The first place to start is mapping outside-in process flows and adopting process-based thinking. Companies dependent on portals and EDI will quickly learn that there are gaps. Portals are dead-end streets, and EDI is signals that are mainly batch and out-of-step with business processes. Time and data currency are issues. What to do? Focus on interoperability by mapping processes cross-functionally from the customer back into the supply chain. As shown in Figure 5, for most companies is a challenge.

Conclusion

As your organization works through the issues of redefining supply chain capabilities in the pandemic, think holistically and design outside-in. Prepare yourself for levels of turbulence that you have not seen before. Seek new forms of data to help improve visibility and eliminate supply chain black holes.

Recommendations for the Future of Supply Chains

By Alarice Rajagopal

Coming out of the pandemic, there is no one-size-fits-all answer on running supply chains going forward. What’s more, technology underpins almost every supply chain solution these days. However, through interviews with industry experts and consumer goods brands, the following are some themes that emerged from those that have found their stride during the crisis.

As the saying “People, Process, Technology” goes, people must always come first. Sigrist’s advice for his peers is to “genuinely (emphasis on genuinely) put the health and safety of the team members first. This solidifies team engagement and will build the commitment required to meet organization needs and needs of your customers. Build an operating review rhythm across all functions and maintain a constant approach to address safety and business continuity.”

Just like in business, get involved and start at the top. Madrecki notes: “Frankly, we have a long history of being involved with supply chain issues, dating back to the association’s days as the Grocery Manufacturers Association. But I think that what’s unique today is our emphasis on policy and the degree to which government plays a role in supply chain performance and resiliency. As our country rebounds from COVID-19, now is the time to revisit supply chains with a strategic mindset toward growth and national competitiveness, removing friction points in the movement of essential goods and services.”

He adds that supply chains play a critical role in facilitating the affordability, availability and accessibility of America’s favorite products. “So if there’s something to learn from this crisis, it’s that we can’t take supply chains for granted. We have to give them more attention, and that starts at a government level. Likewise, supply chains are incredibly complex, requiring a comprehensive and more holistic approach that stretches across multiple policy arenas if we are to make improvements. There’s a real opportunity for thoughtful policymaking and leadership that will drive economic success and quality of life for everyday Americans.”

Embrace even more opportunities through data and analytics. “There’s a tremendous opportunity to leverage data and analytical tools to drive smarter, more predictive decisions, and to further optimize already highly efficient supply chain systems,” according to Madrecki. Cecere is in agreement, noting that just as data and science are the best course to improve public health, they are also the best prescription to drive supply chain effectiveness in these uncertain times.

Look to technology to help, but beware of shiny objects, as aforementioned by Cecere. Madrecki explains that technology is obviously essential to automation, robotics, autonomous vehicles and other potentially game-changing innovations that are anticipated over the next 5, 10, 20 years. But there’s no silver bullet technology. He affirms that while the implementation of technology is just as important, the human element is more important than ever before, “and the skillset of tomorrow’s supply chain leader will need to be extremely varied and flexible to keep pace with all of the changes in this space.” CGT