Only 2% of businesses felt prepared when the COVID-19 pandemic hit. This left them challenged when it came to handling incidents such as the 37 mile long line of trucks that formed in the EU when Poland closed its borders to Germany and the 50,000 containers that piled up in India when lockdown caused a shortage of drivers.
They had to quickly transition from optimizing stocks and having a very efficient value chain to overstocking in case of another crisis such as bottlenecked containers or a shortage of products. Those operating within supply chains had no choice but to act with a ‘just in case’ approach if they were going to continue to serve clients. The cost of overstocking was a cost they were willing to pay in most cases.
Despite the impracticalities of building reserves instead of running at maximum efficiency, a return to the old way of operating has been delayed due to continued disruptive events on a global scale. These events have caused problems that include the rising cost of shipping containers and lack of drivers. That’s not to say there isn’t a desire to ensure operational consistency through the old strategy.
While not every eventuality can be fully prepared for, technology exists today which creates resilience and agility in supply chains so businesses can weather similarly disruptive situations with more efficiency.
So, how is it possible to run a lean operation and maintain resilience and agility in the current climate?
Risk factors logistics are currently facing
Business leaders have been hesitant to return to the old ways of operating supply chains because the end of COVID-19 lockdowns in most of the world hasn’t ended all vulnerabilities. They need a system for handling the following risk factors.
The continuing war in Ukraine
As the conflict reaches the one year mark, it shows no sign of coming to a resolution. This has resulted in closed ports, rerouted transport, increased freight charges, congestion and the lack of certain supplies which triggered inflation of energy and food prices. When key players are unable to operate as normal, the rest of the global system is impacted.
The economic situation
Global inflation hit a high of over 8% in 2022. This has a potentially devastating ripple effect. As supplies cost more, companies increase their prices to stay profitable. As costs increase, consumers struggle to maintain their usual spending habits. The whole economy slows down which is a significant fear at the moment as "73% of executive directors around the world believes that global economic growth will slow in the next 12 months”.
The impact of climate change
Companies are having to change the way they work to reduce their negative impact on the environment, meet carbon neutrality goals and operate within new environment-focused regulations. This could be very costly for logistics companies considering trade-related international freight produces 7% of all global CO2 emissions. However, without making this change, environmental disasters caused by climate change will disrupt international supplies, trade, transportation and economies.
Supply chains and the logistics industry cannot return to the pre-pandemic way of working. It is not robust enough to handle the current climate. However, overstocking is not fit for purpose. Fortunately, there is another option.
The return to lean production
The level of uncertainty has created a belief that logistics companies need to keep hemorrhaging money in extra supplies that may or may not be sold depending on turbulent consumer demands. This is despite the fact that overstocking is a safety measure that while adds resilience to the company, doesn’t create agility. It is not a responsive enough strategy.
The logistics industry needs to embrace the future in order to future-proof supply chains. This means relying on technology as a solution for resilience and agility. A digitized Transport Management Software (TMS) will provide invaluable benefits such as the following.
- End-to-end visibility of the supply chain allows partner suppliers to collaborate through an uninterrupted data flow which means any adjustments can be made sooner rather than later.
- Real-time management means the data flow is instantaneous. So the most accurate picture possible is immediately accessible and there is little delay between registering a disruption and it being reported, minimizing the impact.
- Predictive analytics makes preparation and fast responses even more efficient. Instead of waiting for disruptions to happen, future changes are foreseen and the strategy for dealing with it is put into motion.
- AI-assisted decision-making supports the usefulness of real-time management and predictive analytics. As issues are identified, the best possible solution is formulated and strategized.
- One possible solution that may be decided on is nearshoring. The unreliability of global transportation has led to a process of de-globalisation and members of the logistics industry moving their key bases closer to their area of operation.
The recent disruptive events have demonstrated the importance of resilience and agility. The onset of the COVID-19 pandemic and the governmental and societal response had one of the biggest impacts on supply chain management in living history. It affected the economy, transportation, supplies, consumer behaviors and costs.
The consistent thread throughout all the challenges logistics has faced in the past few years is the fear of the unknown. Business leaders didn’t know what to expect. They had no way of preparing for what was coming next. Digitized management systems alleviate that fear. The future can be predicted and prepared for with the right technology, resulting in both resilience and agility.