Consumer behaviour changes require supply chain agility
The following piece is from SAPICS, a professional knowledge-based association that enables individuals and organisations to improve business performance
Recent market results are forcing retailers to begin pondering how to make their supply chains more agile in the face of changing consumer behaviour—while still keeping costs as low as possible. Getting this balance right is increasingly important as consumers become more demanding and yet more price-conscious at the same time. Consumer confidence, for example, has slipped back to levels last seen at the beginning of the 2008 financial meltdown.
“When it comes to the supply chain, South African retailers tend to focus on cost to the exclusion of most other considerations,” said Jan Tukker (pictured right), General Manager of Logistics at The Foschini Group (TFG) and conference content committee member of SAPICS – one of the leading industry bodies in the field of supply chain management.
He added: “This approach inhibits retailers’ ability to respond quickly to changing market demand. We need to find new ways to build agility into our supply chains.
“As supply chain management means getting the right products to the right place at the right time and cost to satisfy consumer needs, any positive changes to a retailer’s supply chain agility will result in a positive impact on satisfying customer needs.”
Tukker argues that today’s markets increasingly demand at least a measure of agility. One driver is changing consumer behaviour.
Global research from Accenture shows that today’s consumers are increasingly networked and thus better informed than in the past. These consumers are coming to expect that real-world channels offer the same kind of experience—personalized, immediate—that they get online.
“Retailers have to ensure that their real-world supply chain can begin to offer the kind of experience that consumers want,” said Tukker.
“Cutting logistics costs might make some kind of sense but all too often the impact on revenue isn’t fully understood. In addition, a more agile supply chain could mean that stock holdings could be reduced quite substantially, and that, too, would have an effect on the big picture.”
Another issue is that, in many retail sectors, such as clothing, lead times are very long especially as supply sources have moved offshore—with hugely negative effects on the South African clothing industry. Goods coming from the East or elsewhere by sea take months to arrive, which means that a retailer cannot respond quickly to the fact that item A is flying off the shelves while item B is not moving at all.
“One part of the equation is getting the buying process properly optimised. If buyers are confident about their reading of what their market wants, they can order the right items in the right quantities,” said Tukker.
Getting this right will, presumably, require greater focus on analytics to understand consumers better—a core competence for any retailer.
However, no buying process can ever be perfect, according to Tukker, so retailers do need to have ways of adjusting their stock to customer demand rapidly. Air freight is probably the only option when suppliers are offshore and rapid supply is needed.
Growing fuel costs are generally putting cost pressures on logistics, making air freight something that could wreak havoc with margins that are often thin already. One thing that retailers can do, to mitigate rising fuel costs, is to optimise their distribution network by ensuring that their distribution centres are optimally placed in relation to supply and demand.
“In the longer run, though, nearshore or onshore suppliers are starting to make more and more sense, both in the context of escalating logistics costs and the need for supply agility,” said Tukker.
“It’s crazy that a piece of clothing, for example, costs more to produce locally than it does to produce and ship from a far-distant destination.”
Tukker notes that building up a base of reliable local suppliers that are able to supply goods at short notice will mean a concerted effort by retailers to build relationships based on trust with them.
“One thing is clear, supply chain agility is increasingly going to be a prerequisite for long-term success in the retail industry,” Tukker concludes.
“We need to stop focusing on single issues like logistics cost and build a composite picture of the total supply chain and its impact on profitability—and then build innovative strategies to meet consumer needs.”
DHL Claim Multi-Sector Collaboration Key to Fighting COVID
Since January, global logistics leader DHL has distributed more than 200 million doses of the COVID vaccine to 120+ countries around the globe. While the US and UK recently rolled out immunisation plans to most citizens, countries with less developed infrastructure still desperately need more doses. In the United Arab Emirates (UAE), which currently has one of the highest per-capita immunisation rates, the government set up storage facilities to cover domestic and international demand. But storage, as we’ve learned, is little help if you can’t transport the goods.
This is where logistics leaders such as DHL make their impact. The company built over 50 new partnerships, bilateral and multilateral, to collaborate with pharmaceutical and private sector firms. With more than 350 DHL centres pressed into service, the group operated 9,000+ flights to ship the vaccine where it needed to go.
With new pandemic knowledge, DHL just released its “Revisiting Pandemic Resilience” white paper, which examined the role of logistics and supply chain companies in handling COVID-19. As Thomas Ellman, Head of Clinical Trials Logistics at DHL, said: “The past one year has highlighted the importance of logistics and supply chain management to manage the pandemic, ensure business continuity and protect public health. It has also shown us that together we are stronger”.
Multisector partnerships, DHL said, enabled rapid, effective vaccine distribution. While international scientists developed a vaccine in record time—five times faster than any other vaccine in history—manufacturers ramped up production and logistics teams rolled out distribution three times faster than expected. When commercial routes faced backups, logistics operators worked with military officers to transport vaccines via helicopters and boats.
In the UAE, the public-private HOPE Consortium distributed billions of COVID-19 doses to its civilians as well as other countries in need by partnering with commercial organisations such as DHL. For the first time, apropo for an unprecedented pandemic, logistics companies made strong connections with public health and government.
“While the race against the virus continues, leveraging the power of such collaborations and data analytics will be key”, said Katja Busch, Chief Commercial Officer DHL and Head of DHL Customer Solutions & Innovation. “We need to remain prepared for high patient and vaccine volumes, maintain logistics infrastructure and capacity, while planning for seasonal fluctuations by providing a stable and well-equipped platform for the years to come”.
How Do We Sustain Immunisation?
By the end of 2021, experts estimate that we need approximately 10 billion doses of vaccines—many of which will be shipped to areas of the world, such as India, South Africa, and Brazil, that lack significant infrastructure. This is perhaps the greatest divide between countries that have rolled out successful immunisation programmes and those that have not. As Busch noted, “the UAE’s significant investments in creating robust air, sea, and land infrastructure facilitated logistics and vaccine distribution, helping us keep supply chains resilient”.
Neither is the novel coronavirus a one-time affair. If predictions hold, COVID will be similar to seasonal colds or the flu: here to stay. When fall comes around each year, governments will need to vaccinate the world as quickly as possible to ensure long-term immunisation against the virus. This time, logistics companies must be better prepared.
Yet global immunisation, year after year, is no small order. To keep reinfection rates low and slow the spread of COVID, governments will likely need 7-9 billion annual doses of the vaccine to meet that mark. And if DHL’s white paper is any judge of success, multi-sector supply chain partnerships will set the gold standard.