COVID-19 has been one of the biggest disruptions that the supply chains of consumer products companies and retailers (CPR companies) have ever faced. CPR companies must consider the fact that although the pandemic was, in theory, a one-off shock, this sort of volatility may reoccur. And while many of the changes we have seen in consumer demand are a result of the pandemic, the resilience to cope with volatility will become a key differentiator how organizations manage through post COVID supply chain disruptions.
This is the conclusion of a new report of the CapGemini Research Institute; The wake-up call: Building supply chain resilience in consumer products and retail for a post-COVID world. To understand the challenges that CPR companies face, and how they are responding to it, CapGemini launched a survey of more than 400 executives across eleven countries. This post describes some key results from the survey and how CPR companies should respond to the key challenges identified.
The challenges that CPR companies face as a result from the COVID-19 pandemic
Fluctuating demand and changes in consumer behavior–coupled with transport and logistics restrictions–challenged supply chains on many levels:
- 63% of consumer products companies and 71% of retailers say it took at least three months for their supply chain to recover from the disruptions.
- 77% of consumer products companies and 70% of retailers had difficulties in end-to-end monitoring of the supply chain.
- 75% percent of consumer products companies and 71% of retailers faced difficulties in scaling production capacity either up or down.
- 66% percent of consumer products companies and 69% of retailers had difficulties in demand planning due to lack of data on fluctuating demand.
Lockdowns and other guidelines in multiple countries created anxiety and uncertainty among consumers. This anxiety, coupled with a shift to working from home, led to panic-buying and inevitable stockouts. At the same time, consumer preferences shifted extremely quickly. This shift, along with panic buying, is creating fluctuating demand patterns globally, leaving supply chains vulnerable:
- 70% of consumer products companies and 65% of retailers lost sales due to frequent stockouts
- 69% of retailers and 66% of consumer products companies had difficulties in demand planning because accurate and up-to-date information on fluctuating customer demand was lacking
- 46% of consumers had frequent online interactions with CPR companies, due to stay-at-home orders coupled with the closure of non-essential retail stores
Over two-thirds say that COVID-19 has forced them to modify their business models to adapt to the new normal (66% for retailers; 70% for consumer products). 66% say they believe their supply chain strategy will need to change significantly in the next three years to adapt to the post-COVID new normal.
But how are CPR companies rethinking their supply chains to overcome these disruptions?
CPR companiess are actively investing in regionalizing and localizing their supplier and manufacturing bases:
- 72% of consumer products companies say they are actively investing in regionalizing or localizing their manufacturing base or nearshoring production
- 65% are investing in regionalizing and localizing their supplier base.
- Overall, CPR companies plan to reduce the share of pure global suppliers and manufacturers to around a quarter of their portfolio
CPR Organizations are accelerating their supply chain digitization investments. Key areas of focus include automation, robotics, AI-ML, and cybersecurity:
- 58% of retailers and 61% of consumer products companies say they will increase investments in digitization
- 49% of retailers saying they will accelerate investments in automation
- Multiple retail companies are already investing in automation for warehouse management and inventory management.
Three priorities to build more resilience in the supply chain.
Based on input from the survey and best practices in the field, CPR companies should prepare for post COVID supply chain disruptions according to following three priorities:
Priority 1. Realign supply chain strategy to adapt to pandemic challenges:
Diversification of supplier base, production footprint, and transportation partners are key during this pandemic to reduce supply chain risk. Use of technology will be critical understand the supplier risk and to optimize the local supply chain to reduce redundancies.
Visibility across the entire supply network for real time forecasting through availability of data of stock levels at tier 1 suppliers, manufacturers, warehouses. This becomes extra critical, because CPR companies are actively investing in regionalizing and localizing their supplier and manufacturing bases.
The use of control tower, a central hub with the required technology, organization, and processes to capture and use data for short-term and long-term decision making. It offers real-time visibility of the end-to-end supply chain network to improve stock rebalancing, supplier collaboration, and to provide the latest consumer trends and provides alerts when rapid decision making is needed.
Demand sensing instead of traditional demand planning, demand sensing uses recent intelligence from social listening – as well as consumption, engagement, and conversion data – to transform demand forecasting. This, in turn, streamlines the supply chain forecast.
Agility: An agile supply chain model across the organization ensures changes can quickly be implemented, which enables them to recover from disruptions quickly. This includes areas of product design, manufacturing. logistics and sourcing processes, choice of materials, packaging, etc.
Contingency planning is critical during disruptions. Forecasting becomes difficult for CPR companies when there is a sudden shift of consumers from offline to online channels. A unified and accurate view of both online and offline demand is required for efficient resource and inventory planning
Priority 2. Industrialize automation across the entire supply chain:
Accelerate steps to warehouse automation: With the massive increase in online orders coupled with warehouse and sorting representing one- third of supply chain costs, there is a significant opportunity to reduce costs through automation. Research shows that warehouse automation can potentially increase profit margins by 8% through higher throughput and lower fulfillment costs, depending on the type of automation used.
Redesign store layout to enable automation for fulfillment: Stores are becoming key nodes for online deliveries. Store automation is essential to meet the huge rise in online orders and fulfill home delivery and click-and-collect orders. The store layout may be redesigned, both for customer experience, and also for order fulfillment, pickups, and returns.
Delivery automation to meet consumer needs for safety and hygiene: Delivery by autonomous vehicles has attracted growing attention during the pandemic as customers look for solutions that protect them from the risk of transmission, such as contactless delivery. It will be important for organizations to assess customer comfort with different autonomous delivery mechanisms such as drones, robots, or autonomous cars.
Priority 3. Overhaul last-mile delivery to ride through disruptions:
Optimize store network for last-mile delivery: Retailers should analyze their physical store network to understand if they have to close existing stores or repurpose them for fulfillment only. Given the spurt on e-commerce, retailers may consider repurposing stores as dark stores, or stores that are used as fulfillment centers to process online orders and returns rather than as a place for customers to shop. Similarly, retailers can also examine repurposing stores for click-and-collect orders only
Create flexible workforce policies and collaborative models for fulfillment: meeting changes in what people want and how they buy also raises questions for the workforce model and the skills and attributes that employees require. Retailers faced challenges in scaling the workforce up and down. Companies have responded with more fluid workforce models, for instance the hire of temporary workers. The gig economy, which allows organizations to hire freelancers instead of full-time employees for short time periods, will also be helpful to overcome labor shortage faced by retailers.
Augment direct to customer delivery models: Direct-to-customer deliveries will be important for consumer products companies as customers feel it provides a better experience, and will therefore take a new organizational emphasis going forward. Augmenting delivery to customers will provide critical consumer insights, which will be useful across the supply chain for consumer products companies.
