The Logistics Industry in 2021: Using Strategy to Combat Uncertainty and Volatility

2021 promises to be a year of strategic transformation for supply chains. It will mark the beginning of next generation supply chains.

Next generation supply chains will be ready for anything. They will be built to withstand uncertainty and volatility without blinking.

The new precepts of supply chain management will be adaptability, responsiveness, and resilience. To paraphrase innovation strategist Max McKeon, supply chains will go from adapting to coping… to adapting to winning.

Achieving adaptability, responsiveness, and resilience will demand a shift in thinking and planning. To deal with uncertainty and chaos, you must consider the big picture. You must take a strategic view yet be mindful of near-term risks.

Here are six ways in which a strategic focus will transform supply chains in 2021.

 

#1: The Value of Built-in Adaptability. Built-in adaptability  refers to

performing an end-to-end analysis of your supply chain. Doing an end-to-end analysis will

help identify opportunities to build-in adaptability and resilience.

Adaptability takes into account measures to “future-proof” your supply chain against major disruptions. Here are some of the means of building-in adaptability.

  • Accommodation of social distancing when necessary.
  • Ensuring a reliable supporting infrastructure. Examples includes back-up power sources and secure networks via cyber security.
  • Flexible fulfillment channels. This means prioritizing distribution of goods by criticality of need vs. cost. Delivering products directly to consumer instead of retail stores. Or it may entail shipping to retail stores for customer-pick-up.
  • Affordability of proposed solutions. Any solution you devise must be cost-effective.
  • Supply Chain Partnerships. Ensure you have strong partnerships in place beyond your Tier-1 suppliers. Opening lines of communication to lower tier partners helps improve reliability of support. It can make the difference in getting support – when it’s needed.

The value of building-in adaptability lies in deliberate planning for uncertainty and volatility. Doing so will transform reactive supply chains to responsive supply chains. When that happens, they’ll outperform by providing seamless supply support.

Supply chains that can instantly respond to disruptions will gain competitive advantage.

 

#2: Value of Focus on Customer vs. Cost.  Pre-pandemic supply chain planning prioritized cost over the customer. That approach in supply chain thinking is flipping.

Recall, businesses first looked to logistics planning to reduce cost. Transportation costs, for example, make up about 50% of all logistics costs. Controlling these costs would go a long way towards cutting costs that go into creating goods and services.

But that began to shift during the pandemic. As supply chains struggled to meet the most basic needs, businesses began to put customers first. For many businesses, cost became a secondary concern.

You may know this shift was already underway before the pandemic. Now it’s accelerating as the massive disruptions forced businesses to focus on meeting customers’ demands.

Prioritizing customers will carry forward into the future, according to a report by McKinsey. In fact, McKinsey’s report states  prioritizing customers can “create long-term customer advantage”.

Foregoing short-term gains for long-term advantage represents a strategic approach to supply chain planning. Seeking long-term partnerships is another strategic approach you’ll see in 2021.

 

#3:  The Value of Strategic Partnerships.  Problem solving has been and will continue to be a staple of logistics. And solving problems on your own is inferior to solving them in groups or teams.

With the impetus of Covid-19, supply chain management will extend beyond corporate boundaries.

Strategic partnerships between shippers and 3PLs, for example, will allow for better problem solving.

It begins with better problem identification. Working closely in partnership will generate deeper, more informed insights. That will lead to quicker, more innovative and customized solutions.

The best strategic partnerships will rest on mutual benefit. That entails equitable profit-sharing and balanced risk sharing. It requires working closely with one another. When you do that you will better understand each stakeholder’s needs and challenges.

Tomorrow’s operating environment requires agile thinking, quick decision making and fast-acting responses. This, too, like the other measures outlined above, is a strategic undertaking.

To understand a customer’s needs and challenges, successful partnerships will practice open communication.  On top of that, they will also practice close collaboration. That will set companies with successful partnerships apart from companies that go it alone.

 

#4: Value of supply chain diversification. Over the past twenty years, many manufacturers moved their operations overseas. China was the primary beneficiary due to China’s cheap labor costs. The folly of concentrating sourcing in China soon became evident.

As Covid-19 came on the scene in Wuhan, China, we watched a disaster in the making. It was a fluke that Wuhan was a major manufacturing center and logistics hub. That only magnified the disruption of global supply chains.

So, as Wuhan shut down to contain the corona virus, supply chains froze. The movement of supplies and products ground to a halt.

Almost overnight, businesses in the rest of the world lived on their inventories. And without a steady and reliable flow of goods, businesses couldn’t keep up with customer demand.

Thus, diversification, –  already underway due to the trade war with China – accelerated. That trend will continue in the U.S. with reshoring of manufacturing to the U.S.

Also, many businesses are near-shoring their operations. They’re moving their operations closer to the U.S. These moves will help lean out and diversify supply chains in the future.

Hindsight is instructive. It tells us diversification of sourcing  could have mitigated those disruptions.

Diversification also provides other benefits. For example, diversification can offer shorter lead times and reduced shipping costs. And as sourcing moves closer to consumers, may also simplify supply chain issue resolution. The value of supply chain diversification is clear.

Business that diversify their supply chains will gain competitive advantage. They’ll achieve that as they become more adaptive and more resilient.

In the future, adaptive and resilient supply chains must also be durable for the long-term. They must be sustainable.

 

#5:  The Value of Sustainable Supply Chains.  Sustainability was a growing interest among supply chain leaders and customers alike. Now it’s becoming a strategic asset that will translate into a competitive edge.

Let’s start with a definition : Sustainability is”… a widely accepted “development that meets the needs of the present without compromising the ability of future generations to meet their own needs” (World Commission on Environment and Development, 1987)

This implies long-term thinking and planning about business processes and supply chain networks. Future supply chains that incorporate affordable sustainability are positioned dominate. That’s because they’ll be ready for the present as well as the long-term.

Sustainability ensures durability and flexibility. It entails prudent and realistic solutions that can withstand unexpected stresses. This helps reduce risks while providing reliable delivery of supplies and services. In short, you’ll get what you need… when you need it.

 

#6:  The Value of Continuity of Operations Plans (COOP).  Until now, businesses viewed COOP planning as “nice-to-have”.  Now, it’s a “must-have”. And as with the other measures described above, COOP is a strategic activity.

Before the pandemic, COOP existed in various forms of maturity by company. Some were effective, but most were not. Next generation supply chains will have viable COOP in place. These are strategic plans that modern-day businesses must have to remain competitive.

The pandemic gave “Murphy’s Law” (“…if anything can go wrong it will.”) deeper meaning. COOP plans codify all the above measures into a comprehensive and cohesive document. Successful companies won’t treat this as shelf ware.

Instead, they will integrate COOP into their operations. They will do so by testing backup plans as a matter of course and make changes so all systems work as designed.

Uncertainty will not go away, and neither will volatility. Thus, your firm must have well-developed COOP plans to ensure seamless operations in good times and bad. That will separate your firm from the competition.

Strategically-minded supply chains will outperform those that ignore COOP.

 

What to Expect in 2021

The new year promises to be a better year than 2020. It’s unlikely disruptions in 2021 will exceed those experienced during the pandemic.

Nonetheless, the uncertainty and volatility that dominated 2020 calls for an antidote. That antidote comes in the form of strategic planning.

As a result, we should see less uncertainty and volatility. With strategically-designed supply chains, we should see disruptive effects smooth out.

As supply chains become more adaptive and responsive during crises and more resilient post crises, uncertainty and volatility should subside.

Several things will distinguish successful supply chains from those that fall short. Those that leverage lessons learned from the pandemic will surpass their competition. In today’s competitive environment, choosing to stand still is the same as falling behind.

Next generation supply chains will emphasize strategic planning. They will forego dependence on short-term thinking for quick wins. Instead they will make customers the center of their strategic plans – not profitability. That structural change in planning that will win out in the long-term.

That means you should focus on your customers ahead of profits as you develop your supply chain. Well-thought out business processes and integrated technologies will reinforce formerly unprepared supply chains.

Expect to see strategically designed supply chains gain competitive advantage in 2021.

American Global Logistics is uniquely prepared to help you adapt what 2021 throws at you. Customer service is our watchword. And as a customer-centric 3PL, we value close collaboration. Close collaboration helps us gain deeper, more informed insights.

Contact us today if you’d like to partner with a 3PL that can help you “go from adapting to coping to adapting to winning in 2021”.