Retail Supply Chain Trends Driven by COVID-19

It’s become evident that things won’t go back to the way they were before the pandemic. This shift isn’t a negative thing, either, as retail supply chains are becoming more resilient in the face of this pressure. The extremes of COVID-19 have highlighted areas where supply chain resilience has fallen short.

The pandemic has provided supply chains with a unique learning experience. Seeing where yesterday’s techniques have failed reveals retail supply chain’s best practices for tomorrow. Here are a few examples of supply chain trends coming about in response to COVID-19.

Increased Automation

Many supply chains were already moving towards automation before the onset of COVID-19. In 2019, before anyone was concerned about a global pandemic, 55% of logistics companies invested in warehouse automation. When COVID struck and limited companies’ human workforces and budgets, this trend accelerated.

The first few months of the pandemic showcased more digital transformation than the past five years, according to some estimates. Automation played a substantial role in this trend, filling in where human workers couldn’t. Global supply chains are now years ahead of previous automation adoption rates, and this won’t likely slow.

The benefits of automation have always been clear, but the pandemic emphasized them. Even as warehouses can go back to supporting their full workforce, this trend will likely continue. Supply chains have learned first-hand how automation can support them through a crisis, so further adoption will prevent future disruptions.

Stepping Away From Lean Warehousing

While automation started before the pandemic, some notions of supply chain resiliency are shifting more suddenly. Before COVID-19, many retail supply chains adopted lean warehousing techniques to eliminate waste and drive efficiency. As the pandemic disrupted global logistics chains, though, lean warehousing’s flaws began to show.

COVID-19 has highlighted how supply chain resiliency relies on flexibility, but lean operations aren’t flexible. With minimal stock on hand, companies faced lengthy delays and shortages as the virus slowed their distributors and sources. Post-COVID retail supply chains will move away from the lean trend to improve future flexibility.

While just-in-time warehousing produces considerable savings, it doesn’t stand up under pressure. Retail supply chains likely won’t abandon this approach entirely but will look to balance efficiency and resiliency instead.

Distributed Sourcing

One of the most significant factors behind supply chains’ lack of flexibility was an overreliance on consolidation. As the virus affected different areas disproportionately, supply chains with single sources found themselves facing greater disruptions. In contrast, companies with flexible, distributed sourcing could adjust to these changes.

More than 12,000 warehouses and other facilities owned by the world’s largest companies are in heavily quarantined areas. As a result, businesses that relied solely on these sources faced considerable disruptions, even by COVID-19 standards. If these companies had more options, they could’ve adapted to quarantine restrictions and maintained pre-COVID throughput.

Retail supply chain best practices after the pandemic include distributed, geographically diverse sourcing. Consolidation brings savings in the short term but isn’t resilient. While source distribution can be more costly, the benefits from added resilience are difficult to ignore.

Reshoring

Retail supply chains’ reliance on Chinese facilities led to considerable disruptions. Offshoring to nations like China had been a dominant trend for years, but COVID may change that. As the shortcomings of international supply chains become more evident, more companies may move towards reshoring.

Since the outbreak began in China, Chinese facilities faced mass disruptions before the rest of the world. Now, 59% of companies with Chinese operations have either withdrawn from the nation or are considering doing so. Reshoring will see a revival in the coming years in hopes that it improves supply chain resiliency.

Reshoring and nearshoring won’t eliminate disruptions from something like a pandemic, but it does minimize them. Communication and responses can be faster when there’s less distance between facilities. COVID-related job losses may also encourage reshoring as a means to bring jobs back to Western economies.

Supply Chain Visibility Through Real-Time Technologies

Before the pandemic, some supply chains may have been cautious about implementing IoT (Internet of Things) technologies. IoT adoption in logistics has remained low due to perceived costs and uncertainty about the technology’s benefits. Now, after supply chains across the board have faced substantial disruptions, the advantages of real-time visibility are painfully evident.

IoT tracking technologies can give logistics companies a more conclusive picture of any disruptions they face. Businesses could see not just product location, but also condition, temperature and other vital factors. They could then adjust the routes of each shipment more effectively.

This visibility would also enable supply chains to provide more accurate estimates to customers. Studies have shown that customers are willing to wait longer if they know the status of their orders early. With real-time tracking technology, businesses can provide more information to their customers and mitigate the damage done by disruptions.

Repurposing Resources

Many of these trends were inevitable, but COVID-19 accelerated them. Still, the pressures of the pandemic have led to some more inventive solutions. Retail supply chain facilities have started repurposing some resources to meet new demand.

Companies like L’Oreal and LVMH have started making hand sanitizer in their facilities that had previously made fragrances. As demand for perfume plummeted, the rising need for hand sanitizer provided a way forward. By embracing this change and repurposing their facilities, these companies made the most of shifting supply chain trends.

These businesses won’t likely maintain this production shift permanently, but it does serve as a lesson in flexibility. If companies have the capacity to repurpose their resources quickly, it can ensure their resilience. As a result, some businesses may move away from application-specific technology in favor of more versatile tools.

Post-COVID Retail Supply Chains Won’t Be the Same as Before

In the first few months of the pandemic, many conversations focused on how businesses could go back to normal. It’s now become clear that enterprises shouldn’t return to the way things were. Instead, they must move forward. COVID has demonstrated that many tried-and-true techniques are insufficient in the face of great pressure.

Post-COVID retail supply chains will be more flexible and resilient structures than they were before. As companies embrace these trends, they won’t likely turn from them when the pandemic ends. Supply chains are forever changed, and that’s mostly a good thing.