How changes in logistics and the supply chain will impact customer experience

Last updated: 10-25-2020

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How changes in logistics and the supply chain will impact customer experience

“One thing people don’t really talk about or understand is that logistics is a huge part of the customer experience, which is a huge part of today’s marketing. Everything in marketing today is so much more 1:1, so much more experiential, people want that Amazon-like feel no matter where they go.”

The words not of a marketer, but of a thought leader in the logistics and supply chain space, Erik Mumford, co-founder of REFASHIOND OS, the systems design, research, and strategy consulting arm of REFASHIOND Ventures, focused on supply chain innovation. In a wide-ranging conversation with Mumford, supplemented by written contributions from his co-founders Lisa Morales and Brian Laung Aoaeh, we sought to understand the global logistical changes acclerated by COVID-19 and what they mean for brands.

“There are obviously macro-trends which are in your face like reshoring, near-shoring, and reducing reliance on China,” said Mumford (“reshoring” being the practice of bringing a supply chain entirely home). “Our whole business has been around localization – what we mean by that is localized manufacturing, geographical demand-driven hubs of manufacturing, and this was something that we were trying to orchestrate and get traction around before COVID hit.” In the face of the pandemic, Mumford’s business pivoted to supporting things like the PPE supply chain, as well as “helping solve for some of the extra layers of fraud, risk and profiteering” which the pandemic stirred up.

As with changes in consumer habits, digital transformation, and so many other things relevant to brands today, COVID was not an instigator, but a massive accelerator of pre-existing trends. “Prior to COVID, it was much more around sustainability, about being green, more ethical sourcing, slave labor, transparency – those kinds of things,” said Mumford. “Now it’s not just those, but a more rapid shift than we had expected away from your traditional global models, and getting more into made-in-U.S.A., and near-shoring, and more resiliency in our supply chains.”

“In an environment with rapidly plummeting revenues, squeezing costs and inefficiencies out of the supply chain is no longer a luxury, it is very obviously a critical necessity,” said Aoaeh.

One thing COVID has highlighted is the global supply chain’s precarious reliance on remote and potentially hostile sources. China is seen by some as exemplary in this respect, but the solution — if one is needed — is unlikely to be simple.

“This is a complex issue,” said Aoaeh. “Yes, China has been a lynch-pin in the global manufacturing supply chain. Due to the trade wars between China and the U.S. many companies are rethinking their manufacturing operations in China, but it is not so easy to just uproot and relocate to a new locale, because there’s a lot of tangible and intangible infrastructure that accompanies the kinds of manufacturing capabilities that China has developed.” For the foreseeable future, then, China will remain an overwhelmingly significant part of global manufacturing, Aeoh explained, even though Vietnam, India, Mexico and other emerging markets are potential competitors.

Mumford points to some specific problems. The U.S. pharmaceutical supply chain is overwhelmingly rooted in Chinese manufacturing. Something like 90% of our antibiotics, vitamins and other core pharmaceutical products come from China, he explained. “That creates an incredible national-security issue, especially when we have a crisis like COVID.” He also cites China’s ability, because of its supply chain centrality, to compel countries with high food insecurity like Argentina to continue exporting food to China. “We’ll bring certain things home that make sense,” he said. He also expected brands to be considering alternatives to China which are somewhat more politically aligned with the U.S.A.: India, for example.

“It all won’t come home,” he agreed. “There will be an emergence of hybridized models of demand-driven, localized supply chains, and your traditional global model, that will operate in parallel to each other.” Changes in the traditional model have obvious downsides, like increasing poverty in communities reliant on supply chain participation. “On the flip side, there’s how many jobs we’re going to create here, and how much we’ll increase our national security and resilience’ and eliminate waste and pollution and impact on the planet.”

The traditional global supply chain has its historic roots in cheaper labor, a higher profit margin, and the need to satisfy “an insatiable consumer demand in America,” he said, as well as the perception that there was merit in being a multi-national corporation. “We’re going to see more of a normalization around demand and supply. I think there will be some harmonization of the local versus global model,” said Mumford, although “that greed component will still be in there.”

In a recent interview with MarTech Today, Adobe’s Taylor Schreiner noted the trend among retailers to extend the holiday shopping season, saying “It’s not just to acquire market share, but to manage timing and expectations of delivery when supply chains are so constrained.” Mumford underlined just how big a concern this might be.

“You need to have transparency, and a handle on everything from start to finish, not just on your digital touchpoints. People want to know where their product is, when it’s going to land, where it’s sourced from, all of these things – and these things are coming more to the forefront.” Big brands are taking unprecedented steps, said Mumford. “Companies like Walmart and Amazon are buying up extra cargo planes to accommodate an unknown demand curve that’s coming up this holiday season. They’re locking in these extra planes, taking them off the market, and we now see this scrambling to re-purpose passenger planes into cargo planes, because they’re under-utilized on the passenger side.”

As for alternatives to air freight, “We’re going to see at least a few months of real volatility and a push to ocean freight – we’re going to see cost volatility in ocean freight like we haven’t seen in decades.”

Another critical change which has accompanied the pandemic is a switch to demand-driven production; a demand chain rather than the traditional supply chain. Mumford was shopping for chinos recently. “Looking at a couple of sites, and for first the first time ever that I can remember, I’m seeing sites where you are pre-ordering clothing, like before it’s actually made. That is a direct result of COVID.” The same can be seen with food sites which give you a future date that your order will be sent: clearly the food is being made to order.

This is part of a rapid shift to smaller batch manufacturing and away from over-production: “Big brands like H&M, that over-produced last year something like $4.5 billion worth of stock,” said Mumford. “That’s a ton of waste. Demand planning for retailers has now been completely blown up, and we’re now going to see that reflected in logistics.”

Morales offered an example from the fashion space. “Gerber Technology has already deployed a demand chain micro-factory within 1200 sq feet in their NYC Hudson Yards office. This micro-factory allows a shopper to get measured, design their own garment, design their own textile/pattern, have it printed, dried, cut, and sewn within as little as an hour. The ability to only sell exactly what your consumer wants to buy with custom fit far outweighs the trade off of infinite optionality tied to deadstock in the billions of dollars.”

Could more sustainable and ethical supply chains emerge from this global upheaval? “Yes,” said Aoaeh, “But the public has to demand that companies pursue this as a core strategic priority, and the public also has to push politicians to institute laws that make this an imperative for companies.”

Morales agreed: “Globalization has led to supply chains consisting of billions of nodes with layers upon layers of opacity. The global PPE shortages have highlighted the imperative to not only know your suppliers, but have true, immutable ledgers validating their production standards, materials, lab testing, and lot certifications. The lack of transparency has led to billions, if not trillions of dollars being paid out for unusable or fraudulent products.” Localized supply chains are inherently more sustainable, she said.

Morales pointed to the fashion industry as an example of a heightened ethical awareness. “Innovation in fashion supply chains is helping to eliminate the global use of slave labor by creating more equitable, transparent local infrastructure in collaboration with local communities, rather than being exploitative. It is far easier to hide behind the opacity and layers of globalized systems, but becomes much harder to do so within arms’ reach.”

The pandemic is also prompting countries to bring supply chains home where possible, and this will likely have some positive effects. “Due to COVID-19, many countries are reshoring their critical supplies, like PPE, pharma, and even agricultural products,” said Morales. “Reshoring not only provides increased national security, local job creation, and economic stability; but innovation has created efficiencies that have never been possible before. Over the next five years, we will see emerging localization infrastructure scale, accelerated by the pandemic, enabling far more sustainable, circular, and transparent options than are possible via globalization.”

Brands need to embrace change, said Morales. “It’s always shocking to me how legacy companies preach innovation, but keep investing in pain avoidance or incremental change. The companies that understand innovation is a mandate, rather than a nice to-have, will still exist in 10 to 15 years. The innovators have doubled down on their acceleration due to COVID19. It’s time for paradigm shifts and now it is cheaper and faster to build them than to try to retrofit globalized systems.”

“We’ve seen the greatest wealth transfer from small business to the Amazons and Walmarts in such a short period of time that we have ever seen,” said Mumford. “COVID is gutting our small and medium-sized businesses, and it’s shifting that wealth to brands that were already in a good position from a balance-sheet perspective. Smaller retailers, up-and-coming brands, niche and boutique brands, are really suffering. The ones that are going to survive are the ones that were already ahead of the curve in terms of digital transformation — putting it into marketing terms.”

This story first appeared on MarTech Today.


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