Health crisis: the 4 challenges facing the supply chain

The health crisis is challenging the supply chain in particular. Reduced visibility, the need for flexibility and international disruptions… The challenges for logistics professionals for this new year are numerous and they will have to be particularly careful to meet them. Here are our ideas for making 2021 the year of rebound that it should be.

1/ A lack of visibility that needs to be filled in

Since the beginning of the health crisis, the entire supply chain has been facing a lack of visibility. Many activities have been slowed down, or even stopped, directly or indirectly impacting all actors: from the manufacturer to the customer, including distributors. Companies also have to deal with a regulatory environment that is both unclear and changing. The result? It is almost impossible to plan medium to long term actions, especially for international trade. This situation is made even more complex by the fact that measures fluctuate over time and from country to country. At present, it is therefore difficult to predict which suppliers or customers will be able to continue their business and, consequently, to prepare for this.

The first challenge for the players in logistics management is therefore to gain visibility on their activity, and not only in the short term. To do this, several avenues are possible:

• Strengthen communication, transparency and collaborative work with the various players in the supply chain;
• Working in synergy with companies in the sector in order to have more weight in dealings with the public authorities and in the regulatory decisions adopted;
• Acquire new tools to better anticipate risk situations (reporting, automated alerts, predictive software, etc.).

2/ A need for elasticity and greater flexibility

The current crisis has highlighted one of the main problems of the supply chain: the lack of flexibility and adaptability. For companies unable to quickly adapt their activity to the reality of the situation, the consequences have been heavy and varied: rupture or increase in stock, shortage of raw materials, volume of workforce unsuited to the volume of activity, difficulty in fulfilling orders, lengthening of delivery times, etc. These logistical difficulties have also had an impact on the financial health of companies. Many of them had to face a decrease in their cash flow, order cancellations, but also an increase in storage and transport costs.

Given these constraints, companies have a duty to improve the flexibility of their supply chain. Even though this is a big challenge, it can be taken step by step.

• Adapting the activity: reducing the number of suppliers ( or even single sourcing), workforce reduction, limiting empty transport, local sourcing, creating new services (click and collect, express delivery, etc.)… all of these are possible options for the business to better respond to current constraints and challenges;
• Develop logistics practices: the supply chain also needs to become more flexible, and several paths can be explored to achieve this. Just-in-time work to limit the need for working capital, cross-docking to reduce stock, cycle counting to facilitate inventories and optimizing stock management:
  • digitalization of the counting ;
  • stock in real-time ;
  • data centralization ;
  • collaborative systems, such as VMI (Vendor Managed Inventory);

As Isabelle Badoc, Product Marketing Manager for Generix Group’s Supply Chain Execution solutions, points out, some companies have chosen to “set up an order preparation organization that is adapted to more refined flows (more orders with fewer items per line) driven by transport plans”;

• Accelerate decisions taking: as the situation evolves rapidly, supply chain actors must also be able to react much faster than in the past. The challenge? Adapting all aspects of the business to the immediate reality, whether in terms of cash flow, workforce or investment for example.

3/ A delay in digitization to catch up with

The health crisis has considerably accelerated the digitalization of practices. With the closing of physical points of sale, the restriction of travel and the fear of interactions, many end customers are now moving towards e-commerce. The same is true for B2B buyers, who had already started to adopt a digital purchasing behavior a few years ago. The need for digitalization is increasing. The necessity of digitalization is even more important as several digital B2B distribution platforms are developing exponentially, such as Amazon Business and Alibaba, thus unbalancing the balance of power with “traditional” distributors.

+ 15 % This is the annual growth of B2B e-commerce in France over the last 3 years 1.

Facing these new behaviors, supply chain actors have no other choice but to digitalize at full speed. To achieve this, several projects must be prioritized.

• Develop digital opportunities: in addition to the creation of digital media to meet the expectations of B2B and B2C customers (e-commerce platform, mobile application, etc.), it is also necessary to offer new services, which have become essential at a time of health crisis (click and collect, knowledge of product availability in real time, live tracking of delivery, etc.);
• Ensure real-time management: these different services can only be considered if the company is able to manage its stocks and its activity in real time. This requires the centralization of all information (goods in, goods out, orders, deliveries, etc.) within a dedicated software, directly interfaced with the business software, such as a WMS (Warehouse Management System) or a TMS (Transport Management System).
• Strengthen customer support: adopting digital methods also requires rethinking customer relations. It is indeed necessary to transform the departments in charge of customer relations (sales, after-sales service, etc.) in order to adapt their operations to the current situation, while responding to the uncertainties created by the health crisis. More than ever, the need for training and support must be taken into account.

4/ A relocation requirement in Europe

The health crisis has finally shown the limits of ultra-globalization. Indeed, the current restrictions have considerably complexified international trade flows, whether in terms of regulations, supply or transport. It must be pointed out that the health risk is even greater with long-distance trade, which involves more players throughout the distribution chain. This situation is far from trivial, since the logistical risks are greater than ever: product scarcity, inability to renegotiate contracts, dependence on suppliers, border closures, etc. The cost of transport for flows that have shifted to e-commerce has also increased. As Isabelle Badoc reminds us, “shipments are generally made through couriers or express carriers. The cost per item is therefore higher than in the case of a full truck charter.“

To overcome these various restrictions, the relocation of the supply chain, in France or at least in Europe, is therefore necessary. Although the task is huge, various levers can be activated to move towards this goal:

• Identify positions that can be relocated to France or Europe (suppliers, after-sales service, etc.);
• Rely on sectorial synergies to limit the financial impact of relocation;
• Seek government support to assist in the relocation of the distribution chain.

1 Key figures for e-commerce 2020 – “Fédération e-commerce et vente à distance – 2020”