The Three Factors to Consider in Building the New Supply Chain Economy
The global COVID-19 pandemic is affecting all of our families, our businesses, and our communities. Over the four decades of my career I have never witnessed what we are seeing now. Today, as I type this, approximately 95% of all Americans are under orders from their state and local governments to remain at home, and practice “social distancing”. Our robust retail economy – at least for many discretionary goods – has come to a screeching halt. The restaurant and hospitality industries have all but shut down. Life as we know it has changed. Perhaps forever.
As a nation and a global society, we will all get through this. My belief in the ability of science and medicine to prevail is unshakable. We will endure a very difficult several months, but ultimately healthcare scientists will solve this problem for all humankind. Tests will continue to evolve, therapies will be developed, and – hopefully by next year – science will introduce a vaccine so this scourge may be eradicated from our society. But the effects of this era of unprecedented upheaval will remain. Behavior patterns will shift. Social interactions will change. And enabling technologies on which our pandemic society has begun to depend will thrive.
I have lived through a wartime economy. I have lived through a recession. This is unprecedented. The world as we’ve known it this century has been permanently altered. The impact of COVID-19 continues to flip the script on all facets of everyday life and the actions we need to take to succeed. Eventually, we will all return to work, but the workplace – and even the work itself – will be forever changed.
As business leaders, we must manage through these unprecedented and uncertain times. The logistics industry is undergoing profound change. There are three major impacts COVID-19 will have on our industry over just the next year:
1. Explosive growth in e-commerce
We’re already seeing explosive growth in most e-commerce segments. As recently as January, despite growing 10% year-over-year, e-commerce represented just 13% of all consumer shopping. An ecosystem driven by an 87% main-street retail shopping mix is moving more swiftly than ever to favor e-commerce. Just weeks into a rolling nationwide quarantine, we have seen consumers rely on online shopping as traditional stores have become unavailable. While traditional retail will return, this sudden, universal shift to e-commerce will not easily revert to brick and mortar.
At Locus we have seen tremendous jumps in volume for our digital native brand customers, and for our healthcare, medical devices, and pharmacy accounts. One customer, a major pharmacy retailer, has seen daily e-commerce volumes that rival those of Cyber Week. To support them, we have been shipping these accounts additional robots to help them meet their increased volume, just as we did during the holiday season peak. One customer is already planning an expansion of their warehouse automation and pick area in anticipation of a sustained shift to e-commerce, even after we emerge from our pandemic shelters. Another customer – a global athletic apparel company – is also shifting their priorities to be ready for a new mix of shopping, favoring e-commerce over retail.
An interesting side-effect of the retail / e-commerce disruption in warehouse managing will be greater emphasis on omnichannel. Even when brick-and-mortar stores reopen, we will see a greater reliance on just-in-time store restocking, as operators strive to draw from a single pool of inventory in order to streamline costs.
I anticipate we will also see some major brands rely more on direct-to-consumer sales rather than on traditional retailers. This will give these brands greater control over their own supply chain and inventory, and will improve their profit margins.
2. Labor availability has now shifted from a gap to a crisis.
Although unemployment worldwide has increased, the demand for labor – particularly during the 2020 peak season – will skyrocket. With e-commerce growth spiking well beyond its previously anticipated pace, we are already seeing signs of a dramatic surge in supply chain hiring playing out in the headlines of major business and industry publications. With the timing of quarantine uncertain, and with the labor pool unsure about venturing out, this issue is magnified even further. Moreover, we have already begun to see wage rates increase, both to entice workers nervous about the virus, as well as in keeping with increased demand.
3. Rules of competition are shifting
The rules of competition will shift as we move into a recessionary period in the global economy. 3PLs, retailers, industrial and medical goods providers, and others will need to control distribution costs more than ever to offer the best pricing to end-users. Supply chain leaders will demand greater flexibility to deal with a highly fluid set of new market dynamics. More than ever, operators must meet the aggressive service levels set by Amazon. Enabled by their high level of automation, Amazon will move aggressively to take greater market share during this period. Logistics operators must differentiate. Driving new revenue is hinged directly to competitive differentiation. These factors are critically important in the new supply chain economy.
Logistics executives must act NOW.
Logistics executives and operators need to use this period of quarantine to restructure their strategy, so they may catapult their businesses forward when life returns to “normal.”
Those who will succeed are not waiting for the pandemic to lift; they are planning now, so they may be ready when the market is ready. It won’t be the same market. Life post-pandemic will be very different. But in that difference lies an opportunity for those with the vision to seize it.
At Locus, we are working with our customers to mitigate the potential impact of COVID-19 on their businesses, while also ensuring the safety of our employees and our business partners. Even as we prioritize the health and safety of our workers and our communities, we are collaborating with our customers and partners to prepare for a post-pandemic world. That world will be different, but it will eventually arrive. The time to think about it is now.
Be safe. Take care. And #StayHome.
CEO | Locus Robotics