Logistic challenges and the impact of a pandemic
Have you changed the way you purchase groceries, clothes and medicine because of the COVID-19 pandemic? If so, you’re not alone.
Earlier this year when the COVID-19 pandemic hit, global trade quickly faltered. Countries locked their borders and international shipping took a nosedive. At the same time, the efforts to battle COVID-19 through lockdowns and social distancing increased the need for fast online consumption and fast home delivery. In fact, since the pandemic began, more than one in three consumers have admitted to beginning with- or increasing their online grocery shopping.
All of this has caused significant challenges to existing logistics flows. For example, Swedish grocery home delivery app MatHem needed to hire 10–15 new employees every day to meet customer demand, increasing their capacity by 30 percent in a single month!
The rise of e-commerce and logistics
In the media industry, digital transformation has enabled consumers to have instant access to whatever content they want. A vast array of streaming services coupled with the rapid build out of high-speed connectivity infrastructure allow the media-hungry consumer to watch the latest Hollywood blockbuster and independent short films from the most remote corner of the world.
In just seconds, you can choose to keep track with the glamorous life of global celebrities, listen to a song from a platinum selling rock-star or even a bootleg recording from a little-known artist. In short, today’s consumers have grown used to this instant “anywhere, anytime” access. In a digital world, everything can be made available at the click of a button.
However, not all content is digital.
In the non-digital world, products still need to be shipped to their destination using trucks, trains, airplanes and ships. However, since the digital “instant-access society” has become so successful, consumers now also expect instant access for their physical deliveries.
This is most clear when it comes to online shopping, which grew from USD 1,336 billion to 3,530 billion, or more than 150 percent from 2014 to 2019 (eMarketer, March 2019). Not that many years ago, most consumers did not mind waiting several weeks if the goods were being shipped from across the world. Well, consumers do mind today.
Earlier this year, I had the great opportunity to co-author a report called “Pre-emptive logistics – the road ahead” alongside my colleague Rowan Högman at Ericsson Consumer & IndustryLab, where we got to dive into the exiting world of logistics.
In one of our interviews, we spoke to Divey Gulati, COO at Chicago-based digital logistics company ShipBob, and he summarized the rapid logistics evolution like this:
“Amazon changed consumer expectations: now everyone wants everything within two days, or the next day if they’re in the US. Amazon came in and changed the game for everyone.”
The success of Amazon in the US and Europe and Alibaba in China has truly redefined consumer expectations. With the emergence of services like Amazon Prime, consumers now expect same-day delivery. These expectations are also evident in the B2B sector; of the companies surveyed in our study, 88 percent say that their customers currently request same-day delivery. The solution enabling this evolution has been a combination of manufacturing where the production costs are optimal, just-in-time shipping, highly automated fulfillment centers and, to a growing extent, mobile connectivity.
Logistics during a pandemic
Then, of course, came the pandemic.
The role of fulfillment centers and warehouses is likely to continue to evolve. Yet while some storage is absorbed by other parts of the supply chain, one of the lessons learnt from the ongoing COVID-19 pandemic is likely to be that critical goods and materials, be it ventilators, alcohol sanitizer or face masks, will also need local storage in the future.
Fredrik Sjöholm, Professor, Department of Economics, Lund University told us that:
“[In the wake of the COVID-19 pandemic] we might see an increase in the use of intermediary warehousing. This crisis is showing the vulnerability with globalization and the whole concept of lean production. There are naturally limits to how much you could increase warehousing, so we might be talking about expanding it enough to last a couple of extra weeks.”
The future of logistics must therefore be more than simply a slimmed down, cost-minimized, “just-in-time” delivery of goods. In fact, eighty-six percent of the companies in the study plan to use on-demand warehousing in the next three to five years, which shows that the need for warehousing will continue – but they do not necessarily need to have it in-house. It is therefore likely that fulfillment centers and warehouses will continue to be a significant component in the future logistics system.
Our logistics systems will need to be capable of handling huge global shifts both in consumption habits and delivery capabilities. Such a system could even enable cross-competitor information- sharing and collaboration, where the burden of extra warehousing can be shared, rather than duplicated, between many actors in order to achieve higher resilience through “virtual” extra storage. Perhaps this could even become a key driver for creating the transparent ecosystem that enables information sharing that 68 percent of the companies in the study want to be part of.
Read the report: Pre-emptive logistics, the road ahead.
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