The New Normal of Delivery: What we are experiencing and how we can better prepare for tomorrow
The COVID-19 pandemic has thrown the world's population under restrictions. Companies everywhere are implementing measures to safeguard their employees while ensuring business continuity. Still, they must also deal with rapidly shifting consumer behavior.
More than ever, people are online and engaging in one form of digital transaction or the other. From virtual conferences to online shopping, telemedicine, and digital entertainment, there are many things people are doing differently. The pandemic has created great ripples across all sectors, and the supply chain is right in the middle.
When countries placed restrictions in February, many thought the world would be ordinary soon. Fast-forward to the last quarter of the year, the pandemic is still a raging reality. Product shortages, delayed deliveries, production shutdowns, contingency planning, and rerouting through alternative distribution channels are everyday activities across global supply chains.
If fulfillment and delivery were as easy as the tap of a button or a little swipe to the right, then there would be no problems at all. The pandemic has unraveled many organizations' vulnerabilities, especially those that depend on their off-shore vendors for raw materials and finished products. These businesses rely on the perks of supply chain optimization and face the worst of it all.
Supply chain optimization has, for decades, focused on inventories, cost reduction, and asset utilization, without understanding its vulnerabilities. Such supply chain relationships are incredibly vulnerable to global catastrophes, be it a world war or a pandemic.
Still, we do not know what the future of retail will look like in the months or years after the pandemic. But what is already known is that retail will never be the same again as before. Already the transition from traditional retail methods to eCommerce has been going on for several years. It is now more evident that conventional retail methods are gone forever, as the visions of 2030 have become 2020's reality.
However, the leap from physical to eCommerce and online-grocery is not just about creating an online store, but equally creating a smart strategy towards delivery and fulfillment. For any retailing company to thrive, it must get these areas right or risk losing its bottom line. The pandemic has also increased competition as consumers now require their orders delivered almost instantly. Curbside pickups and home deliveries are more comfortable to implement when a business is small and entirely local. For larger retailers, it is the increased volume of orders also means greater mixtures of small, medium, and large orders ranging from a few items to over 100, thereby increasing costs and complexities.
Fortunately, the pandemic equally opens up new opportunities. Innovative supply chain technologies and practices are emerging. They can dramatically strengthen and augment visibility across end-to-end supply chains. At the forefront is the need to embrace micro-fulfillment.
Statistics have shown that online fulfillment is not profitable for retailers because, on average, they have a 4 percent negative margin for each extra dollar of online sales. Although the e-commerce website gives a semblance of digitization, actual fulfillment is a manual process. When customers order online, the process of listing, searching, itemizing, packaging, and delivering is long and arduous. Yet online orders can happen anytime, which means this manual process only stops when the facility closes.
Microfulfillment presents a unique opportunity to efficiently handle the fulfillment process from online orders to last-mile deliveries. It is not just about implementing technologies but transforming the entire fulfillment approach. It is a strategy that reduces the distance between ordered products and the customer while ensuring last-mile deliveries are cheaper and quicker. However, installing Microfulfillment solutions is not a walk in the park. There is still a need for every brand to critically assess its existing systems, technologies, and processes to develop the right micro-fulfillment strategy. Retailers must evaluate, for instance, whether they can expand their operations to different regions where they currently don't operate. In the end, retail companies must find the right balance between localized, in-store pickups and efficient large automated warehouses to reap the benefits of Microfulfillment.
Nevertheless, while businesses focus on adapting to newer supply chain technologies and practices, they must return to the drawing table. Creating a recovery strategy is essential. However, firms must also take a hard look at their supply chain risk and reliability.
It is important to realize that the COVID-19 pandemic is not an isolated event. Earthquakes, tsunamis, geopolitical events, and public health crises have happened in the past, and so are inevitable. The U.S.-China trade war and Brexit are fine examples. Therefore, to resist or adapt to any global issues that come in the future, companies must rethink and invest in a more resilient supply chain. According to Bain's analysis, when companies rapidly adjust to meet the market demand, they increase the perfect order rate by 20 to 40%, and customer satisfaction by over 30%.
Most importantly, this analysis pointed out that flexibility also helped these companies improve cash flows and lower costs due to increased inventory turns. Experts have often said that the ability to meet a changing market adequately is a significant competitive advantage, and some brands have already confirmed this theory. For instance, Proctor & Gamble's rapid response when Hurricane Sandy disrupted production at a factory in charge of over 90 percent of their production in New Jersey in 2012 is a fine example. By deploying a cloud-based platform and advanced analytics, the company quickly made decisions that reduced downtime to just 2 1/2 days. Through the lessons from that experience, P & G also prepared for Hurricane Irma's disruptions in Florida in 2017. Fast forward to the present, companies like Giorgio Armani, Prada, LVMH, Burberry, and Gucci were among the first brands to quickly transform the hurdles of the pandemic into business opportunities. Prada, for example, began making medical overalls. At the same time, Burberry transformed a trench coat plant into a production facility for face masks and nonsurgical gowns.
Therefore, while we may not fully understand the future, it is crucial to prepare for whatever comes next. Global economies are highly vulnerable, and the COVID-19 is not the last disruption as they are increasing every day. Therefore, even as micro-fulfillment seems to be the solution to the gaping hole in delivery and fulfillment today, brands must take a holistic path. Data is vital here, of course, as emerging technologies such as AI and machine learning can help retailers respond to demands and disruptions alike. It is also important to realize that consumer demands are changing faster than technology is growing. Voice commands and automatic ordering, for instance, have added more complications. There is also the trend of mass customization and high-level personalization to contend.
So there is no doubt that brands can only achieve sustainable growth by building flexible and resilient supply chains. It is the only way to gain and maintain a competitive advantage.