Most businesses were woefully underprepared for the massive supply chain disruptions triggered by COVID-19.
According to the Association for Supply Chain Management, 66% of respondents reported “some or major” supply chain disruptions. Hit particularly hard, says CNBC, were transportation, autos, construction, and general retail.
But looking back on these disruptions only helps if it prepares brands for the next supply chain challenges. What are companies doing to future-proof their supply chains? Below, we’ll explore the top trends in supply chain management and what you can do to learn from them.
Table of contents
- 10 supply chain trends to watch
- Trend: Micro-fulfillment to optimize the last mile
- Trend: Elevating supply chain executives to the C level
- Trend: Preparing for new risk events
- Trend: Integrating flexible contracts
- Trend: Increasing inventory reserves
- Trend: Investing in supply chain agility
- Trend: Improving supply chain forecasting
- Trend: Investing in analytics
- The importance of a future-proof supply chain strategy
- Strategies and best practices for future-proofing your supply chain
10 supply chain trends to watch
Trend #1: Micro-fulfillment to optimize the last mile
The “last mile” is to supply chains what the fourth quarter is in a sports event: the critical final stage. Last-mile costs represent 41% of the total supply chain costs in shipping. Recent trends have only exacerbated this fact, with shippers raising prices on the last mile.
How are grocery and retail brands responding to these increasing last-mile costs? By taking the last mile into their own hands.
According to Maggie M. Barnett, COO of Ship Hero, omnichannel retailers are curtailing the impact of global supply chain disruptions via “micro-fulfillment,” handling fulfillment directly with supplies from a local warehouse. Then, retailers offer an option like buy online, deliver from store, or buy online, pickup in-store.
Micro-fulfillment is by no means a new trend, but it’s certainly picking up more steam as we move closer to peak season.
—Maggie M. Barnett,COO of Ship Hero
In 2021, Target employed micro-fulfillment strategies like adding local distribution centers. This helped fuel a 45% increase in drive-up pick-up orders in 2021, prompting the company to add 18,000 parking spaces for pick-ups nationwide.
Trend #2: Elevating supply chain executives to the C level
Last year, Modern Retail called the role of supply chain specialist “the hottest job in retail.”
It’s about time. Pre-pandemic, 78% of C-level executives reported lack of visibility into inventory. And 50% said they didn’t have the platforms in place to expand fulfillment options.
After massive disruptions in the supply chain hit in 2020 and 2021, executives realized where they’d gone wrong: they needed to invest in executives whose sole focus is to oversee operations and fulfillment in the supply chain.
Carmel Hagen, the founder of baking brand Supernatural, hired a head of operations to facilitate its new relationships with Amazon and Whole Foods. According to Hagen, the move didn’t come a moment too soon.
“Technically, the right time to make the operations hire was probably three to six months before I got there,” Hagen told Modern Retail. “But I knew for sure it was time.”
Growing egg-wrap brand Egglife has invested in its supply chain leadership as well. With a goal of doubling production in 2022, Egglife brought in Cynthia Waggoner, formerly of Kraft Foods, as a lead supply chain officer. It anticipates hitting those goals this year.
Trend #3: Preparing for new risk events
An old axiom says that while the best time to plant a tree was 20 years ago, the next best time is now.
That’s the approach companies are taking with unexpected supply chain disruptions. It’s already too late to deal with 2020—but it’s not too late to put a new plan on paper.
According to the Association for Supply Chain Management (ASCM) 2021 Disruption Report, only about 40% of companies had real-time data and inventory monitoring in place before COVID. About three times as many businesses wanted to implement a new plan for supply chain disruptions than didn’t.
Aviation, an industry hit particularly hard by travel restrictions and supply chain disruptions, is changing how it prepares for these events. According to Nathan Winkle of Thoroughbred Aviation, that means ordering parts in advance to prevent supply disruptions.
“It pays to order needed parts well in advance—months, not weeks,” says Winkle.
In short, companies are prepping for the next COVID-19, even if it never comes. ASCM notes there are more companies implementing disruption response plans than companies who had any plans before COVID.
Trend #4: Integrating flexible contracts
Companies with huge, static orders on the books quickly learned the value of flexibility in 2020.
Flexible contracts split supply orders up into smaller blocks, giving the buyer the option to change orders as demand shifts. Making fewer static commitments in the form of fixed, long-term contracts with suppliers means more adaptability.
“Flexible contract manufacturing enables companies to replace more of their traditional fixed cost base with variable costs to adapt to changing demand,” says Jeff Langely of KPMB Australia.
In a Forrester Consulting study ordered by KPMB, 80% of organizations reported that the responsiveness of their supply chain and operations is their biggest priority in the coming year.
Trend #5: Increasing inventory reserves
Increasing inventory reserves is like a “rainy day” fund, offering flexibility to companies facing unexpected surges in demand.
According to McKinsey, 47% of companies in the midst of the COVID pandemic (May 2020) planned to increase inventory supplies. Within the past 12 months, the number of companies planning on doing the same has increased to 60%.
But there’s more complexity required than simply increasing inventory. Companies also have to find new sources of this inventory, often turning to regional sources rather than relying on global shipping.
Consider the health care industry, says McKinsey, which had to apply the “broadest range of measures” to meet supply demands: medicine, masks, and other critical supplies.
About 60% of health care respondents reported reorganizing supply chains toward regional sources, and it worked. The industry eventually adapted to shifting demand.
Regionalization remains a priority for most companies. Almost 90 percent of respondents told us that they expect to pursue some degree of regionalization during the next three years, and 100 percent of respondents from both the healthcare and the engineering, construction, and infrastructure sectors said the approach was relevant to their sector.
Trend #6: Investing in supply chain agility
Not all supply chain remedies are quite so surgical. A healthy supply chain sometimes requires organizational-level improvements to business agility: your company’s ability to adapt and respond to rapid change.
Surveys suggest improvements in companies’ “decisions making” speed at a rate of five to 10 times when focusing on agility. Those without the agility focus improved by only two times.
Some business leaders report that business agility and a responsive supply chain aren’t two separate ideas, but ideas that are inextricably linked. That’s been the case at Henkel’s laundry and home care business, where chief supply chain officer Dirk Holback says agility investments paid off during the pandemic.
[Henkel has] invested in setting up the right organization, rebuilt our footprint, implemented digital, and developed sustainability capabilities. … [I]n April of last year, when the first demand shocks hit our system, we introduced a new element in our S&OP [sales and operations planning] process in just a few days—basically a daily management of capacity and demand by country supported by some digital capabilities using our existing analytics platform.
—Dirk Holbach, chief supply-chain officer at Henkel
Trend #7: Investing in customer experience
The most obvious and public-facing consequence of poor supply chain management?
This shows up in the stats, where Forrester predicts brands will lose 50% of sales on back-ordered products. The only remedy? Companies that can provide a customer experience satisfying enough to make up for late deliveries.
Some brands have gotten proactive with the customer-facing approach. Lenovo’s solution: broadening the breadth of its customer insights. It’s expanded to multiple channels, like customer surveys and customer sentiment from social media.
The goal, according to Supply Chain Management Review, is to identify the core problems behind customer sentiment challenges.
Better customer service does more than dissolve customer anger. At Lenovo, even though these new investments are customer-facing, the new approach to customer data had a demonstrable impact on the supply chain.
Overall, the company improved how many products are delivered on time by 6%. It provided customer experience professionals more insight into the sources of late-delivery problems.
The objective of these sensing activities is to identify an opportunity or root cause of a problem, then enable employees to take action.
Better equipped to address specific order issues, customer service was the tail that “wagged the dog” of the supply chain.
Trend #8: Improving supply chain forecasting
Forecasting economic trends is a bit like forecasting the weather. No one has a crystal ball.
According to McKinsey, 32% of businesses (the highest among all answers) blamed poor forecasting for their COVID-related supply chain woes. In the “consumer goods” category, only inventory issues weighed higher.
To improve forecasting, some companies have had to think outside the box. Harvard Business Reviewrecounts the story of a global food firm that invested in anonymous phone tracking data to sense how many people were congregating in hotels and restaurants.
The data was an unprecedented look into consumer behavior for the firm. But it also yielded results. The firm put together a “panic index” to track consumer sentiment across multiple channels—from social media to anonymous phone data.
How well does it work? According to Harvard Business Review, the panic index outperformed demand estimates from customer-facing sales reps.
Trend #9: Investing in analytics
Data from the University of Texas–Austin suggests a simple improvement in “data usability” can give some companies a 10% increase in revenue.
But while data usability usually translates to improving sales and marketing processes, it can also provide more flexibility with supply chains.
“Another trend this year is focused on the need for better quality data, not necessarily more data,” says Maggie Barnett. “It’s becoming increasingly more important to have quality data at your disposal, especially on the warehouse floor. With the widespread application of automation, AI, and other technologies, it’s critical to have data that can help those technologies become even more efficient and intelligent.”
Are you leveraging data to help predict where inventory demand will be highest? Are you using your data to identify ways to optimize your warehouse space? Take a closer look at the data you have access to and then analyze how to best put it to work!
—Maggie M. Barnett, COO of Ship Hero
The importance of a future-proof supply chain strategy
The world is changing. Not in the typical “COVID changed everything” sense, either. Instead, COVID highlighted an issue that already exists: the tide of globalization is waning.
“Not so long ago,” writes Forbes, “about 70% of world trade was carried out through global value chains spanning multiple industries and dozens of countries.”
But by 2019, Forbes reports, global trade growth was already showing signs of slowing. 2016’s Brexit and trade protectionism in the US meant that COVID was not the spark of deglobalization, but rather the “final nail in the coffin.”
Future-proofing the supply chain, however, gives companies a moat against these global dynamics. In that sense, the COVID-19 pandemic was a warning shot across the bow—a wake-up call for the realities of supply chains in the 21st century.
With more dynamic and flexible supply chain strategies in place, companies can begin reaping the benefits immediately:
- Cost savings. For example, Louis Vuitton’s 100,000-square-foot factory in Texas localizes its supply chain for the US market. One side effect: with transportation prices up in 2022, regional supply hubs like this also reduce the impact of inflation on long supply chains. More on this in the next section.
- Better inventory data. Companies can incur millions of dollars in expenses due to delays and inventory stockouts without emphasizing the quality of their supply data. Investments in real-time inventory visibility, on the other hand, can reverse this trend.
- Risk management. One recent study suggests that only 10% of supply chain professionals now feel “extremely unprepared.” Why? Companies that remade their supply chains after the COVID-19 pandemic are better prepared for the next black swan event.
Strategies and best practices for future-proofing your supply chain
Strategy #1: Localize your supplies
When Louis Vuitton built a 100,000-square-foot factory in Texas, it wasn’t necessarily because it liked barbecue.
The leather-goods manufacturing shop trains and hires its own leather employees, creating leather goods with the “Made in USA” label attached. Given many of the brand’s properties are in France, Louis Vuitton’s stateside investment means there’s one less ocean to travel every time a new product ships to the American market.
If you want to invest in the efficiency of the supply lines between you and your customers, set up local delivery with your Shopify presence.
Strategy #2: Preparing for new risk events
After the shock of COVID-19, some companies are investing new money into real-time data monitoring to track upcoming shifts in demands.
To better keep track your inventory and your industry, Shopify Plus can help you monitor launchpad events or read up on your latest analytics (including Live View) to see where the winds are pointing.
Strategy #3: Diversifying your supply chain
In investing, experts say spreading your money around reduces risk. It’s the same with supply chains: the more options you can turn to, the steadier your inventory will be.
When we reviewed the best supply chain best practices from companies like Deloitte and UPS, one of our key takeaways was simple: check on the health of your current suppliers. Who’s supplying the suppliers, and what are their vulnerabilities?
Finally, look for viable alternative suppliers to add diversity to your supply chain, stabilizing your options when a crisis hits. And browse third-party fulfillment providers to select one that will make your supply chain more resilient.
Strategy #4: Investing in the customer experience
If customers were always 100% patient, supply chain issues might not seem so damaging. You could simply send out an apology email when a product is out of inventory and say, “We’ll send it as soon as we can.”
Ultimately, customers have finite patience. That makes your supply chains a vital part of the customer experience.
Consider what Barkbox did when a customer had the ultimate “supply chain disruption”: a tornado hitting their home. Barkbox reached out with a personal note:
Don’t hide your supply chain issues from your customers. Instead, be proactive and reach out to customers in a way that lets them know when supply chain disruptions are out of your hands.
Strategy #5: Investing in analytics
Sometimes you don’t know your supply chain vulnerabilities until you can see your data right there in black and white. That requires an investment in the analytics that drive all of your numbers.
Take the Shopify data analytics course from the Shopify Plus Academy to learn how to uncover insights into every aspect of your business—not just the supply chain.
Future-proofing your supply chains for the challenges ahead
There is no 100% “future-proof” supply chain. But given the resilience the industry has shown over the past few years, you might not need one.
Building reliable relationships with a diverse list of suppliers—especially if they’re local—can serve as an “emergency valve” that gets you through the next supply crisis.
And you don’t need a crisis to justify the investments you make. Today’s retailers find that enhancing their supply chains can help hedge against other challenges, like higher transportation costs.