How COVID-19 Has Changed Consumer Behaviors And The Supply Chains That Serve Them
This blog post was originally published on here.
As COVID-19 continues to affect our lives and forces us to change our daily routines, our shopping habits are evolving. As I look at my monthly bills, most of them are for necessities such as food, and very little is on luxury or discretionary items. According to McKinsey, this “conscious consumption” has been a widely adopted behavior and purchases are mainly centered on basic needs.
Buyers, through necessity, have started to use online shopping. Generations that previously would not have dreamed of buying something online as they have to “feel and touch” something before they buy it, are realizing that the comfort of reaching various goods with one click and picking up the groceries from the front door, has its benefits.
The challenges of a Covid-19 world
All of this of course has had a dramatic impact on the supply chains that service this market.
For the past few months uncertainty about demand, unstable supply and constrained capacity have been the biggest challenge around the globe.
The pandemic has clearly shown us that an effective running supply chain should focus not only the cost factor but also balancing this with managing risk by improving resiliency and agility to cope with such demand and supply disruptions.
As a result, we have seen companies re-design and re-think supply chain processes.
Last Mile Delivery
My monthly bills show that I am ordering 90% of the things I buy on-line. Let’s just walk backwards through the supply chain to see how this shift has affected the processes that make this happen.
As more and more people expect a delivery to their doorstep, the volume and size of shipments have changed considerably. This was highlighted in a recent podcast with Lorcan Sheehan, the founder and CEO of PerformanSC, who discussed how supply chains have been “shocked” by the COVID-19 crisis.
“I think the other big change that we will continue to see is the shift in channels,” said Lorcan. “That has been happening for quite some time. There will be new ways of getting products into consumer hands. There will be new marketplaces that will exist. There will be new ways that consumers can interact more directly with the companies.”
Recently, businesses are more focused on enhancing the last mile capabilities to suit changes while both protecting the customers and the delivery personnel. Contactless delivery has become a buzzword during the crisis, and it is unlikely to disappear in the post- COVID-19 world.
In China, delivery app Meituan Dianping launched a contactless delivery initiative across various districts to send grocery orders by using autonomous vehicles. In Ireland, Manna Aero received a license from the Irish Aviation Authority to do drone deliveries for a restaurant chain in Dublin. If you order your meal using the Camile Thai restaurant app, you can drop a pin where you want the drone to deliver the order by using satellite view of the street. The same drone company pivoted and delivered groceries and medicines to vulnerable people in lockdown.
With the extreme fluctuations and changes in customer demand during the crisis, pop-up warehouses have become an ideal solution for rapid order fulfillment. Renting and stocking the warehouses close to the end consumers is the time and cost-effective way to process, especially when there is a peak in demand.
Richard Kirker, Global Solution Lead for Extended Warehouse Management at SAP, explained the scope of Pop-up Warehouses in our supply chain podcast and said “The idea with pop up warehouses is not just to set up temporary warehouses but permanently simple warehouses. It can be extended with as much as functionally you like with the full EWM (Extended Warehouse Management) software.”
Planning and Simulation
What we see as a result of COVID-19 is not only the importance of data, but more importantly the ability to leverage it to generate different scenarios and make more agile decisions across the supply chain.
By using integrated business planning capabilities, businesses can optimize their resource efficiency. They can make use of real time visibility to both supply and demand to perform scenario planning, and inventory optimization strategies.
A great example is the residential market for tissue paper, which exploded because of heavy demand. Isabelle Leclerc, VP at Cascades, discussed the tissue paper industry in one of our supply chain podcast series, mentioning that businesses that usually sell in bulk to institutions are responding to the drop in demand in this market and the increase in the consumer market. Leclerc said “The demand has shifted and changed. The distributers of this market reinvented the model and went online to support the end consumers.”
Leclerc continued “As you know, manufacturing is stable and it is working for 24 hours, we needed more manufacturing capacity within a couple of weeks. Our way of doing that was to rationalize our portfolio and became more efficient in manufacturing, so we can have better outputs.” Cascades, one of the best-known tissue paper manufacturer in North America, chose to move forward with an agile approach to adapt market changes in the right time
Alternate Sourcing Strategies
Another tip coming from Leclerc, VP at Cascades. “Diverse sourcing and digitization will be the key to build stronger, smarter supply chains.” When the crisis knocks on the door, businesses need to figure out how to quickly find alternate sourcing strategies. What if something happens to a manufacturing plant or country? What is the level of inventory needed, and where should it be? And many more questions.
Founder and president of global logistics research and consulting firm Logistics Trends & Insights, Cathy Roberson remarks on the importance of supply chain transparency and agility in our COVID-19 themed podcast. Roberson points out that “Businesses need to monitor the environment. To understand and adapt to the changes in the markets and mitigating the possible risks internally, players needs to understand what is going on in the environment”.
Crises also lead businesses to invest more in improving their environment, health and safety operations. Businesses which have an ability to monitor the full picture of the potential risks within the factory can give agile responses and mitigate the possible risks.
What we also saw with COVID-19 is that manufacturing companies with high levels of automation did not have as many productivity issues as the more labor-intensive ones that were affected by physical distancing.
To reduce the financial impact and many other economic challenges of the crisis, manufacturers realized the importance of investing more in automation and transforming manufacturing processes with Industry 4.0.
The pandemic has changed how we think of, and leverage supply chains moving forward.
As we change the way we shop, dine and entertain ourselves, supply chains must evolve to create the future we need in these unprecedented times.
The next time you click to order, think of the complex supply chain that delivers on that digital promise.