Published February 14, 2022
Over the last two years, every link of the supply chain has been impacted by disruptions. Factory shutdowns, parts and labor shortages, port congestion, capacity and space constraints, extreme weather events, trade conflicts and tariffs, and increasing delivery delays and costs have caused unprecedented challenges for supply chains. While many people are quick to point their fingers at the pandemic, the real problem lies in the traditional, inflexible supply chain models that are unable to quickly react and adapt to unexpected changes. With experts predicting many of these challenges persisting well into 2022 and beyond, network optimization will be important.
Here are five areas companies can optimize to create more agile supply chains and prevail over disruptions in the new year:
Manufacturing & Supply Networks
Companies that rely heavily on overseas manufacturing have been hit a bit harder by recent supply chain disruptions. Many apparel and furniture manufacturers that relocated production from China to Vietnam after the U.S. imposed tariffs on Chinese goods in 2018 were left in a lurch when a second wave of COVID swept through the country last fall. Port congestion, capacity shortages and inflated ocean freight costs caused additional headaches for toy makers heading into the holiday season, with Hasbro reporting that $100 million worth of orders went unfilled in Q3 last year.
While reshoring is a massive undertaking and may not be suitable for all companies, it is important to expand your manufacturing and supply network beyond a single country. Unlike many other apparel makers, Levi Strauss & Co. fared well through disruptions, thanks to a diversified network that spans more than 20 countries. This extensive network not only allows the denim brand to shift production as necessary, but also optimize its supply chain to minimize costs and increase production and delivery speeds.
Distribution & Fulfillment Networks
The increase in supply chain disruptions and e-commerce activity is driving demand for industrial real estate, resulting in record low vacancy rates and rising rents that are expected to continue through the end of 2023, according to Cushman & Wakefield. With warehouse space extremely limited, many companies still rely on a single central warehouse, with 41% of companies self-fulfilling multiple channels from one main distribution center last year, according to Peerless Research Group’s annual Warehouse Operations & Trends Survey.
In today’s unpredictable world, it is no longer sufficient to operate out of a single facility. One bad storm, labor strike or other localized disruption can bring your entire distribution operations to a halt. In addition to manufacturing and supply networks, companies should explore additional ways to expand their distribution and fulfillment networks, such as micro-fulfillment centers, dark stores, ship-from-store fulfillment or even outsourcing to a third-party logistics (3PL) provider. Before embarking on an expansion or network optimization project, companies must conduct a network analysis to determine the right size, location and number of facilities needed to accommodate current and future growth and achieve the desired service levels. In addition to defining the optimal network design, a network analysis can also identify opportunities to increase capacity and maximize warehouse space in your current facilities.
Delivery & Pickup Strategies
While the industry has been dealing with a driver shortage for years, this issue was further exacerbated by increased e-commerce sales and labor limitations due to the COVID-19 pandemic. This has had a severe impact on freight shipping as well as last-mile delivery, the most expensive and time-consuming part of the shipping process. In response to increasing package volumes and capacity constraints, traditional parcel carriers like UPS and FedEx are continuing to raise rates and surcharges in 2022, creating additional challenges and costs for shippers this year.
The rise in e-commerce sales has also increased customer expectations for fast delivery. While Amazon set the two-day shipping standard prior to the pandemic, consumers have now grown accustomed to next- and even same-day delivery. Despite current supply chain challenges, 99% of retailers plan to offer same-day delivery by 2025, up from the 35% that do so today, according to a recent report by Bringg. To achieve this goal, many companies are exploring alternative delivery providers and strategies, including on-demand delivery services like DoorDash and Instacart and in-store pickup options such as curbside pickup and buy online pick up in store (BOPIS). Walmart has continually prioritized flexible and fast delivery strategies, from experimenting with Uber and Lyft for same-day grocery delivery over five years ago to utilizing driverless trucks and launching their own white-label delivery service late last year. The retail giant also took home more than a quarter of total click-and-collect sales in 2021-the largest share of any U.S. retailer-according to Insider Intelligence.
Technology & Software Solutions
According to a recent survey by the MIT Center for Transportation & Logistics, keeping up with relevant technological advances is the biggest pain point for retailers today, with 68% citing it as the top concern. In fact, studies show that more than half of companies have very limited visibility of their supply chains. Despite these challenges, more than 60% of companies say achieving supply chain visibility will be their number one priority over the next three years, according to a recent Ernst & Young report.
Achieving successful omnichannel fulfillment requires the use of a sophisticated software solution with end-to-end visibility across your entire network of suppliers, warehouses, stores and transportation providers. Access to real-time data enables companies to identify any potential bottlenecks or delays and take proactive measures to minimize disruptions. A comprehensive inventory management system can also provide a full view into your available inventory to determine the best source of fulfillment to reduce delivery times and costs and ensure customer satisfaction.
Warehouse Automation & Robotics
While ongoing space and labor shortages have led to an increased interest in warehouse automation over the last few years, the current steel shortage and costs are causing additional challenges for companies looking to implement these solutions. According to market research firm Interact Analysis, steel can account for up to 83% of the overall cost of fixed automation equipment such as conveyors, with experts predicting steel demand and prices continuing to rise over the next year.
While the right type of warehouse automation will depend on your unique requirements and objectives, mobile robotics are emerging as a popular solution to help companies overcome many of the obstacles facing fulfillment and distribution operations today. In addition to having shorter lead times and lower upfront investments, autonomous mobile robot (AMR) solutions are also flexible and scalable. This enables companies to utilize them in a variety of applications and environments and expand or relocate them as volumes and requirements change.
While these challenges may seem insurmountable, Tompkins is here to help. Contact us today to learn how we can solve your supply chain troubles through network optimization so that your company can remain competitive in today’s constantly changing environment.