The major transitions that are disrupting the Supply Chain ecosystem

01 September 2021

Major transitions of the Supply Chain

Over the years, businesses have grown. They require advanced management and organization to increase their productivity and stimulate their innovations.

The risks, but above all the opportunities of these companies, lie at the heart of the Supply Chain. When the Supply Chain is impacted, companies very quickly experience a difficulty in managing processes and supplies. Certain global events cause considerable obstacles.

To cope with these many upheavals, the Supply Chain has had to adapt and companies have had to quickly question themselves in order to meet the new needs of society.

The Supply Chain affected by the blockade at the Suez Canal - one ship is enough to shake the market

With 193 km long, the Suez Canal represents 10% of world maritime trade and remains a key passage for the Supply Chain. From March 23 to 29, the Ever-Given, a 400-meter-long ship that can carry up to 20,000 containers, ran aground for climatic reasons at the Suez Canal. A total of six days of blockade, 400 other ships intended for the transport of various bulk goods and tankers forced to stop their activities and a lost sum of 400 billion dollars.
Usually, the Suez Canal is considered as the link between two continents which receive 50 ships or 10 billion dollars of goods which pass through each day, which is why this event was a source of delays and problems for the Supply Chain.

Significant losses to global trade :
The 6-day blockade is causing a snowball effect in the supply chain that could impact global businesses that will require a week or even months of adaptation. As the event was unexpected, many ships caused significant delays.

Thus, the Retail market has seen its shelves empty quickly without the possibility of managing stocks and supply.
In addition, there is a certain lack and the magnitude of the costs is significant :

  • Electronic components,
  • Components of the vaccine requested by Europe,
  • Essential products
  • Every day still costs global trade between $ 6 billion and $ 10 billion,
  • 130,000 sheep are transported in the boats, which alerts NGOs

Analysis: Europe forces us to depend on the great Asian power :
This event certainly short but bearing its effects on the global supply chain highlights the fragility of supply chain management. Globalization binds countries together making them dependent on each other.
This unexpected blockade opens the eyes to the different continents. France just like Europe depends on Asian power and more particularly on China:

- 75% of the containers on the Ever-Given came from China.

Spending on China is becoming more and more important and in the future the stake would be to decrease this expenditure. However, this is not a choice, the lack of national resources forces us to depend on others.

Variations in material prices : consequences for the Supply Chain

The Supply Chain also suffers from its high tariff coverage. The decrease in demand for oil generates higher costs for transport. The price of container transport has increased considerably in recent years. After the shutdown of activities, the slowdown in the Supply Chain and the obligation to reorganize the market, prices have skyrocketed, especially those of raw materials, which really impacted the supply and activity of companies.

Steel, copper, zinc, aluminum, lead, nickel have seen their prices increase considerably (between + 10 and 20%). In addition to changing prices, inventory and lead times are growing, making it difficult for companies to deliver to customers. The transport of goods is becoming more complicated in particular because of a sharp increase in transport costs. 

These are not the only materials to see their prices rise sharply : wood as well. The delay in production followed by a major health crisis implies an increase in the price of this raw material but also and above all of labor. In particular, there is a 20 to 80% increase among French traders. Because of this price increase, certain sectors are strongly affected, such as the construction / construction sector, which suffered a reduction of 2,900 jobs

The impact of Globalization on the Supply Chain

Globalization has taken on its full meaning in recent years, but the transformations of this process have a strong impact on the Supply Chain. This phenomenon significantly impacts the entire Supply Chain :

  • Chinese economy far superior to the rest of the world,
  • Tensions on the commodity market,
  • Need to have a management solution for supply, production, management and distribution.

Globalization has an impact above all on the supply chain of companies: suppliers are becoming scarce and inaccessible, but above all this leads companies to be open to the world but also dependent on everyone.

This phenomenon of globalization intensifies over the years due to the numerous economic depressions. Prices and production costs keep increasing, which is why many companies are choosing to relocate their production to low-cost areas. 

The impact of Covid 19 on the Supply Chain

In addition to the blockade of one of the most important canals in the world, there is the global health crisis of Covid-19. The health crisis is now spreading across the globe and has been for more than a year, causing a real impact on the Supply Chain.

Supply chain disruptions : awareness of our territorial independence.

The health crisis has weakened the supply of companies. It is getting slower and more complex, which is why industries need to complete their supply chain by making it more resilient. Facing or reacting to risks and adapting to new consumer habits is the new challenge for businesses.

Sanitary restrictions restricted the movement of consumers, causing the price of oil and other fuels to collapse. At the same time, certain products, in particular food products, have seen their price sharply increase : their price has been 1.68% more expensive since the start of the health crisis.

In addition to the rise in prices, the Covid-19 brings problems of supply and overconsumption of products, as sales of certain products (pasta, rice, sugar and hygiene) increased by 174% on Friday, March 13. 2020 when the first confinement is announced compared to the previous Friday.

The supply has been compromised globally. China, the first outbreak of Covid-19 but also the largest supplier of finished and semi-finished products in the world, quickly saw its borders and factories close. For this country, the crisis has severely damaged the economy. Its turnover has fallen by 24.6% since the start of 2020.

As a result of this, the whole world became aware of its foreign dependence. France depends on China. This country is the most important breeding ground for consumers, particularly in the luxury, high-tech, automotive sector and especially the supply of masks in 2020. 

The Supply Chain also encounters inertia. Technical (conservation, safety, protection) and sanitary (hygiene) controls have become more rigid and important, which causes a loss of time for companies.
Due to a lack of perspective and experience, they found themselves having difficulty in equipping their employees with telework.
To communicate but also to continue to maintain an economic activity, digitization becomes essential. SaaS, PaaS, desktop and laptop are necessary for the equipment of employees forced to work from home.

However, the health crisis is providing industries with better management of stocks and flows. Thus the DDMRP (Demand Driven Material Requirement Planning) method is developing. This method is geared towards managing the Supply Chain according to demand and makes it possible to draw flows to better align stocks and planning.

Supply takes a different turn and consumption becomes more thoughtful. Companies must respond to a more local and more ecological need (local markets, agriculture, crafts).

The impact of Covid-19 on retail: decrease in points of sale

Since March 2020, the health crisis has forced companies to close their physical points of sale. Confinements and curfews condemn the French to change their consumption habits :

  • 32% of French people reduced their spending in July 2020 after confinement,
  • 30% of French people have suffered a negative and significant financial impact since the start of Covid-19.

For businesses, the closing of stores also has an impact :

The business failure rate increased by 32% in 2020. Many businesses have gone bankrupt or are under severe restrictions.

There are several issues facing supply in times of crisis. Failure of supplier and transportation systems, slowed productivity, inventory management, a smaller workforce or even a shortage.

However, in order not to go bankrupt, it was necessary to rethink and multiply distribution methods to satisfy the end customer and adapt to new consumption.
The compulsory closure of stores has allowed a forced acceleration of multidistribution, particularly towards e-commerce.

This generates the development of new professions, new services and new consumers.

Supply Chain e-commerce adaptation - digitalization

These events are certainly tragic and costly for the Supply Chain, but also generate the development of other sectors of activity which are gradually becoming the driving force behind the large supply chain.

A blatant boom in e-commerce channels: the importance of the digitization of the Supply Chain.

After these two events, certainly totally different but having the same impact, the Supply Chain took a completely different turn. Distribution channels are changing and digitization has become essential for the Supply Chain.

For example, since the start of the health crisis, stores have been closing during a containment and de-containment phase, so consumers are buying more and more online, orders and deliveries are becoming more and more frequent.

A phenomenon of over-ordering then invades companies :

  • Over the last 12 months 9/10 French people ordered on the internet,
  • 37% of them admit to doing it more regularly since the pandemic.

Companies find it difficult to assess and respond to the demand of each actor and new consumer in the Supply Chain due to the considerable volume of orders which continues to increase. This is known as the "Bullwhip Effect".

The Supply Chain needs to evolve, which is why after the grounding of the container carrier, the variation in prices or the health crisis that has affected its ecosystem, companies are in the need to digitize, optimize and to revolutionize their practices.
Digitization has become essential in business. The partial closure of points of sale or the delay in stocks have favored digitization but also Business Intelligence and forecasting solutions. These two processes drive the development of digitization and force companies to make smart business decisions.

The increase in digital traffic is causing the online sales share in retail to increase from 9.8% to 13.4% in one year. Online rather than physical exchange between companies and their customers is leading to an increase in B to B (more communication, reassuring the continuity of production) and B to C (boom in the online market for professionals).

E-commerce that continues: forced digitization but essential for traders

Unsurprisingly, after the closure of businesses as well as the reluctance of consumers to shop in the crowd of stores or the difficulty encountered by businesses in filling their stocks during the lockdown in Egypt, online shopping has become the one of the main distribution channels thanks to the health crisis.
Companies are obliged to standardize this practice by adapting new logistics.

Several digitalization processes have developed in particular since the health crisis and now seem essential for traders. Here are a few examples.

Drive and click and Collect :

These processes were developed at the time of de-containment to prevent consumers from going to the store and having to look for the products, which guarantees them time savings and peace of mind. Between March 30 and April 5, 2021, the drive saw a 75% increase in activity.

Shared drive :  

For the sake of efficiency, pooling and limiting contact points, the shared drive solution has become a full-fledged solution. The shared drive corresponds to making it possible to collect several orders made with different brands by means of the website and to request a single discount for several orders.

The shared drive allows, for example, customers not to move within a shopping center but to directly obtain their product regardless of the brand (cosmetics, food, DIY, etc.) in a drive. The customer orders his product via the online site of each brand, on site or via a customer service (CRM) which directly contacts the shopping center (stores, warehouses or dark stores).

This solution makes it possible to retrieve orders prepared in each store by teams and then store them while awaiting customer delivery in a shared storage space. Then allowing to finalize the preparation and / or packaging of the customer order. Then, the customer comes to the shared drive to collect all his products in one go, in complete safety.

The goal of the shared drive is therefore to order on any type of site and channels and then come and collect multiple orders, multi-brand at one time.

shared drive

Graphic representation of the concept of shared drive

Thanks to the shared drive, the company becomes a logistics hub by offering a wide choice of distribution to the many stores in shopping centers.

The automation and digitization of shared drives allows companies to expand and increase customer contact and service points.
In addition, an Order Management System - OMS and MultiDistribution System - MDS solution implementation ensures unified inventory management and management of multiple delivery channels (Delivery, Home Delivery, Urban Hubs, Locker, Click & Collect, Drive, Shared Drive, etc.) allowing the profitable circuit to be defined in real time to satisfy orders.

Contactless payment :

Contactless payment is a payment practice.

Banks grant a ceiling of € 50 for this payment method.

This practice saves time and makes the payment process faster for the consumer. This allows compliance with health rules by promoting physical distancing and limiting contact.

Automation: a new vision for the global workforce / logistics automation

Automation is a new division of labor between machine and man. In many large companies the processes are automated.

This approach is more and more present since the few upheavals of the Supply Chain.
As companies have to adapt, they have on the one hand had to change their production methods and adapt their activities to avoid bankruptcy, but also in order to comply with health measures and apply preventive measures. and mandatory. So process automation comes into play.

Automation requires some adaptation time on the part of companies and their employees. These must adapt by digitizing, automating and optimizing their practices.

Due to automation, 50% of employees who will keep their jobs for the next five years will need retraining related to their basic job.

With the rise of e-commerce, the automation of business services enables the processing of large numbers of online orders while eliminating the risk of errors.

In addition, automation is a promising subject allowing the development of many software and even the innovation of new software. Companies therefore need more skilled and specialized employees. This is why they will be forced to increase their investments in human capital through more training.

Automation is a solution to contain costs such as operating costs and personal costs in the business and guarantees uninterrupted service.

In view of the major transformations, constraints and accidents that can appear suddenly and whatever the link in the logistics chain, it is now essential for companies to have a digital, automated, innovative and real-time solution. . It must have strong end-to-end Supply 360 analysis capabilities with, in addition, forecasts. Connectivity to suppliers, customers and partners is becoming an important subject in order to anticipate and take the best solutions.

Monstock, offers you a digitalized inventory management is therefore a more efficient inventory management, which allows you to save time but also money, to always better satisfy your customers and collaborators.

You want to know more : Contact the Monstock team !

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