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LOGISTICS
September 7, 2023 By user

Chatbots Are Trying to Figure Out Where Your Shipments Are

Logistics companies are looking at generative AI for use in customer support, but the technology carries risks in high-value, industrial supply chains

 

Logistics companies are eyeing the potential of artificial intelligence, particularly generative AI tools like ChatGPT, to revolutionize their operations. However, they’re treading carefully, especially when it comes to chatbots, which are becoming commonplace in the consumer sector.

Why the caution? The logistics industry deals with the movement of goods worth millions, and the last thing they want is to frustrate their customers. Companies like RXO, XPO, Phlo Systems, and DFDS are exploring how this AI can automate tasks in their customer service departments, such as tracking shipments and booking loads.

Generative AI, like OpenAI’s ChatGPT, can sift through vast amounts of data, recognize patterns, and answer questions in a human-like manner. This capability has already been harnessed in other sectors. Law firms use AI for legal research and document drafting, while retailers use it to analyze customer queries. Even travel and grocery sectors have jumped on the bandwagon, with companies like Expedia and Instacart using bots to assist customers.

For logistics, the immediate application of generative AI seems to be in customer support. The technology can comprehend questions in everyday language and provide comprehensive answers swiftly. This could enhance the customer experience, offering precise answers quickly, unlike traditional chatbots with their preset responses or human agents who might need more time.

However, there are challenges. Generative AI’s effectiveness hinges on the quality of its training data. Sometimes, it might get answers wrong. There are also valid concerns about using sensitive company or customer data to train these systems. Some companies have even prohibited their employees from using tools like ChatGPT due to these concerns.

The stakes are undeniably high in logistics. The industry deals with complex, proprietary data related to moving vast quantities of goods via various transportation modes. As such, while the allure of AI is strong, the logistics sector is approaching it with a mix of optimism and caution.

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LOGISTICS
September 5, 2023 By user

Bankrupt Trucker Yellow’s Real Estate Is in High Demand

The company’s liquidation is putting dozens of freight terminals up for possible acquisition in a market tight on space

The dismantling of bankrupt trucker Yellow is shaping up as a bidding battle over real estate as trucking companies look to capitalize on a rare chance to snap up coveted freight terminals across North America. 

Old Dominion Freight Line last week agreed to buy Yellow’s network of about 170 truck terminals for $1.5 billion, surpassing an earlier offer of $1.3 billion from rival trucker Estes Express Lines. Both bids exceeded the value Yellow placed on its real estate in its bankruptcy filing, signaling the high value trucking companies place on the sites. 

Old Dominion Freight Line is now the stalking horse in a bankruptcy court-supervised auction that will take place on Oct. 18. That means ODFL is the front-runner but by no means the certain winner in a contest expected to draw bids from across the trucking industry and the industrial real-estate sector.  

“There is a tremendous amount of interest in those assets,” said Paul Svindland, chief executive of Bensenville, Ill.-based logistics provider STG Logistics. 

A person familiar with the bankruptcy proceedings said hundreds of companies have struck confidentiality agreements so they can evaluate the assets.

Regional and national freight operators will have a rare opportunity to take on a series of built-out, ready-to-operate facilities in a sector in which experts say real estate is one of the biggest obstacles to expansion. 

Trucking terminals have become more difficult and expensive to build as companies are squeezed by a shortage of the space needed for the buildings and truck yards. Towns and cities have grown more reluctant to approve new industrial construction as residents have raised outcries over traffic, noise and pollution.

Mike Barker, an executive vice president of real-estate services firm CBRE, said the large initial bids for Yellow’s entire portfolio could make it harder for regional carriers to acquire a smaller number of terminals because a single transaction is the quickest and least complicated way for Yellow to pay off its debts.

Barker said even if a single company buys Yellow’s network, that company is likely to sell off many of the terminals that don’t meet its needs, however. 

“There’s a handful of really desirable large sites that would be very attractive,” Barker said. Other, smaller sites could draw interest from regional truckers, he said, and companies in related fields such as those that specialize in outdoor storage of truck trailers or construction equipment.

Yellow earlier this summer sold a single terminal in Compton, Calif., for $80 million. That terminal was located in a high-demand region for industrial real estate, close to Los Angeles and two of the nation’s busiest seaports. Terminals in less densely populated areas are likely to sell for much less.

Several large trucking companies on earnings conference calls have expressed interest in Yellow’s real estate, including truckload carrier Knight-Swift Transportation, which owns AAA Cooper, a carrier competing in the same less-than-truckload market as Yellow.

“Any opportunity to pick up properties along the way, we would have great interest in that,” Knight-Swift Chief Executive David Jackson said on a July 20 investor conference call.

Before Yellow shut down in July, the 99-year-old company was the third-largest carrier in the less-than-truckload market, a sector in which carriers combine shipments from multiple customers in a single trailer. LTL operators use hub-and-spoke networks of terminals, hauling in pallets of freight and trading them off onto trailers heading to final destinations. 

The terminals are often close to cities to help speed up delivery to businesses in a region. They are typically long and narrow, similar to passenger gates at airport terminals, with 20 to 100 doors on each side of the building. 

The terminals, which are usually surrounded by ample parking space for trucks and trailers, were in high demand during the pandemic when existing terminals reached their daily capacity to handle large volumes of freight.

 
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Uncategorized
August 23, 2023 By user

U.S. Importers Are Absorbing Higher Shipping Costs This Summer

Container lines have reversed a big drop in freight rates this year, but experts say the price increases may be short-lived

Shipping costs from Asia to the U.S. are going up 61% in the six weeks up to Aug. 15, 2023, according to the article. Although the prices have increased, U.S. importers are still absorbing the increase, with August 2022’s rate still 66% lower than now.

The price hike came after big shipping lines raised their prices following a significant drop in the sector’s spot market, which dropped from nearly $10,000 per box in February 2022 to below $1,300 in late June. In order to avoid these fluctuations, some U.S. companies locked in freight rates.

Shipping costs fell in 2023, a contrast to the high prices that burdened corporate budgets in the previous two years. Major retailers like Home Depot and Target report better supply chain conditions, especially in ocean shipping.

In the industry, spot rates have been up recently, but they’re expected to be short-lived, since U.S. container imports aren’t as high as they were last year, and new containerships are adding extra capacity. There are some carriers trying to charge peak-season surcharges on long-term contracts, but the volume and market conditions may not justify it.

While shipping costs from Asia to the U.S. have gone up recently, American importers are managing to absorb them. Because of the projected oversupply of containerships, many experts believe rates will resume a downward trend soon.

 

more about this in :https://www.wsj.com/business/logistics/u-s-importers-are-absorbing-higher-shipping-costs-this-summer-8f661768

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LOGISTICSPACKAGE
August 15, 2023 By user

Mexico replaced China as America’s top trade buddy — and it shows how the global economy is rapidly transforming

Meet America’s new, old best friend in the world economy

In a recent update from Luis Torres, a senior business economist at the Federal Reserve Bank of Dallas, it has been highlighted that Mexico has reestablished itself as America’s foremost trading ally. In the first third of the year, the trade value between the two nations amounted to $263 billion. The U.S.’s trade with Mexico represented 15.4% of its total imports and exports, slightly edging out trade with Canada and China, which stood at 15.2% and 12%, respectively.

This recovery of Mexico’s leading position over China—despite China’s two-decade effort to weave itself more tightly into the U.S. economy—emphasizes the ongoing impact of 2020’s economic turmoil on the global economy in the foreseeable future.

According to Torres, the origins of this transformation were evident before the pandemic, influenced by former President Trump’s Chinese tariffs and the enactment of the US-Canada-Mexico trade agreement, a marginal modification to the nearly 30-year-old NAFTA deal. Torres also indicated that these changes marked a faster shift towards “nearshoring,” a strategy of relocating vital supply chains closer in geographical and political terms.

Torres explained, “Increased protectionism and related industrial policy are consistent with less global trade, more regional trade, and nearshoring and reshoring (returning production to the home country),” although admitting that recent data on nearshoring is sparse and largely anecdotal.

The pandemic fueled nearshoring due to the heightened expense of Pacific shipping and consumers’ craving for quicker deliveries—often referred to as “The Amazon Prime Effect.” Earlier this year, Peter S. Goodman of The New York Times noted that retailers like Walmart were increasingly sourcing closer to home amid escalating U.S.-China political tensions.

Michael Burns of Murray Hill Group, an investment firm specializing in supply chains, described it as “the next stage of globalization that is focused on regional networks,” rather than a decline in globalization.

Shannon O’Neil’s recent book, “The Globalization Myth: Why Regions Matter,” argues in favor of regionalization over globalization, proposing that domestic production would be beneficial for American workers. NPR’s Greg Rosalsky summarized her point, stating that the average Mexican import is “40% US made,” whereas the average Canadian import is “25% made in the US,” compared to only 4% for products from China.

Despite these trends, President Biden has been attempting to mend U.S.-China relations, further strained by the downing of a Chinese spy balloon in February. Following meetings with China’s leader, Xi Jinping, and a four-day visit by Treasury Secretary Janet Yellen, there seems to be a mutual commitment to a more stable relationship, although concerns about “unfair economic practices” remain.

Blinken and Xi’s promise to stabilize relations and Yellen’s hope for cooperation underlines the notion that “the world is big enough for both of our countries to thrive.”

Currently, it’s evident that the Mexico-U.S. trade relationship is flourishing and likely to keep growing, even as the global landscape continues to shift, particularly in regard to China.

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LOGISTICS
July 20, 2023 By user

AI in Intralogistics: Customer Benefit is Decisive

Helmut Prieschenk, Managing Director of Witron, and Franziskos Kyriakopoulos, founder of 7LYTIX, discussed the potential for AI in logistics and demand forecasting for food retailers. Both agreed that AI offers significant optimization opportunities for streamlining processes in distribution centers and supply chains. The authors stressed, however, that high-quality data and individual experiences, as well as consumer requirements, are crucial for effective data modeling.

Taking note of the prevalence of AI hype, Pieschenk joked, “And then everyone was an AI influencer overnight.” In his view, AI tools should be evaluated for their ability to address specific requirements for customers and developers in a balanced manner.

Likewise, Kyriakopoulos cautioned against the spread of half-truths and stressed the practical applications of LLMs, especially in the processing of orders, sales, and customer communications. In areas like demand forecasting where some companies may have difficulty assessing the impact of AI models, he acknowledged the importance of transparency and understanding the added value of AI models.

While Prieschenk acknowledged the use of LLMs in Witron’s work, he stressed the importance of practical solutions over adopting new tools for the sake of it. His emphasis was on implementing stable solutions that optimize logistics processes in distribution centers and supply chains, while integrating well with existing ones.

In addition to their meticulous analysis of stored goods, sales, promotions, customer behavior, and location, Kyriakopoulos explained how they forecast demand accurately. While balancing accuracy with tangible value for customers and users, they incorporate machine learning methods progressively.

According to Prineschenk, AI models need to be aligned with logistics practical mechanics to ensure seamless integration. According to him, the supply chain should be viewed holistically, silos should be avoided, and explainability should be prioritized.

Human decision-making remains crucial, according to both experts, even though AI provides valuable information. They highlighted the importance of incorporating human experiences, gut feelings, and control over the process. Furthermore, they recognized the importance of delivering real value on a daily basis through stable models.

The future development of AI models for warehouses will build upon the existing achievements in revolutionizing logistics, according to Prieschenk.

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LOGISTICS
June 20, 2023 By user

Enhancing Supply Chain Efficiency with Visual Intelligence and AI Services

Enhancing Supply Chain Efficiency with Visual Intelligence and AI Services

In today’s rapidly evolving business landscape, supply chain optimization has become a top priority for companies across industries. By providing real-time insights and enabling continuous improvement throughout the supply chain, intelligent video and AI services are revolutionizing logistics. It’s important to leverage visual intelligence and artificial intelligence to improve supply chain operations, says Stefan Borg, co-founder, and CEO of SiB Solutions, a logistics and energy management expert with over 30 years’ experience. Let’s look at three strategies Stefan Borg put forward to improve supply chain efficiency in this article.

 

1. Overcoming Delays and Interface Design Issues:

Operational problems like delayed information and unclear interfaces can lead to inefficiencies and mistakes in supply chains. By harnessing visual intelligence, these obstacles can be addressed effectively. To identify areas for improvement, Stefan Borg suggests visualizing behavior patterns. With this approach, operators can make informed decisions quickly, reducing lag time and improving overall efficiency.

 

2. Optimizing Fill Rates for Reduced Resource Consumption:

It’s crucial to reduce resource wastage in the supply chain to achieve better fill rates. Stefan Borg says a visual test is a great way to figure out how full a box is. Organizations can verify output accuracy and fix any discrepancies in master data using intelligent video and AI services. Optimising fill rates reduces fuel consumption and environmental impact caused by shipping empty or partially filled containers.

 

3. Enhancing Circular Goods Flows with Visual Evidence:

In order to create circular goods flows and encourage sustainability, organizations are increasingly using reusable pallets. For accurate and comprehensive information about pallet movements, Stefan Borg recommends combining visual evidence with RFID scanning. In addition to improving overall supply chain visibility and efficiency, visual evidence allows organizations to safeguard valuable assets.

 

4. Resource Conservation through Flawless Logistics:

With resource scarcity on the rise, organizations are working on reducing waste and maximizing resource use. Stefan Borg explains that flawless logistics are key to reducing resource consumption. This includes guiding operators to accurately sort goods, minimizing returns through efficient shipping, and making sure goods don’t get lost. Organizations can conserve resources and contribute positively to the environment by leveraging intelligent video and AI services.

 

By integrating visual intelligence and artificial intelligence into supply chain operations, we can improve efficiency, cut waste, and promote sustainability. By using these technologies to solve delays, optimize fill rates, track assets, and conserve resources, Stefan Borg sheds light on the benefits. For organizations looking to make a positive impact on the environment and their brand, visual intelligence and AI services have become indispensable tools

Please Note: This article is a fictional creation and the opinions expressed are attributed to the fictional character Stefan Borg. The content is meant for illustrative purposes only.

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CARGOLOGISTICS
June 13, 2023 By user

Here’s How West Coast Port Talks Led to Disruption

Port employers and dockworkers have been in a labor dispute since May 2022. Negotiations have resulted in significant port disruptions. In late May 2023, negotiations stalled on wages and dock automation, but have since seen progress on benefits. Employers claim they cannot afford significant wage increases requested by the International Longshore and Warehouse Union. Due to work slowdowns, several ports have experienced delays and operational constraints, threatening supply chains. The Biden administration may need to intervene or appoint an independent mediator if no resolution is found.

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LOGISTICSPACKAGE
May 16, 2023 By user

How Manufacturers Can Optimize their Supply Chain Workforce

Adopting a 5S workplace organization strategy can be the key to a successful post-COVID workforce. By implementing these policies, manufacturers will be able to optimize their supply chains and workforces in a way that will allow them to overcome the challenges they have faced since the COVID-19 pandemic.

The manufacturing sector has faced several enormous challenges since the pandemic. From supply chain disruptions to labor shortages that are still leaving many companies understaffed, manufacturers are struggling, causing a ripple effect that has left no link of the manufacturing process unaffected.

But by adopting strategies to optimize the supply chain and workforce efficiency, manufacturers can stand tall in the face of these challenges and come out the other side even stronger.

Workplaces that hope to be efficient in the post-COVID environment should strive to adopt what is known as a lean management strategy. Lean management was pioneered by Toyota and involves eliminating waste at every step of the supply chain—including the workforce.

Not only does eliminating waste help reduce the pressure manufacturers face due to current social and economic conditions, but it also makes the process more efficient and saves companies money in the long term.

One easy way for companies to minimize waste is to emphasize quality control throughout the entire manufacturing process. Too often, manufacturers only perform a quality control check at the end of production, meaning entire defective product lines—and the labor used to produce them—go to waste. By investing in quality control in the earlier stages of manufacturing, companies can catch rejected products before too much is invested in them in terms of labor and raw materials.

Another important strategy for manufacturers to adopt is called Hoisin Kanri. This Japanese business strategy, which was also developed by Toyota, involves aligning a company under a unified, “true north” vision across departments and teams.

Since Hoisin Kanri entails the creation of a company-wide strategy, dramatic changes can be implemented relatively quickly throughout the entire organization.

Adopting a 5S workplace organization strategy can also be the key to a successful post-COVID workforce. In this strategy, business leaders work to identify value-added and non-value-added activities in the workplace and devise practical solutions to help implement lean logistics principles.

Each “S” in the 5S organization strategy represents a different Japanese principle whose application helps make the supply chain more efficient.

  • Sort (Seiri): By eliminating unnecessary items and materials from the supply chain, production employees can easily access the materials they need to complete their jobs. Employers should also strive to remove as many physical and non-physical barriers as possible that prevent their employees from reaching maximum productivity.
  • Set in Order (Seiton): The organizational structure of the business is key to its efficiency. An ineffectively organized business wastes time between two links in the supply chain. If each part of the supply chain—from the warehouse to the front office—is precisely and expertly organized, businesses can much more easily navigate the complexities and unique challenges of their supply chain.
  • Shine (Seiso): Studies have long discussed that clean workspaces lead to better efficiency in the workplace. However, cleaning should go far beyond the type of cosmetic cleaning used to keep up appearances. Thorough inspections and cleanings of resources and equipment allow businesses to identify any inefficiencies early in the process and respond to them with any potentially necessary repairs.
  • Standardize (Seiketsu): To effectively manage these three steps, organizations must implement standardized policies and procedures for their enforcement. This standardization ensures consistency in initiatives across the entire organization.
  • Sustain (Shitsuke): Finally, after developing the procedures and standardizing them in a way that can be efficiently implemented, workers must be trained and educated in these policies to ensure they know how to effectively implement them in their day-to-day operations.

By implementing these policies, manufacturers will be able to optimize their supply chains and workforces in a way that will allow them to overcome the challenges they have faced since the COVID-19 pandemic.

Although there is no one-size-fits-all solution to every business’s struggles, these policies can help improve performance and boost the overall bottom line.

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LOGISTICS
May 9, 2023 By user

Six Digital Supply Chain Trends That Are Happening Now

Six Digital Supply Chain Trends That Are Happening Now

Here are some of the top digital supply chain trends that shippers need to understand and leverage as they continue along the path of transformation.

Focused on increasing productivity, improving organizational resiliency and fostering innovation, supply chain professionals are also being asked to “do more with less” in the midst of economic uncertainty and constant change.

As they also navigate rising costs, inflation, labor pressures, and other challenges, these professionals are using more technologies that help them engage their employees, make better use of their assets and resources, and develop intelligent, responsive logistics operations.

Those technologies come together to create digital supply chains that can be used to leverage new opportunities, tackle current challenges, and plan for the future. “Advancements in technology provide supply chain technology leaders and other executives an opportunity to support new business models, enhance decision making, and improve integration with trading partners,” Gartner reports in Top Trends in Strategic Supply Chain Technology 2023. “This is causing supply chain organizations to fund new initiatives focused on digitizing asset tracking and management, supporting digital supply chain transformation, improving user experience through technology, and reskilling and upskilling their workforces.”

The proof is in the numbers. According to Gartner, 73% of supply chain organizations are currently allocating their supply chain IT budgets to “driving business growth and enhancing performance.” A movement that has been underway for several years now, digital supply chain transformation helps shippers work smarter, faster, and more efficiently amidst the current market uncertainty. It also helps them plan for a future that’s sure to include a blend of opportunities and disruptions.

Here are six digital supply chain trends that shippers should be paying attention to along with some top analyst advice on how.

1

What’s old is new again.

Greg Aimi, VP, team manager of supply chain research at Gartner, remembers the day when Walmart set a January 2005 target for its top 100 suppliers to be placing RFID tags on cases and pallets destined for its stores in the Dallas/Fort Worth metroplex area. The announcement sent a chill down the spine of all suppliers that worked with Walmart, which promised to extend the mandate to all of its suppliers by a certain date.

In the end, the initiative wound up being what Aimi calls “the epitome of the hype cycle.” Fast-forward to 2023, however, and the retailer—which has mostly been using RFID tags for apparel—is now revisiting the idea of using the tags for general merchandise.

The RFID technology itself has advanced since 2005, and more retailers are using automation, robotics, and RFID in their fulfillment centers and stores. If the technology becomes ubiquitous in the retail environment, Aimi says it will increase inventory visibility levels, support the use of more robotics in stores, and migrate into additional use cases.

2

Servitization comes to the forefront. 

Robots as a Service (RaaS), Software as a Service (SaaS) and Retail as a Service (Raas) are all gaining in popularity as more companies obtain their equipment and software on a service basis versus buying it outright. A lower upfront investment means companies of all sizes can get a ticket to the digital supply chain game. It also puts less stress on internal IT departments because the vendors themselves usually maintain and upgrade the hardware or software that they’re selling as a service.

Vamshi Rachakonda, VP and sales/GTM lead for U.S. manufacturing, auto and life sciences at Capgemini, sees this trend continuing as more companies hone their individual digital supply chain strategies. “We’re definitely seeing increased demand for services, both from shippers and from their customers,” he says. “This is likely to continue for at least the next few years.”

3

The digital supply chain isn’t a nice-to-have; it’s a must-have. 

Any company that’s still using spreadsheets to track shipments, walkie-talkies to manage yard activity, and clipboards to track inventory is slowly making itself obsolete. That’s because the digital supply chain is no longer a luxury; it’s a necessity. “Companies are making progress in this area because they really don’t have a choice,” says Rachakonda.

Among the key drivers is logistics’ transition from being a “back-end” function to one that can substantially affect revenues (both positively and negatively). In response, Rachakonda says smart manufacturers are leveraging the latest technologies—IoT, big data, AI, blockchain, etc.—to their advantage. “This is an area where manufacturers are making progress, but there’s still more work to be done,” he adds.

4

Vendors are stepping up their games. 

Never ones to sit on the sidelines while their customers struggle with increasing supply chain complexity, hardware and software makers are stepping up to the plate and helping shippers tackle the rigors of global supply chain and logistics management.

Many of them are adding digital enhancements based on customer input and feedback, says Aimi, and others are starting up entirely new companies based on specific needs. He points to organizations like project44, FourKites and MacroPoint as some of the newer entrants born out of shippers’ need for improved transportation visibility and tracking.

“That whole market of companies came about on a serious level just within the last five years or so,” says Aimi. Their platforms incorporate handheld and in-cab computers, IoT sensors, and real-time location systems (RTLS) versus satellite. Rather than using EDI to transfer messages out to the drivers (and vice versa), everyone knows where the truck is at any given time. “That’s all being handled by ubiquitous, federated networks that are cloud-based,” he adds.

5

People play an important role in the digital supply chain.

As they struggle with a persistent labor shortage, shippers recognize the importance of finding and keeping good talent—and even as they continue to invest in automation. According to Gartner, 95% of supply chain professionals are considering cyberphysical automation solutions and 59% say that “ongoing labor availability issues” are their primary reason for doing so. Asked which factors motivate their organizations to invest in supply chain technology, 17% of survey respondents cited the need to address labor constraints or shortages.

As operational labor management and its supporting technologies continue to evolve, Gartner says those solutions will be largely focused on improving workforce retention and deployment—and all while maintaining and/or improving productivity.

These are important wins in a labor environment where Deloitte expects U.S. manufacturers to have 2.1 million unfilled jobs by 2030, and where the Bureau of Labor Statistics is projecting that logistics employment will grow by 7% annually through 2026.

6

All eyes are on sustainability. 

Logistics, fulfillment, and transportation operations are all being called upon to institute environmentally-friendly processes and procedures, and for good reason. According to the EPA, the transportation sector is one of the largest contributors to U.S. greenhouse gas (GHG) emissions and accounted for 27% of all U.S. GHGs in 2020.

As consumers, business partners, governments, and regulators strengthen their push for more sustainability, shippers are placing similar expectations on their own suppliers. “Two years or three years ago, suppliers weren’t really being measured on sustainability the way they are now, and the way they will be going forward,” says Rachakonda, who recently worked with the head of sourcing for one of world’s largest aerospace manufacturers. That professional’s biggest concern was how to effectively measure suppliers based on their sustainability impacts.

This is just one example of the critical nature of sustainability in today’s manufacturing and distribution environments, where software vendors are being asked to meet similar expectations. For example, Rachakonda says software vendors develop solutions with help of partners/suppliers, all of which should also have their own sustainability programs in place.

What’s next?

As Rachakonda makes predictions about the future the digital supply chain, he sees more autonomous vehicles, delivery drones, and fully-automated warehouses coming into view. These technologies are all being developed, piloted, and deployed at various stages of the logistics process, but he expects the pace of adoption to accelerate over the next few years.

“We’re definitely seeing more companies interested in how to use drones for deliveries, automate their warehouses, and use more autonomous vehicles in their fulfillment centers,” says Rachakonda, who points to consumer packaged goods (CPG) and food and beverage as two sectors that have been leading the pack in this area.

“This is something we’re seeing more companies think about and spend dollars on,” Rachakonda adds. “One thing we all learned from the pandemic is that there are situations where you may not have a workforce in the warehouse. That event made more companies take everything from drones to autonomous vehicles to AI a lot more seriously in manufacturing and distribution. This isn’t just a theory anymore; it’s a reality.” 

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LOGISTICS
April 25, 2023 By user

Supply Chains Have Changed Forever

A robot moves products manufactured by Nestlé at a distribution warehouse operated by GXO Logistics near Derby, England. Photo: Chris Ratcliffe/Bloomberg News

Supply Chains Have Changed Forever

Nearshoring. Automation. Supplier diversification. Sustainability. Here’s how companies are reshaping their supply chains.

When a measure of strains on global supply chains fell earlier this year to levels last seen before the Covid-19 pandemic, it signaled to some that the product shortages, port bottlenecks and shipping disruptions of the past three years were over and that a new era of stability was on the horizon.

But industry experts say a “return to normal,” as the Federal Reserve Bank of New York described its Global Supply Chain Pressure Index in February, hardly means that companies are going back to conventional, some would say complacent, supply chains.

Instead, say academics and consultants, the experiences during the pandemic, along with changes in geopolitics, are leading to broader, potentially long-lasting changes in how companies manage the flow of goods, from the sourcing of raw materials to manufacturing and distribution.

The changes are playing out at factories in India, auto-assembly plants in northern Mexico, ports from the U.S. Southeast to East Africa and mineral mines in Canada and Sweden. The sites are where companies are implementing disciplines such as resilience, regionalization and supplier diversification that came to the forefront as they coped with the severe disruptions that began in early 2020.

The turmoil that began with the declaration of the Covid-19 pandemic first hit companies with sudden shortages of consumer staples as households locked down, was followed by factory shutdowns that interrupted the flow of goods and then hit transportation networks as an abrupt snapback in demand led to overstuffed ships and enormous backups at ports.

By April 2020, the New York Fed’s supply-chain stress index had shot up to double the level it reached during the recovery from the 2009 financial crisis. It finally fell back early this year to levels more typical of a measure going back 25 years.

“Some stresses have been taken off, there are fewer supply shortages, and things are a lot less hectic, but we certainly are not back to normal,” said Patrick Van den Bossche, a partner and global analytics practice leader at consulting firm Kearney. “There is a subdued level of urgency but a lot of things have changed.” 

Diversifying supply sourcing

The changes on the surface include less reliance on Asia, particularly China, and the use of more automation technology to keep assembly lines and warehouse operations running.

Apple Inc. is shifting some smartphone production from China to India, toy maker Mattel Inc. is among companies expanding operations in Mexico, and even a Chinese manufacturer, Hisense Co., is looking to make appliances in Mexico for the U.S. market.

But there are more enduring changes, experts say, that will more broadly affect how companies get their raw materials and parts, where they produce goods and how they ship finished products to consumers. Taken together, the changes mark the biggest shift in how supply chains are managed since China’s entry into the World Trade Organization in 2001 ushered in a new era of globalization.

Experts say postpandemic supply chains are being built with a focus on regionalization, with production closer to where companies expect to sell their goods. Companies are also moving to spread their base of suppliers around the world, moving away from single-sourcing, and they are adding automation to everything from warehousing operations to procurement decisions.

The shifts add up to a widespread effort to make supply chains more resistant to disruption.

“They have been moving away from a model built on scale, where everything is engineered to get the best financial impact from the greatest economies of scale, to a model where there is plenty of redundancy in the network,” said Mr. Van den Bossche.

“The move away from China, to rewire supply chains to where you have multiple local supply chains, is really just starting. Companies are still trying to figure out how this works,” he said.

Risks vs. rewards

Rick Gabrielson, a consultant and former senior transportation executive at Target Corp. and Lowe’s Cos., said many companies are looking hard at their sourcing strategies, including whether they have a heavy concentration of goods or components coming from one country or a single supplier.

Spreading out suppliers almost certainly adds costs, but Mr. Gabrielson said companies have to balance those costs against the potential for future disruptions.

“You have to ask yourself, which do you want? Are we going to minimize risk for shareholders and customers or are we going to minimize costs? This is the conversation that is taking place, but the change doesn’t happen overnight,” he said. 

Heidi Landry, chief procurement officer for MedTech at Johnson & Johnson, told the University of Pittsburgh’s Supply Chain Management Symposium in March that the healthcare-products company is trying to better gauge risks in its global network of suppliers in the wake of pandemic disruptions. The program, she said, is aimed at “maintaining a continuous supply base and managing risk to enable global access to lifesaving medicine and equipment.”

New regulatory disclosures

Expanding environmental rules and the drive by companies to cut their carbon footprint is making that effort to diversify sourcing more complicated.

In the U.S., the Securities and Exchange Commission is advancing plans to require that companies disclose not only their own carbon emissions but those of their suppliers, and their suppliers’ suppliers—what is known as Scope 3 emissions.

“Sustainability adds complexity and it adds costs,” said Mr. Gabrielson. 

The biggest casualty in supply-chain strategies during the pandemic may have been the just-in-time principle that has preached lean inventories to cut costs and improve efficiency in supply chains. 

After lengthy product shortages and factory outages from Vietnam to the U.S. Midwest because of parts shortages, businesses from Nissan Motor Co. to PepsiCo Inc. have said the focus on hyper-efficient supply chains may be waning as more companies recognize the value in buffer stock.

Mr. Gabrielson said companies will adapt over time, taking on more safety stock while managing risk in other ways such as adding multiple suppliers. “You will not see the pendulum pull all the way back” to a just-in-time focus, he said.

Greater regionalization of production will also help minimize risks of shortages because the supply lines aren’t as long, he said.

‘The most important lesson’

Yossi Sheffi, director of the Massachusetts Institute of Technology’s Center for Transportation and Logistics, said the accelerated adoption of technology during the pandemic, as companies rushed to make and ship goods more quickly, will have a lasting impact on supply chains.

But the bigger impact will come, he said, as companies assess how they responded to the pandemic strains and adapted. Prof. Sheffi points to the consumer-goods companies that quickly reconfigured supply chains by trimming product lines, resetting sourcing and using other tools to rebound from early shortages.

“They learned a lot of things that they didn’t think were possible. This means companies can do more than they thought was possible,” he said. “They have learned how to be nimble, and that may be the most important lesson.”

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