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More dynamic logistics networks

What logistics must offer in the future

While the German retail industry considers warehouse-based order picking with pick-by-voice and self-scanning checkouts to be innovative, in other parts of the world shopping via face and product recognition via camera data analysis is already being tested as a new standard - the last mile by drone or autonomously driving delivery vehicles are already a reality. So there is still a lot of room for improvement here, and in order to remain flexible and capable of action now and in the future, alternatives for delivery service and logistics must be considered and implemented.

Germany is struggling with digitalization. Recently, in 2019, one of the largest German mail order companies has announced that it will cease production of its paper-based catalogue and will henceforth rely entirely on the online channel. In the same period, the delivery of fresh food products in the UK, the US and Asia has achieved almost full coverage of online shopping.

To a certain extent, this is certainly due to a certain mistrust of new technologies in parts of the population. However, as a result of the Corona crisis, many processes have now become standard virtually overnight: contactless payment or deliveries to the front door and contactless parcel acceptance. These are just a few of the issues that show us that we in the retail sector not only need to think about further digitalization, but also implement and use it quickly. This is the only way for the retail sector to become and remain crisis-proof. 

Retail is still too vulnerable in logistics and not flexible enough

When I look around the German retail sector, I see that we have perfected our supply chains and supply relationships down to the last screw. However, in recent weeks it has also become very clear that flexibility and the ability to react quickly in new or critical situations has fallen by the wayside.

For example, a rapid multiplication of transport capacities was not feasible despite available food in the central warehouses. This is often caused by rigid order and delivery schedules, fixed capacities in delivery by limited assortment specific truck types in the own fleet or fixed purchase quantities with the transport service providers. Storage structures that have been optimised for years do the rest - necessary, structural requirements such as temperature and humidity, as well as the fulfilment of legal requirements for the separation of product areas have been structurally established.

The situation in the fashion industry is completely different, yet similar, with regard to a lack of flexibility in the supply chain: The spring collection is in overcrowded warehouses and at the same time the summer collection is already on its way to Germany by container ship. All this with stores closed for weeks on end. Here, the logistics departments are desperately trying to find additional storage capacity for the goods arriving by sea - and at the same time to deal with the now defunct store deliveries, but contractually agreed reductions in transport capacity. At the same time, higher volumes have to be served via the online sales channel. In some cases, retailers fail simply because of a lack of transparency regarding stocks or availability of articles in stores and warehouse locations.

What can we learn from the crisis?

On the positive side, digitization is progressing faster in all areas of retail and broad acceptance is also being created among end consumers. This "forced" digitization "overnight" makes one thing clear: We have to digitize all source-to-pay processes and especially the logistics network. This is the only way to make retail more crisis-proof.

Dynamic logistics networks instead of rigid delivery routes!

The fixed capacities in transport logistics, which have grown over many years, must be broken up and made more dynamic in order to be able to react quickly to both suddenly increasing and suddenly decreasing or locally strongly changed demand. The potentials are there. To give just one simple example: one in five trucks on Europe's roads is driving around empty. Why?

  • Long-term contractual agreements with transport service providers
  • Internal vehicle fleet designed for long-term depreciation
  • Political interests within the company

We must start the process of dynamisation now. We must seize the opportunity to use innovations in IT and cloud-based business models to achieve real-time trading of transport capacities and the exchange of transport requirements across company boundaries. Only in this way can capacities be adapted in a highly flexible, fast and simple manner.

Inventory transparency and flexible delivery models!

Many areas of online business are only stepmotherly developed. Offline and online business models are not able to interact seamlessly. We are also not prepared to map the burden of stationary trade online now. And even "big players" and pure online retailers like Amazon are experiencing delivery problems.

Consistent inventory transparency down to the individual store can help to serve online orders directly from there in the future. Here, the branch becomes a "mini-storage location" that can flexibly process customer orders on site despite being closed. At the same time, the branch can expand the local, personal approach to customers to its advantage - and thus ensure that customer loyalty is strengthened even in times of distance. This service should be available as standard in the future.

Customers will be able to order online with 24/7 availability from the comfort of their own homes, as well as shopping offline with personal and comprehensive advice at the branch. Direct online contact with the salesperson in the store via video chat is also conceivable. In this way, customers can take advantage of all the benefits of the respective sales channels on an individual basis.

A personal component in the delivery process increases customer loyalty

What is required for this?

  • Comprehensive stock transparency
  • Packing instructions at store level based on the online order
  • Provision of a certain picking capability in the stores themselves
  • Appropriate agreements with CEP service providers

In the best case scenario, storage capacities in the central and regional warehouses can also be reduced. In addition to the "click and collect" approach, the customer could receive a direct greeting, for example via a greeting card enclosed with the shipment, from the familiar store in the sense of continuous customer care.

The last mile to the end consumer ...

I see again and again that the stationary trade but also many other businesses, such as the catering trade, are switching to orders via the online channel, but do not automatically consider the last mile to the end consumer.

In addition to the call for self-collection, one of the decisive advantages of online ordering for consumers is the possibility of convenient (contactless) delivery to their front door. Intelligent solutions are required here to ensure that the costs of delivery via CEP/transport service providers do not eat up the margin or make the offer unattractive due to increased transport costs.

Here, for example, I see the chance to use and implement the ideas of various startups. These consist of delivery according to the "over" approach in passenger transport. This means that anyone who has capacity, interest and a destination in the area reports their free capacity in the form of a free trunk or a bicycle bag from a bicycle courier and receives and delivers the goods. Everything has already been prototypically tested here, from the order and confirmation to mobile apps and insurance arrangements in the event of damage or loss of the goods.

Go to the limits of your own company?

At first glance, it makes sense to optimize the supply chain to meet internal company requirements. However, when we experience how quickly demand and supply channels can change in a crisis, but also for other reasons, and that in the long term only those who are able to adapt quickly will survive, we have to tackle the overall realignment of the logistics strategy. Even if this initially leads to higher costs, the investment in new technologies will pay off in business terms.  

Controlled ramp-up of the supply chain

The key figures and the assessment of the general situation of the Covid 19 pandemic by the Robert Koch Institute (RKI) can not only serve as a basis for political decisions, but also as a basis for companies to assess the resurgent demand and thus the supply chain.

We are currently experiencing a change in consumer behaviour: During the crisis, the population has become accustomed to "indoor consumption", i.e. people are cooking more themselves and going out less, consumption is very restrained. For the logistics strategy of companies, this means that even after the crisis, the "normal state" before the crisis cannot be expected, but that the ramp-up of the supply chain and the associated bookings of transport and storage capacities must be made in small doses.

Conclusion

It is abundantly clear how important it is to make the supply chain more flexible and dynamic. Both flexible platforms in the cloud and on-premise solutions can help to bring transparency into the supply chain and to increase and dynamise the ability to act in interaction with service providers, suppliers and also customers. Those who cannot act flexibly will suffer more from the effects of crises.

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