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PA IN THE MEDIA

3 crucial questions for the logistics network of the future

Words such as resilience, agility, robustness and responsiveness have all more or less been part of the supply chain managers' vocabulary for a number of years. However, the dramatic events of recent times, such as the COVID-19 pandemic and Brexit, have made the concepts known to the wider population as well. But there are also a number of other trends (some influenced by the particular current events) that will affect the logistics network of the future.

Increased e-commerce, personalised products, new technology, re-shoring of production and suppliers and sustainability, mean consumers will be making renewed demands on the logistics network of the future. This means that your customers will put at least five requirements on you, which are:

1. Delivery must be fast and accurate. Customers do not want to have to wait until the following day or sit at home staring at the walls for long periods of time, for example for a slot between 8am-4pm.

2. It must be cheap. The customer will not pay extra for home delivery.

3. It must be transparent. The customer wants to know everything that is happening with their order and wants exact information about when it can be delivered before they place the order.

4. Ordering needs to be easy. If they cannot order the item on the bus on the way to school, for example, then it may end up not being ordered.

5. It must be sustainable and part of the circular economy. Customers will not want to harm the environment.

All of this provides a mishmash of familiar questions which need new answers, and where classic supply chain thinking often falls short. In order to develop a logistics network that can contribute to market leadership, the questions must be answered in new ways to help find tomorrow's answers.

As a supply chain manager and leader, you should therefore revisit the following three questions about the logistics network of the future (and even today): 

A. What does the logistics network need to be able to do to help the business win in the market?

B. What should the future logistics network look like?

C. Where should individual stocks be, how should they be coordinated?

A) What must the logistics network be able to do to help the business win in the market?

Previously, service levels were based on what the logistics network could and would offer customers (and often what the seller had promised the customer was delivered through ad hoc last minute saves). Tomorrow's logistics network needs to base its service on forward-looking competitive trends as well as data-driven insights into what drives customer behaviour and profit. It is even possible to extract data-driven insights into where the next pockets of profitable markets will be found. New methods and tools for understanding customer behaviour and drivers of profit have provided opportunities to gain valuable insights into what customers really need and do not need.

B) What should the future logistics network look like?   

The logistics network of the past often consisted of some central warehouses containing the full product range as well as some distribution centres closer to the customers - and possibly some depots for service companies. This was relatively fixed and was coded into companies' IT systems and supply chain parameters, based on analysis of the balance between costs and service levels.

Tomorrow's logistics networks will be less locked in, and they will, to a greater extent, include the full supply chain from suppliers and subcontractors to retail and customers in an active and dynamic way. For example, store shelves and back rooms should become an active and visible part of the network's available product range. In terms of design, logistics networks are also becoming much more flexible. Here, new technology, new supplier business models and new digital sales channels are just some of the elements that provide new answers to old questions. Equally, increased e-commerce may lead to an increase in the need for logistics to manage returns.

C) Where should individual stocks be stored, how should they be coordinated?

Numerous analyses of "centres of gravity" and other exercises have been carried out to make sure stocks are placed correctly to reflect proximity to customers, suppliers’ needs, and costs. These are useful supplementary tools but what happens in the real world often gets in the way of the analysis. The 3PL happens to have vacant space elsewhere, or there are vacant leases available, and transport prices evolve in a different way than expected. New technology also comes into play here. New warehousing technology has changed the parameters of cost, productivity and space requirements as well as the ability to create high numbers of individual logistics solutions. IT and AI solutions increase opportunities to orchestrate and change how the individual warehouses connect together across the entire supply chain - and not least how the supply chain can support a wealth of different sales and distribution channels across online and physical stores. These are some of the questions we discuss with our customers, and where we are finding new answers to old questions. So what questions are you discussing?

Read the article in Danish in SCM.dk here

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PA Consulting in Denmark

Andreas Møller

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