Six strategies to
optimize supply chain efficiency during
COVID-19 and beyond
A clear understanding can help you prepare your supply chain for the unexpected.
Retailers and their supply chain partners have to continually adjust to new challenges as a result of COVID-19, including how to respond to the massive growth in e-commerce.
Even the most well-prepared businesses couldn’t fully anticipate an impact of this magnitude. The last-mile landscape has experienced a fundamental shift, and the resulting challenges are raising serious questions about what retailers and supply chains can do in the future to actively respond to national emergencies or other events of this scale.
Here are key action items to help essential and non-essential retailers optimize supply chain efficiency in response to COVID-19.
- Minimize supply chain risk
The coronavirus pandemic is not the first major disruptor to global supply chains, and it won’t be the last. This and similar events put the spotlight on risk management.
Essential retailers like grocery stores, drug stores and retailers who sell essential goods are likely facing challenges keeping up with demand, keeping shelves stocked, receiving product from overseas, and getting trucks across state lines due to lockdown restrictions. One possible solution is to examine supply chains holistically to identify possible risks.
Relying on a single country, supplier or production method to produce product is risky. Companies must diversify their supplier base and, if feasible, create a regionalized network to serve global demand. Moreover, since trucking is responsible for moving 80% of the world’s goods, companies should diversify their distribution and transportation methods, perhaps relying more on rail and/or intermodal shipping instead of trucking alone.
For additional risk mitigation considerations, download our mitigating supply chain risk whitepaper.
- Expand and differentiate e-commerce offerings
Many retailers have reacted to the growth of online commerce as best as they can, but often without a fully developed and funded strategy. A smaller number of essential omnichannel and online retailers are restructuring their supply chains to offer customers better e-commerce service, given that the pandemic has raised customer service expectations.
Social distancing and stay-in-place policies are creating a surge in essential demand, and it’s imperative to continue to build out an e-commerce platform.
National and local restrictions are lifting to varying degrees; however, consumers are still slow to return to brick-and-mortar establishments. This means all retailers should be providing contactless curbside pickup and home-delivery options to satisfy social distancing requirements.
Retailers cannot dictate how customers shop, but they must adapt to serve them whenever, wherever and however they want.
- Accelerate supply chain network optimization from re-shored supply to last mile
Having the right real estate, suppliers, fulfillment facilities and stores—and utilizing it in an optimal way—is central to the efficiency of supply chains.
Companies will increasingly look at replacing overseas suppliers with domestic ones to deal with the tariff and trade policy changes that have gone into effect. Expect real growth in re-shoring or near-sourcing manufacturing with the greatest pressures on critical industries. A renewed emphasis on domestic supply chain independence will also accelerate the re-shoring trend through the last mile to the consumer.
- Restructuring industrial leases
For retailers and distribution facilities that are closed or operating at less than full capacity, restructuring a lease using a “blend-and-extend” strategy allows renegotiation on the company’s behalf to secure short-term benefits.
It’s not about the unwillingness to pay rent, but rather a conversation between landlords and retailers to reduce rent payments and annual cost in the short term and extend the lease term. This option is almost always a win-win because a landlord locks in firm terms well in advance, and the tenant gets a rent reduction for extending their lease early.
- Re-examine liquidity options
Some companies own their industrial and retail assets but need to increase liquidity to pay employees and continue operations. One possible solution to this is a sale-leaseback, which allows a company to sell an asset to raise capital, then lease the asset back from the purchaser. This way, a company can get both the cash and the asset they need to operate its business. As the debt markets loosen up, owner-financing options will reappear, placing debt on the assets. Expect lenders to be selective regarding credit, location, building type, terms and conditions.
These types of transactions can be structured in various ways that benefit the buyer/lessor, seller/lessee and lender.
- Reevaluate supply chain network
A poorly designed network can create excessive handling, high operating costs and poor customer service. Strategies to consider include eliminating unnecessary facilities, avoiding too many locations, and inadequate use of distribution locations.
Another option—close facilities that aren’t running at full capacity and outsource supply chain management to a third-party logistics service provider in the same market who will help improve performance while reducing costs. Warehousing and transportation are two of the top supply chain expenses, and an outsourced partner can provide more flexible, cost-effective and skilled services.
COVID-19 has exposed supply chain vulnerability, and concerns that were once unrecognizable, overlooked or postponed have resurfaced. It’s important to understand that analyzing and adjusting how a company’s supply chain operates today will help build a more resilient network for tomorrow.