2020 was a year of massive, unprecedented disruption. And now it’s time to prepare for the next phase of disruption: Adjusting to the new normal.
We recently produced a webinar to discuss the domino effect of 2020; where the supply chain broke down, how consumer behaviors shifted, and what the future holds for logistics.
Dr. Yossi Sheffi, Director of MIT Center of Transportation and Logistics and author of The New (Ab)Normal: Reshaping Business and Supply Chain Strategy Beyond Covid-19
Harshad Kanvinde - Leader of Slalom's Global Supply Chain Practice
Moderated by Karl Siebrecht, Co-Founder and CEO at FLEXE
The 60-minute webinar consists of three parts:
- Part 1 - The domino effect of 2020
- Part 2 - Insights on current consumer behaviors
- Part 3 - The future of logistics
The following transcript has been edited for clarity and readability.
We've given a name to 2020, the Domino Effect. So what do we mean by that? As the pandemic started to unfold very early this year, one way to think about what happened in supply chain and describe what many companies and consumers have experienced is a domino effect.
It started largely in China with disruptions to production, and then cascaded through supply chains, certainly in retail, but also, obviously, in the medical supply sector where it has impacted the vaccine distribution. We’re going to explore the massive impact of these disruptions.
Yossi has written a lot about this and has done tons of research on this topic. So, Yossi, we'll start with you.
What happened to supply chains as the pandemic started to unfold?
Dr. Yossi Sheffi:
Well, several things happened. First of all, the expectations of consumers changed. Levels of service deteriorated. People were happy just to get something, whether it's what they asked for or something close to it.
Supply chains are still under pressure due to problems in transportation. It started with problems with air transportation when we lost the belly cargo. And now we’re seeing problems with maritime transportation with the significant delays at the ports, which in turn leads to a lack of containers in the right places. All of these factors are pressing the supply chain.
What we are seeing now is what I call “the negative bullwhip.” We started seeing demand going down because of closures and what happened in China, Europe, and the United States. Companies were retrenching—not investing very much and trying to conserve cash.
And now, the wave is coming back. We’re seeing higher demand and more requirements around transportation capacity. The industry cannot fulfill it right now. So we have deterioration of levels of service and people not getting what they want. And it will take a while to equilibrate. It will take a while for things to come back and for demand to stabilize.
The wave is coming back. We’re seeing higher demand and more requirements around transportation capacity.Dr. Yossi Sheffi Director, MIT Center of Transportation and Logistics
How did industries thrive during the disruptions in 2020?
The shortest way to answer that question would be that the businesses that did well throughout the different stages of the pandemic were the companies that got Business 101 right vs. the ones that didn’t.
Take CPG as a sector. Obviously, on the demand side, there were no issues. Toilet paper was well advertised, but beyond toilet paper and looking at daily household needs, there were consumer-behavior shifts happening. As Yossi mentioned, people were okay with less variety being available. So those kinds of shifts happened.
Companies like Unilever and P&G in the CPG sector were able to take advantage of that growing demand. They were the ones who had their eyes open even before the pandemic and had programs in place. They understood their customers really, really well. They all had global operations. So even before the lockdowns and the broad media hype around Coronavirus—as early as December or late November—these companies were preparing because they had operations in China and they knew what was going on.
They had estimates that it's going to hit in our market. These companies had plans in place that left them prepared for how to run manufacturing plants and how to think about water safety and staggering the shifts so that the operations wouldn’t get interrupted.
Another category is eCommerce, which shot off during the pandemic for obvious reasons. People didn't want to go to the stores and buy the everyday items. They relied on eCommerce. So companies like Instacart and DoorDash—the food delivery companies—did really well. As well as the usual suspects, Amazon, Target, and Walmart did really well.
But, again, the companies that had the right kind of digital foundation to understand their customers and where things are moving were in a position to capture the upside (if there was any) of the pandemic and the upheaval.
The companies that had the right kind of digital foundation to understand their customers and where things are moving were in a position to capture the upside (if there was any).Harshad Kanvinde Head of Global Supply Chain Practice, Slalom
I want to add something about this. The people who suffered most from the pandemic were those who were weak and had comorbidity. Similarly, the companies that suffered the most were also already struggling before the pandemic. Look at department stores. Department stores in 1999 had a total revenue, in today's dollar, of about $30 billion. Before the pandemic, they were already at $11 or $12 billion. Now, they are at $7 or $8 billion. [Major, recognizable retailers] are all going down. The companies who were struggling before had a quicker decline.
However, supply chain, by and large, performed well.
Take food and grocery. There was an unbelievable change in food consumption once the pandemic hit. No restaurants, no universities, no industrial parks—everything is at home. Products in supply chain require different packaging. Food sometimes requires different signage on the package. It might describe the calories or fiber content, etc. That packaging isn’t necessary when it’s being sent directly to restaurants. The type of food that people bought changed. It was a lot less of fresh produce, and a lot more comfort food—more bread and pasta. Here and there, people were having a hard time finding the cut of meat they wanted or the flavor of granola they wanted.
But by and large, the supply chain worked.
So only by understanding the magnitude of the challenge, one can understand how well supply chain managers did during the pandemic.
The companies that did well were high-performing, well-managed companies. Harshad, you mentioned eCommerce. eCommerce, prior to the pandemic, was about 15%, 16% of U.S. retail sales. Somewhere around seven years of market share gain happened in the span of about three months. The numbers may vary by a point or two here or there, but there was a massive shift in consumer behavior. And, not surprisingly, there was a significant shift in brick-and-mortar retail. Yossi, to your point, there had been a lot of retail store closures leading up to this. But the pandemic really exacerbated things.
What types of companies successfully tackled the massive spike in consumer demand via eCommerce?
I think the first category of companies that comes to mind is the food delivery companies. Going back to the March and April time frame, like many others, I was worried about having enough food. You see people running away with toilet paper and food was top of mind. And food delivery companies jumped in. Many of those companies did really well. So there was absolutely a surge in demand for companies like Instacart and Doordash.
But that didn't happen automatically. Just because there was a surge in demand doesn’t mean everyone was able to execute well. Even the likes of Amazon. If you remember the March / April time frame, the two-day shipping promise went out the window. Many deliveries were delayed. But I think to Amazon’s credit, what they did really well was provide enough transparency to the customer. "Yeah, the deliveries are going to be delayed, but we are letting you know beforehand rather than you finding out and worrying about ‘where is my stuff’."
The good companies had a common denominator; customer-obsession. Customer-obsession is often an absolute thing, not a relative thing.
The good companies had a common denominator; customer-obsession. Customer-obsession is often an absolute thing, not a relative thing.Harshad Kanvinde
Another area that struggled in the March / April time frame was the buy-online-pick-up in-store (BOPIS) segment. Many struggled with having enough parking spots available or pick-up time slots available. That was a real problem. People experienced waiting days to get a pick-up time slot, looking for times at midnight to hopefully get a slot reserved. But companies like Amazon, Instacart, even to some extent, Fred Meyer, and other grocers took care of those challenges in the coming months. Instacart, for example, hired hundreds of thousands of new couriers during that time frame. Amazon did the same thing. These companies hired aggressively to try to execute really well. This is a new world. The demand is surging, so they have to keep up.
eCommerce is taking more precedence than the other channels. That’s obvious to everyone. But not everyone was able to cater to that demand.
I'll give one more example around eCommerce. Without naming names, this company’s eCommerce demand was surging. But they had to close down physical stores because of initial lockdown orders. Their initial reaction was, "We can't handle this growing demand. Let’s curtail and let's implement solutions so that our customers can't order." That’s the wrong way to look at things.
So companies like Instacart and Amazon and other companies did really well and executed really well by being transparent throughout the buying process with the customer. And then there are other examples where companies acted out of worry because of the increase in demand.
This is a new world. The demand is surging, so they have to keep up.Harshad Kanvinde
How did companies use eCommerce and other innovations to adapt to the times?
When I say eCommerce, we’re talking about the variations of eCommerce. We want to call it omnichannel because some companies had the right technology in place before the pandemic.
Take Domino’s Pizza. Before the pandemic, Domino’s had started to develop an app that allows people to order and uses GPS to send a message to the store letting them know that the customer is close. Then a Domino’s employee would come out and put the pizza in your trunk. Domino’s had a prototype of this before, but once the pandemic hit, there was a use case. And they implemented this in hundreds of stores. In Q3 of 2020, Domino’s was up 17.5% over 2019. Whereas other similar companies went out of business. So this is an example of a company that was technologically prepared. Being technologically prepared means not only having an app but having the right relationship with the right people who can develop that technology very quickly.
Another example is Sephora. Sephora realized that people are not going to come to the store but that people still need to know how to put makeup on. So they quickly developed an interactive app that provided videos that showed customers how to use their products.
IKEA developed an augmented reality app where you can look at the items at a store and virtually put those items in your room to see what they will look like. This app wasn’t created before the pandemic, but they were very quick in developing it, which means they have the resources, the vendor relationships, and the internal capabilities to develop it.
It’s all about preparation. Companies that had intelligence and operations in China could see what was coming before the pandemic hit. And having good relationships with competitors and vendors is important. In my book, The New (Ab)Normal: Reshaping Business and Supply Chain Strategy Beyond Covid-19, I interviewed the CEO of C&S Wholesale Grocers. Their demand went through the roof, and they needed more support. They were able to call malls and other businesses that they have relationships with and get thousands of workers added immediately. So having a good relationship with vendors and with suppliers, even with competitors, is very important to be able to switch immediately and go online.
But there's also something in “necessity is the mother of invention.”
In the book, I have a little story about a family company that was in Chelsea, north of Boston. They're now called New England Country Market—a husband and wife team. They were doing delivery to restaurants. From one day to the next, the business went to zero. The wife decided to develop a delivery option that went directly to the consumer. Before the pandemic, they had no website. You had to call them, and they would tell you what's available that day. Then they developed a website to take orders online and track and trace orders. In three weeks, they did that—just the husband-and-wife team.
It’s about, “How desperate are you?” Of course, a small company is not a big conglomerate. But to me, it shows the tenacity of people who will try hard and actually make it.
We hope you enjoyed Part 1 of "Hindsight is 2020 and the Future of Logistics."
In Part 2, learn about how COVID-19 impacted consumer behaviors and expectations.
MEET THE PANELISTS:
Dr. Yossi Sheffi - Director, MIT Center for Transportation & Logistics
Dr. Sheffi is an expert in systems optimization, risk analysis, & supply chain management and the author of five award-winning books. He founded LogiCorp, Logistics.com, e-Chemicals, PTCG, and Syncra Systems—which were acquired between 1994-2004.
Don’t miss Dr. Sheffi’s latest book, The New (Ab)Normal: Reshaping Business and Supply Chain Strategy Beyond Covid-19, (October 2020).
Harshad Kanvinde - Head of Global Supply Chain Practice, Slalom
Harshad helps clients in several industry sectors, including CPG, Aerospace, Automotive, and Technology, address their thorniest Supply Chain problems through strategy development, business model innovation, and digital transformation.
Karl Siebrecht - Co-Founder and CEO FLEXE
Karl is a seasoned technology executive with leadership experience in both startups and large, global corporations. His previous roles include the CEO of AdReady, which pioneered adtech, the President of Atlas at aQuantive before its $6B acquisition by Microsoft, and earlier in his career, he was a Manager at Bain & Company in Boston.