Supply Chain and E-commerce
New consumer behaviors have altered the logistics supply chain, this is a reflection of the pandemic caused by COVID-19
Since the dawn of our civilization, in the Fertile Crescent region of the Middle East, between the Tigris and Euphrates Rivers, approximately 6,000 years ago, supply chains have been focused on regions close to the centers of demand. This lowered costs and made everyone’s life easier. This logic has practically not changed for thousands of years. But with the use of the Silk Road towards China, in the 1st century BC, and then with the great navigation, at the end of the 14th century (almost 1500 years later) the search for products from different locations became a prosperous business. . That was where, in fact, globalization began.
In the second half of the 18th century, the Industrial Revolution brought a new dynamic to the manufacturing process that, until then, was artisanal. The technological changes that occurred in the following 150 years allowed mass manufacturing (Henry Ford with his production line is highlighted here) and the search for inputs and consumer markets became essential for the survival of corporations. However, everything was still very slow, especially in terms of transport. This situation changed throughout the 20th century.
Even with all technological advances, the cost of moving inputs and finished products was excessively expensive. This kept a good part of the supply chain located within a range relatively close to manufacturing units and consumer markets. But in the last two decades of the last century, between 1980 and the year 2000, many companies decided to make labor cheaper, taking their factories to nations where employee costs were lower. At that moment in recent history, transport modes were already better adapted, offering a reasonably fast, reliable and cheap service.
When large corporations decided to move their factories to third world or even communist countries, such as China, they saw in such a move an opportunity to optimize operating costs as a whole and, to boot, to capture emerging markets. The strategy has driven Globalization to a level never seen before. As we entered the 21st century, the world economy was completely interconnected. The outsourcing of services and production steps has become routine. Each with their expertise.
And everything was going well, with some bumps, like the subprime market crisis in 2008, but, in the end, it was going well. Until the COVID-19 Pandemic broke out. China closed factories to prevent the spread of the disease. Throughout 2020 several countries were forced to do the same thing. From lockdown to lockdown, several factories stopped their activities due to lack of inputs. In contrast, e-commerce experienced an explosion in consumption. In the United States, growth in 2020 was 32.4%, moving 794.5 billion dollars. In Brazil, e-commerce increased it’s sales by almost 50%. According to a survey carried out by the company Ebit Nielsen, 7.3 million Brazilians were forced to buy online for the first time. Only Magazine Luiza increased its digital sales in the first quarter of 2020 by an incredible 148%! Via Varejo (owner of the Ponto Frio chain and Casas Bahia) recovered last year the entire loss of 2019 and had a profit in the third quarter of 2020 of 519 million reais, with e-commerce accounting for 41% of sales.
This reality quickly changed consumption habits. Customers began to opt for faster deliveries, preferably on the same day (same-day delivery). The pressure on the entire logistics chain was and is being immense, especially for those who deal with the last mile, that is, the last mile before the product reaches the consumer.
The market has adapted with impressive speed to the digital world. At least the most capable ones, with resources available for change. What was expected to happen in ten years was implemented in a few months. But at the same time that the online universe was expanding, the supply chain continued to experience problems with the lack of inputs. This reality, mainly dependence on China, is forcing the West to review its globalization policy, turning its eyes to new regional supply chains.
However, perhaps this change is not so dramatic. According to Jorge Arbache, vice-president of the private sector at the Development Bank of Latin America, in an article published by Valor Econômico newspaper in February of this year, “With the exception of medical and hospital equipment, drugs and the like, there is reason to expect that official responses to the pandemic will not significantly alter Global Value Chains (GVCs) beyond the transformation process already under way. After all, China is seen by multinational companies as a highly attractive and integrated place to develop, produce and distribute worldwide – it is worth remembering that the greatest intangible value of production chains are the networks of collaboration and relationships and the diversity of suppliers , which abound in that country. Abruptly changing geographies of industrial plants would be a time-consuming, inefficient and costly exercise, especially in the difficult situation of the world economy.”
But Jorge Arbache also makes another warning: “That said, it must be taken into account, on the other hand, that the growing politicization of trade and investment issues could effectively influence the fate of GVCs. There are many signs in this direction, which include the imposition of tariff and non-tariff protectionist measures; measures that jeopardize freely entered into commercial contracts; sanctions and blocking of assets, payments, and transfers; laws that interfere with mergers and acquisitions; threats of disruption of dialogue in processes of harmonization of technical and regulatory standards; breach of already harmonized agreements and standards; trend towards fragmentation in global payment systems; and threats to the free functioning and integration of the Internet globally. Added to this is the stagnation of the WTO and the ineffectiveness of the dispute settlement system; the emphasis on bilateral trade agreements to the detriment of multilateral ones; and the emergence of nationalist and anti-immigrant movements.”
There are two possible scenarios that could affect the supply chain in the coming months. The tendency is for market logic to prevail. In this way, the interdependence of the supply chain must continue at its current pace. With a difference: thinking about future events, such as other pandemics, more cautious companies will probably create smaller and regionalized versions of supply chains around them, with idle capacity to meet large emergency demands.
It’s not just about prudence. There are also factors at play. The vertiginous growth of e-commerce and the expectation of consumers to receive their orders as quickly as possible has required companies to find creative solutions to serve their clientele. Among the strategies, new suppliers, preferably located in the same destination region as the final product. Among service providers, this is already a consolidated trend. Even the big delivery companies have made big investments in regional markets. The DHL Group, for example, headquartered in Germany and present in 55 countries, has 12,000 employees in Brazil alone, 56 distribution centers and transport operations. Presenting capillarity is vital for the oxygenation of e-commerce.
Finally, whether with Global Value Chains or Regional Chains, the interdependence between the components will not cease to exist. On the contrary. It will be expanded with transparency and cooperation between the various players. After all, when one for all are harmed.
(The text above was written with information collected on the websites blog.portalsupplychain.com.br, cargox.com.br, istoedinheiro.com.br, apol.pt, Exame.com, sopesp.com.br, valor.globo.com , gartner.com and cdn.cnt.org.br).
READ BONUS
Below are some impacts of e-commerce at this time of a pandemic on logistics as a whole and on the supply chain in private. Staying aware of ongoing changes is a matter of survival:
- INTERNAL STRUCTURE
- The number of online sales may have increased, but compliance with safety standards with COVID-19 imposed a series of restrictions that made the operational routine difficult. They are adaptations. But necessary adaptations. One of them is hiring more employees, even because of sick professionals. All this with the aim of not letting the flow stop. Among these employees, some with other types of knowledge, such as data analysts, for example.
- TECHNOLOGICAL INVESTMENT
- Automation, the Internet of Things and the use of drones in warehouses are some investments in technology necessary for the supply chain to survive. But they are not the only ones. The Supply Chain and Digital Twin, for example, provides a virtual version of the entire process and allows for real-time corrections of what is happening. In addition to this novelty, we cannot forget the use of Big Data, Artificial Intelligence, 5G Network and the Governance and Security of the Supply Chain.
- LAST MILE
- Companies in the sector will have to adapt to be closer to commercial partners and consumers, increasing the number of distribution centers or similar at strategic points.
- CONSUMER EXPERIENCE
- According to the CTT e-Commerce Report 2020, three of the main reasons for consumers to buy online were the ease of purchase (compared to physical stores), lower prices and the convenience of purchasing goods at any time. Seeking to serve the customer in an omnichannel way, presenting alternatives to sold-out products, informing about possible delays, providing tracking options and correctly using personal protective equipment during delivery can improve the shopping experience. Immersive technologies during the digital journey are also powerful tools.
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