Five priorities for retail logistics during the coronavirus pandemic and medium- and long-term actions
The Covid-19 pandemic is reconfiguring business. Several countries have already been in lockdown for almost a month and the most common scenes are empty streets and much of the trade and service providers are closed. But there’s a sector that’s been working a lot, maybe even more than before. This is the retail of essential goods, such as food and medicines, that has intensified efforts to ensure the health and well-being of the population.
To accomplish this mission, your logistics operations are in full swing, facing a series of challenges to get these items to supermarkets, pharmacies or customers’ homes. In order to reduce difficulties, the leaders of these companies have prioritized transparency, dialogue, joint analysis, and the provision of rapid responses.
On the other hand, retail of non-essential goods seeks to maintain its activities by intensifying operations in e-commerce. To boost sales, many of these companies have offered exclusive benefits, such as free shipping or discounts on purchases. The truth is that each, in its own way, is seeking to adapt to the new scenario, developing specific strategies to overcome the difficulties and keep the business active.
McKinsey & Company, the world leader in the business consulting market, has published several analyses and articles about the impacts of the crisis, the immediate reactions of companies and how they should act. Regarding the response through the transformations that are taking place, the company argues that companies need to think and act according to five horizons:
Address the challenge Covid-19 poses to the workforce, customers, and partners.
Address challenges of managing new deadlines and broader resilience issues.
Create a detailed plan to quickly return business to scale.
Reimagine the “next normal”: understanding how changes can bring permanent impacts and how companies should reinvent themselves.
Be clear about how the environment in your sector (regulations, management role) could evolve.
For McKinsey & Company, the most important thing is to establish a crisis committee. By bringing top management together in a single and flexible structure, the company is better able to face adverse situations, guiding everyone to understand, react and improve in a timely manner.
Also according to McKinsey & Company, in the supply chain, the crisis committee should cover several priorities, from conducting sales planning and operations based on scenarios, to product availability and supplier qualification. In all these activities, the committee acts as a unique and authorized source of information, point of contact and place of decision making.
The crisis committee may also break certain boundaries between roles. For example, it can bring together Logistics and Procurement leaders to identify the most urgent transportation contracts that require renegotiation in order to ensure alternative transportation routes. And it can resolve issues about which manufacturing locations should be reactivated first – and to what degree – bearing in mind supply constraints. In short, it can be said that the primary function of the committee is to ensure that all deadlocks are resolved.
It is worth adding that the information gathered by the crisis committee will be crucial to analyze the scenario, so that the crisis is faced with clear priorities.
McKinsey & Company also presented the main changes or challenges specific to the retail supply chain in this time of crisis. These include:
1) Relationship with suppliers
Due to the growing demand for essential goods, retailers are facing shortages in the network. To combat this, they have worked closely with their suppliers.
For the most important products, daily meetings are being held with strategic suppliers, in order to work with the options to ensure an adequate supply of high-demand essential items. This is the first and top priority for companies in the food and medicine categories that need to ensure a fast and reliable supply.
– Simplify SKU profiles to reduce variety and increase quantities;
– Negotiate payment terms for major suppliers;
– Extend delivery times with suppliers;
– “Relaxation” of OTIF (On Time in Full).
2) Merchandising operations
With retailers having to “re-calibrate” their orders to meet new customer demand, they will also need to make the change in purchasing, planning, and inventory management operations. Therefore, it is important that certain actions are taken:
– Review purchase plans that favor high-demand items;
– Direct inventories to places where sales are active;
– Replace replacement algorithms and inventory allocation, considering the new demands.
In the case of retail of non-essential goods, the following actions are recommended:
– Reduce long-term purchases to reserve money;
– Anticipate future highs in sales and adjust purchase plans.
For McKinsey & Company, this part of the supply chain is where trends in demand for essential and non-essential goods begin to overlap significantly. Suggested actions for the current scenario include:
– Re-employ or relocate staff to increase capacity;
– Provide training for store and back-office staff to assist in e-commerce;
– Temporarily move offices to distribution centers;
-Implement significant routine changes to maintain employee health and safety, as well as improve retention and reduce turnover.
As McKinsey & Company points out, more than ever, it is essential to maintain flexibility within logistics. Therefore, it is important to:
– Allocate more transport capacity to the high demand items;
– Have suppliers that deliver directly to stores;
– Stock products in stores located at strategic points to supply smaller stores.
In the case of retail of non-essential goods, the following actions are recommended:
– Explore alternative and supplementary delivery options;
– Offer transportation if private fleet is available to support the movement of critical goods.
5) Order fulfillment
At this time of containment, companies of essential goods (such as food and medicines) have seen a noticeable increase in online purchases and delivery orders of these goods. In view of this scenario, McKinsey & Company suggests:
– ” Relaxing” the demand for delivery the next day;
– Optimizing routes and adjusting more delivery times;
– Meeting as many orders as possible.
For retail of non-essential goods, it is recommended to:
– Expand delivery and return options to give more flexibility to customers.
Recommended actions in the medium term
One piece of advice from McKinsey & Company for companies in general – and that also applies to retail – is that, with the crisis easing, they convert their crisis committee into a medium-term risk management process. The recommendation is to: “convert day-to-day firefighting into reliable risk management.”
The idea is to transform the temporary formation of the crisis committee into a more formal risk management process. According to McKinsey & Company, companies “can use the knowledge and lessons learned from their short-term actions to form the basis for building more resilient logistics”.
Therefore, the ideal is to create a fixed risk management team, which will be responsible for assessing threats to the supply chain, through the collection of clear information. There should also be regular interface with other functions, including Sales and Marketing, Finance, HR, R&D, and IT, to ensure and encourage a high awareness of the importance and implications of proper risk management.
Preparing for the future
As for long-term actions, McKinsey & Company argues that companies need to have both the risk management team and improve logistics planning.
Risk management begins with an in-depth analysis of production, seeking to reduce costs and risks and (where possible) achieve business benefits. For McKinsey & Company, it is critical that companies review their histories and simulate possible scenarios to deal with the uncertainties of the future and adapt to a crisis environment in an agile manner.
Once risks are identified, measured, and classified, companies can consider safeguard and mitigation options, such as acquiring extra tools or trading call options with key suppliers. Careful application of these advanced analytics can also help companies identify qualified suppliers and transportation networks to move supplies faster.
Also according to McKinsey & Company, the increased speed in supply chain planning, using digital tools, allows rapid re-planning of end-to-end logistics. For the company, the new technologies play a critical role, allowing the real time visibility of the logistics operation, thus ensuring faster and better decisions. What’s more, “the first to adopt innovations are making their supply chain more resilient.”
Finally, McKinsey & Company points out that although Covid-19 is a wide-ranging crisis, it is not an isolated incident. Other occurrences, such as international trade disputes or natural disasters, for example, affect current complex supply chains to varying degrees. Thus, it is essential that companies act now to mitigate future risks.