COVID 19 Redefining the Business Model

Undoubtedly, COVID 19 disrupted the global supply chain in ways no one could predict. Yet, at the same time, we have seen unprecedented growth in online shopping. Global E-Commerce Jumps to $26.7 Trillion; Covid-19 Boosts Online Retail Sales. Thus, making warehousing and distribution and last-mile delivery emerging the winner in creating job opportunities and making the retail industry, food, and FMCG industry thrive. It was reported that Amazon hired astonishing job creation numbers from July to October  2020.  It recruited 350,000 new workers, more than the population of St. Louis in the USA.  

According to the report released by UNCTAD (United Nations Conference on Trade and Development), retail sales increased from 16% to 19% in 2020.  South Korea reported the highest increase of 25.9% in 2020.  According to the latest available estimates, global e-commerce sales jumped to $26.7 trillion globally in 2019, up 4% from 2018. Business-to-business (B2B) and business-to-consumer (B2C) sales are included in the above statistics and are equivalent to 30% of the global gross domestic product (GDP) of 2019.

Hereunder the table 1 explains the growth of online retails sales, retails sales, and online share.

Table 1: Online retail sales, selected economies, 2018-2020:

To understand the flavor of e-commerce business pre-COVID 19, the following segment deals with data of 2019. The Cross-border e-commerce salse – B2C (“The term business-to-consumer (B2C) refers to the process of selling products and services directly between a business and consumers who are the end-users of its products or services.”) amounted to some $440 billion in 2019, an increase of 9% over 2018.  Table 2 explains E-Commerce sales of the top ten countries in 2019.

Table 2: E-commerce sales: Top 10 countries, 2019:

The impact on Supply Chain:

Manufacturing:

Entrepreneurs focussed on strengthening the manufacturing operations within the country instead of relying on imports. The above move also helped in cost optimisation of double-dipping of costs. In addition, it increased control on the supply chain to prevent future crises while saving significantly on air and ocean freight transportation costs.  

Inventory:

Before the pandemic, most manufacturers had adopted lean manufacturing as a best practice. Receiving goods just-in-time (JIT) for manufacturing kept inventory costs down and utilized space more efficiently. However, when COVID hit, this lean strategy left many manufacturers with inventory shortages and, in some cases, caused production to stop completely. As demand for faster delivery rises and companies decentralize their warehouses (or leverage retail stores for distribution), inventory visibility will take on new importance throughout the supply chain.

Warehousing:

The direct impact was increased warehousing capacity to accommodate the expanded inventory carrying due to unpredictable demand. The manufacturers will keep more inventory on hand than before. As a result, the overall inventory on-hand will increase. The increased inventory carrying will only escalate warehouse space and capacity issues. Many warehouses struggled to make space for social distancing, and now they will need space to manage this additional inventory. The flipside of the story is the automation of warehousing. Warehouse automation has been gaining steady traction for years, but COVID will speed its adoption like many things.  One best example is AMAZON; it is understood from reliable sources, “Amazon smashed shipping records, reaching stratospheric sales and book(ing) the equivalent of the previous three years’ profits rolled into one.”

Flexibility is the key to success:

In the wake of COVID, warehouses will look to implement scalable processes to manage unpredictable demand. While some warehouses were overwhelmed with orders and facing labor and inventory shortages, warehouses just down the road saw orders dry up, and we’re left with an abundance of inventory. Wild fluctuations in order demand are challenging for most warehouses to handle.

Conclusion:

If we imagine the post-COVID scenario, the only sure thing is that nothing is certain. As a result, companies are creating Plan B and Plan Cs. With an unpredictable future, warehouse and distribution centers will look to be as adaptable and flexible as possible. Their primary focus will be on utilizing space, and efficiently managing their most significant expense will be labor.