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Why connected return flows are the future of global supply chains?
Two years after the COVID-19 outbreak, the global supply chains continue to collapse. Everyday news breaks out on record freight rates, critical components shortages, and global product delivery issues.
What’s worse, the just-in-time supply chain models, that worked for the past decades, are failing in the face of the magnitude of all these problems.
There is no quick fix to this situation. The hard truth is that the modern supply chain model needs to change to function better in such unstable times. In this blog post, the key challenges and solutions that may soften the transition and build the foundation of a more resilient, collaborative, and networked model in the future are identified.
Trends of the new age
Before 2020, cost reduction and productivity enhancement were the main drivers of supply chain process improvements, digitization, and investment. Although those factors remain important, the unprecedented chaos caused by the pandemic threatened the competitive position – even the survival – of many businesses that found they could no longer meet customer expectations. In the current market situation, new trends emerged that push all market players to rethink their business strategies.
Companies that do not want to wait for supply lines to untangle themselves are finding new ways to bypass the problem. For example, retailers short on storage space are buying warehouses, shippers that cannot find containers are making their own, and companies unable to book with ocean carriers are chartering vessels, while those unhappy with their online sales are buying e-commerce fulfillment operators according to World Economic Forum. The raising costs of traditional truck delivery, for instance, pushed many shipping giants into air freight. On the other hand, many automotive producers started forming strategic agreements with chipmakers to produce their own chips and this way overcome the global shortage of semiconductors.
The growing need to customize supply chains will push logistic companies to offer more complex solutions, that will handle more than shipping the product from point A to B. Those willing to go the extra mile to meet the customers’ expectations and offer added value, will dominate the market. Therefore, logistics solutions providers should reevaluate their offers and think about how they can help the producers optimize the costs, while offering reliable and timely service both regionally and globally.
If there is one industry that benefited from the pandemic, it is Industry 4.0, the modern Industrial Revolution that focuses heavily on interconnectivity, automation and real-time data collected and managed by Internet of Things (IoT). According to McKinsey’s latest survey, 94% of respondents confirmed that introducing IoT solutions to their business helped them run their operations during the crisis, while 56% said these solutions were critical to their survival. Soon, the push for digital transportation of modern supply chains will be even greater, as connectivity can help logistic companies cut down their supply chain costs significantly. By introducing tools and systems allowing them to track and trace the conditions of their logistic chains in real-time, they can quickly increase the visibility of the inefficiencies in their flows and improve product handling. In fact, many companies are already taking action and investing millions of dollars in upgrading their digital capabilities, to answer the need for real-time visibility and better demand planning, according to Supply Chain Dive.
According to a McKinsey survey, 96% of companies that implemented Industry 4.0 prior to COVID-19 were better positioned to respond to the crisis
With the growing push for sustainable solutions and reduction of CO2 emissions, the market is looking for attractive logistic solutions that are both economic and environmentally friendly. One side of the solution is naturally to reduce the resources used for producing the final products, generating less waste and this way decreasing one’s green footprint. However, a new approach to circularity is to reuse its ostensible waste materials, as well as its returns. This can be done either by converting them into new products that can be sold once more, or by reusing parts of the waste as many times as their quality allows until they can be recycled.
To fully embrace the principle of circular economy, the industry is going even further by promoting reusable pooling solutions. Manufactured from recycled plastics, these packaging solutions are very durable and last for many cycles. Additionally, this innovative form of equipment management allows to rent returnable packaging instead of investing in one’s own. Pooling services will also enable to free up capital, since packaging is being rented based on the need rather than purchased. On top of this, pooling services are connected to IoT platform that enables customers to monitor the whole process and collect data. This closed-loop system means that the equipment can be reused, repaired, and remanufactured at the end of its life cycle. Besides obvious environmental benefits, pooling systems reduces transportation costs as well as provide full visibility throughout the supply chain flows.
New approach with connected return flows
Often underestimated or overlooked, optimized return flows can also generate substantial value for the company – if managed properly. Once the returned item is properly examined, categorized, and labeled, the return process can be automated and optimized using connected warehouse or transportation management software. This speeds the process of collecting unsold items from pick up points, regrouping and sending to their new destination in real time. By using connectivity, the whole return process might not only optimize the existing supply chain, but also analyze its weaknesses and anticipate potential risks.
According to Ernst & Young’s survey, visibility and efficiency are the top concerns for the next year.
The growing need to customize supply chains will push logistic companies to offer more complex solutions. Suppliers offering return flows are doing just that by taking the burden of producers’ backs and handling all the logistics, from designing and manufacturing of the pickup solutions (both packaging and the fleet), to maintaining, repairing and recycling the preferred solution at the very end. On top of that, delegating the management of long return flows to a third party allows a significant reduction of the total cost of ownership by switching to a shared flow which, in turn, frees-up assets that can be allocated elsewhere. On top of that, it limits potential issues with international customs, as they will be handled by external supplier who will monitor the process and costs involved.
Challenging road ahead
Some say that the COVID-19 pandemic has not necessarily created new challenges for supply chains, but rather only accelerated and magnified problems that had already existed in the industry for decades. Nevertheless, big changes are on the horizon, with greater supply chain visibility (connectivity), circularity and complexity being top demands.
Redefining supply chain strategy by altering global trade flows and considering new trade agreements, country incentives and omnichannel acceleration is one thing. But the other is to reimagine the supply chain operating model. One of the key lessons from the recent pandemic crisis is that localization or regionalization of one’s production will minimize the costs or at least help prepare better for future disruption. Returnable connected systems and pooling services are a part of the solution and the answer that the supply chain market has been looking for a while.
If you want to learn more, stay tuned as detailed benefits of these solutions for specific market applications will be unfolded in the next blog posts.
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