The global supply chain market is set to experience significant growth over the next few years.
However, distribution companies need to make their supply chains more resilient as operational challenges and disruptions will be here for 2023 and beyond.
Here are just a few insights companies need to be aware of:
- Labor shortages will force transport and logistics companies to improve the onboarding of new workers and keep the experienced ones happy.
- Supply chain disruptions will continue. Unpredictable supply and seasonal demand increase the risk of overstocking and understocking.
- Inflationary pressures continue to be an issue. Transportation and service costs, and reduced borrowing capacity will continue to have an impact.
Benefits of focusing on employee productivity
In recent years, the labor market has witnessed unprecedented change, which has led to a marked effect on supply chain distribution.
Here is how it is playing out:
- 1. In 2021, 47 million US workers quit their jobs, with distributors among the most affected. Chamber of Commerce
- 2. “Labor shortages are a major driver this year, and the development and availability of new technologies will be crucial in addressing this issue.” Erik Wirsing – VP Global Innovation DB Schenker
- 3. 29% of companies included ESG metrics in their staff incentive plans in 2021, a 7% uptick over the previous year. McKinsey
- 4. There are over 2.6 million vacancies for truck drivers in the US, Europe, Mexico, Argentina, Central Asia, and SouthEast Asia. Asstra
Scandit Insight: distribution companies need to keep hold of experienced employees and quickly onboard new hires.
Technology can support both aims. For example, apps on mobile devices can automate arduous tasks like counting, or provide augmented reality guidance for new workers.
Counting the cost of supply chain disruption
Supply chain disruptions can hit revenue and margins by causing unexpected delays and increasing costs. Moreover, these disruptions can lead to stockouts or excess inventory, both of which can tie up capital, again negatively affecting profitability.
Here is some insight into what companies are facing and how they are dealing with it:
- 5. 78% of US-based manufacturing executives agreed that digital solutions and/or monitoring tools would enhance visibility and transparency throughout the supply network. Deloitte
- 6. Shipping delays, parts shortages, and transportation delays due to truck driver shortages and congested ports had the greatest impact on manufacturing companies. Deloitte
- 7. The ongoing war in Ukraine and other global disputes will constrict the global supply chain in 2023. Harvard Business Review
- 8. 71% of global companies highlight raw material costs as their number one supply chain threat for 2023. KPMG
- 9. Almost half of senior supply chain managers said they understood the location of their tier-one suppliers and the key risks those suppliers face. But only 2% could make the same claim about suppliers in the third tier and beyond. McKinsey
- 10. Over half (57%) of logistics service providers plan to use buffer stock by increasing inventories up to 30% to mitigate impacts from a long-term heightened risk of disruption. JLL
- 11. 6-in-10 global organizations plan to invest in digital technology to bolster their supply chain processes, data synthesis, and analysis capabilities. KPMG
- 12. CPG companies are finding that autonomous supply chain planning can lead to an increase in revenue of up to 4%, a reduction in inventory of up to 20%, and a decrease in supply chain costs of up to 10%. McKinsey
Scandit Insight: unpredictable supply can cause both over and understocking. As a result, companies need to focus on two things: keeping on top of inventory and maintaining a diverse range of suppliers.
The key to this is transparency across the supply chain. Give drivers easy-to-use data capture (on any device) as well as accessible tracking databases for real-time insights.
Direct–to-Consumer and the battle for supply chain differentiation
The Direct-to-Consumer (D2C) model is significantly reshaping supply chain logistics. Probably the biggest issue for distribution operations is how D2C has emerged as a competitor to the traditional ‘to retailer’ model. It will continue to play a part in the market.
This is why distribution companies need to be focused on it:
- 13. In 2022, 64% of consumers worldwide made a D2C purchase – up 15% from 2019 – eMarketer
- 14. A D2C strategy lets manufacturers bypass traditional distribution partners, saving around 15 % from wholesalers and up to 40% from retailers. The shift provides brands with significantly more control over pricing and promotions, allowing them to influence margins and set prices to align with their view of their products’ value. KPMG
- 15. 85% of consumers said price was most important in terms of the importance of services when shopping online. The D2C model lets brands lower their prices by cutting out the middleman. Forbes
Scandit Insight: D2C distribution should be seen as competition while creating a smaller more competitive market for distributors. The way to differentiate is through process efficiency and service innovation.
Inventory, logistics, pricing, rebates, and services can all be improved. Most workflows can be made more productive with efficient data capture and business customer engagement can be boosted with an intuitive and interactive digital experience.
B2B e-Commerce continues to grow in importance
Keeping abreast of B2B e-commerce is crucial to distribution operations. It enables businesses to efficiently manage their inventory, fulfill orders quickly, and coordinate effectively with other partners in the supply chain.
Here are two indicators of its growth:
- 16. 83% of B2B buyers prefer ordering or paying through digital commerce. Showing digital commerce is now the preferred way to complete B2B purchases. Gartner
- 17. Personalization continues to be a priority for B2B marketing leaders, with 52% planning to increase spending to get this right. Forrester
Scandit Insight: B2B e-commerce should be a major focus for distributors. Areas to look at include accessible e-commerce platforms on the web, or via apps, and a straightforward ordering process with the option of scan-to-reorder. The latter is especially relevant to high-value products in a large product catalog.
Look to engage the business customer through interactive platforms. For example, offer personalized discounts displayed via augmented reality.
Inflationary pressures affect all distribution companies
Few can avoid the problem of inflation. It provides a double whammy of rising costs and lower demand.
- 18. The annual US inflation rate in 2022 was 6.5%, an increase of 5.1% on 2020. The effects of inflation affect all companies, but distribution companies have added pressures due to the nature of their business. Laceup
- 19. Shipping costs were up more than 77% in August (2022) compared to the previous year. Deloitte
- 20. Labor costs continue to rise. Indeed, total compensation cost per hour worked rose by 6.2% to US$42 in the manufacturing industry in Q1 2022-3. Deloitte
Scandit Insight: Businesses need to reduce operational costs and increase productivity with workflow guidance and automation for lower failure rates and faster fulfillment.
At the same time, they should try to differentiate themselves through technology and by creating value-added services. This includes end-to-end tracking of pharmaceutical goods as it will be required by the Drug Supply Chain Security Act in the USA later this year.
Required: resilient and innovative strategies
The global supply chain market is facing significant disruptions and challenges. These require both resilient and innovative strategies to navigate effectively.
Increasing Importance of Employee Productivity: With rising labor shortages and costs, companies are now focusing on enhancing employee productivity.
Digital solutions and monitoring systems are being leveraged to improve visibility and transparency. There’s a growing emphasis on staff retention, fast onboarding, and task automation.
The Need for Resilience in Supply Chains: Disruptions in the supply chain, such as shipping delays and unpredictable supply, are imposing substantial costs.
As a result, the majority of supply chain professionals plan to invest in technology. There’s also a growing awareness about diversifying suppliers and maintaining tight inventory control to address these disruptions.
Rise of Direct-to-Consumer (D2C) and E-commerce: As consumers increasingly prefer shopping directly from brands, companies are adopting D2C strategies for better control over pricing, promotions, and margins.
D2C distribution has made the market more competitive for distributors. The way for them to differentiate is through efficiency and innovation.
Inflationary Pressures: Rising inflation is impacting all companies, especially distribution companies due to increased shipping costs. This emphasizes the importance of strategic planning and effective cost management.