A reduced workforce, closure of physical workplaces and factories, closed borders and reduced transport and freight opportunities — the current pandemic and the associated restrictions have a direct impact on retailers and their business and especially logistics processes.
“ Some companies are affected more, others less.”
This is dependent on several factors and has largely, but not exclusively, to do with the increasing internationalisation and, in some cases, globalisation of companies.
Operating on an international level includes not only the outsourcing of certain jobs, but also the purchase of goods from other countries, the dependence on foreign production facilities and the reliance on functioning transport routes, which brings goods manufactured abroad to the domestic market as well as goods from the domestic market to customers abroad.
The pros and cons of a globalised company
The increase of globalisation and networking on an international level has many advantages and enables companies, for example, to have products manufactured at a better price, to obtain resources that are lacking on the domestic market and to distribute goods to customers more quickly.
However, like most things, internationalisation also brings with it risks. These risk exposures are highlighted in this current pandemic, now more than ever. What happens if production facilities have to be closed overnight? What happens when borders are closed and transport possibilities are limited?
Parts of the supply chain break down and changes must be implemented safely and quickly to minimise the loss of profits and maintain the brand’s reputation.
Another disadvantage of globalisation of companies is the varying development of country or territory specific markets after the pandemic and the associated changes and restrictions, as well as the complexity of finding strategies and measures that are profitable and effective for the company in general, as well as for specific markets.
A restructuring of the supply chain -fewer options and higher costs
“ Not every retailer will face these problems to the same extent, as this depends on the general structure of their supply chain.”
Below we have taken a closer look at some common problems related to supply chain management and internationalisation or even globalisation. Not every retailer will face these problems to the same extent, as this depends on the general structure of their supply chain.
For example, even a globalised company that operates heavily on an international level and distributes their products across many countries may have set up the majority of its production domestically or even regionally.
It can also be said in advance, that the outsourcing of business activities is not a bad thing, it can even bring distinct advantages. While the pandemic is still very present and has only just reached its peak in some countries, others have already recovered considerably from it.
If, for example, production takes place in a country that is already on the road to recovery, but the country where the company is headquartered in itself has not yet made a significant recovery, major benefits can be seen.
Nevertheless, many retailers have had, and still have to contend with the same or similar problems. These include:
Limited transport options and an increase in costs
The current transport options are limited. Borders are closed or only passable at certain points, which means that both land and water transport routes are affected. Detours require a new transport structure, which is usually associated with higher transport costs.
Container space on ships is limited, which is why companies often have to switch to transport by air, which again is more expensive. Further, checkpoints and border crossings are often overloaded due to a lack of manpower, resulting in longer delivery times, which in turn can result in lost customers or cancelled orders.
And it’s not just a company’s own supply chain that has a direct impact. Even if the supply chain of only one supplier is affected, this can have serious consequences for the entire network of partners.
Limited production due to closed production facilities
Another common problem is the limited production of goods due to closures of production facilities. This is particularly a major disadvantage when production is limited to one or a few production sites and stocks are not sufficient.
In this case, it is advisable to weigh up which products are most important and profitable and to temporarily suspend the production of other products that are less profitable.
On the other hand, it should be analysed which products can be produced and for which the materials can be purchased. If this is not the case, the production, and in some cases even for products with a high demand, will inevitably have to be suspended.
The search for new production facilities and business partners also plays a major role and has become an integral part of companies in recent weeks. However, it is also difficult to estimate the extent to which some countries of production will be affected by the pandemic in the future and if production may be interrupted again.
Termination of business relationships and establishment of new ones
As described above, in some cases it is unavoidable to terminate business relationships, at least temporarily, due to the pandemic. This can further lead to losses and increased “empty” costs without added value due to contractual commitments and agreements.
The search for new business partners, however, which is again associated with risks and new costs, is often unavoidable.
Increased demands and longer delivery times
The demand for some products has fallen substantially as a result of the crisis, but the demand for others has risen significantly. Even if this seems like an obvious advantage, it does involve risks.
Due to closed production facilities, an increased or even constant production volume is not always possible. This means that the demand cannot always be met, which can have a negative impact on customer relations and the company’s reputation in general.
Extended delivery times due to closed transport routes and reduced workloads at production facilities can also lead to customer dissatisfaction. Transparent communication is key in these circumstances.
The road to recovery- temporary solutions or a new normal?
“ Terminating a business relationship is never easy and often involves contractual obligations that protect both parties, and costs.”
Solutions and restructuring activities for Supply Chain Management vary from company to company and depend on a wide range of internal and external factors.
First of all, the situation as a whole should be analysed to identify concrete weaknesses and future potential risk factors. On this basis, it can then be weighed up which measures should be implemented temporarily and which elements need to be changed fundamentally. In most cases, companies will see a mix of both; processes that need to be temporarily redesigned and those that will remain different in the future.
4 aspects should definitely be included in this analysis and the corporate reaction to the current situation:
- Transparency
One of the most important goals for companies is to retain customers and maintain an optimal reputation. Transparency in communication is an important factor.
If the delivery time for goods suddenly increases from one week to two, this is frustrating, but it is even more damaging to customer relations if this is not clearly communicated in advance.
This gives the customer the opportunity to consider whether he still wants to order the product. Companies have to accept the risk of losing some customers, but still maintain their reputation.
- Emergency plan
Most companies have developed a concrete emergency plan, which also includes crisis situations such as the current pandemic.
It is important to realise that this emergency plan is not a static document, but should be regularly adapted. Every company learns from crisis situations, albeit the hard way.
It is not always easy to realise what didn’t work, but it also provides the opportunity to learn and optimise processes to avoid risks in the future.
- New lucrative business relationships
Terminating a business relationship is never easy and often involves contractual obligations that protect both parties, and costs.
However, it is advisable to weigh up which business relationships will still be lucrative in the future and which will not, and, if necessary, to establish new relationships to prevent risks and shortfalls in the future.
- Product selection
One last important point is to set priorities in production. Which products can still be produced and which products should still be produced?
Companies should consider which product production should be paused, at least temporarily, and on which products a special focus should be placed.
A clear advantage with associated risks
In conclusion, the internationalisation and globalisation of companies and related processes is a clear advantage, ranging from cost savings to increased sales and access to the most competent workforce.
However, the associated risks should not be ignored.
Unfortunately, negative aspects are not always unavoidable. However, it is important that they are prevented as far as possible and that emergency plans and processes are created and updated to ensure the security of the company.
About DELIVER:
Founded in 2015, DELIVER is a fast growing international B2B event that managed in four years to become the European market leader in retail and logistics. DELIVER is a business accelerator for retail and logistics key players inheriting four successful editions in Luxembourg, Berlin, London, and Lisbon. DELIVER 2020 will be held in Amsterdam on October 8+9, making it the focal moment of the European e-commerce & logistics community. Learn more about DELIVER at www.deliver.events
