As 2020 comes to a close and the hol­i­day sea­son approach­es, retail com­pa­nies are gear­ing up for the usu­al influx of hol­i­day shop­ping that hap­pens between Thanks­giv­ing and the end of the year. Like many things in 2020, hol­i­day shop­ping is going to look a lit­tle dif­fer­ent. E‑commerce has been grow­ing steadi­ly for the past decade, and it’s a good bet that growth will con­tin­ue this year, as cus­tomers con­tend with shop­ping in the time of COVID-19. 

At the same time, the pan­dem­ic has rad­i­cal­ly shift­ed the way com­pa­nies man­age their sup­ply chains. ASUG sat down with Richard How­ells, VP of solu­tion mar­ket­ing at SAP Dig­i­tal Sup­ply Chain, to dis­cuss his thoughts on how COVID-19 will affect sup­ply chains dur­ing hol­i­day shop­ping. He talked about the lessons learned from this year, the changes glob­al sup­ply chains have already expe­ri­enced, and what com­pa­nies are doing to strength­en their logis­tics dur­ing this busy time.

Jim: When did it become evi­dent to SAP that COVID-19 was going to bring about mon­u­men­tal change?

Richard: I wrote my first blog on the top­ic on Feb. 12, and that was a bit late. At the start of the year, every­body was writ­ing these fan­cy pre­dic­tions of their ​“20÷20” busi­ness and sup­ply chain vision. And every­one got it wrong. In late Jan­u­ary, every­thing came to a stand­still as fac­to­ries shut down in Chi­na and bor­ders began to close. 

Jim: Here in the U.S., it was that third week in March when it felt like a switch was flipped and every­thing shut down. 

Richard: That’s exact­ly right. At that time, I was in the Bahamas. When I left, things were not that severe on the east coast of North Amer­i­ca, but halfway through the week, I wasn’t sure I was even going to get back into North Amer­i­ca. It was also in the mid­dle of March that we could see just how big an impact the man­u­fac­tur­ing facil­i­ties clos­ing down in Chi­na would have on the rest of the world. We knew there was going to be a sup­ply issue back in late Jan­u­ary. We just couldn’t tell the glob­al scale of the issue at that point. 

Jim: What were some of the fac­tors that most dis­rupt­ed sup­ply chains from a glob­al perspective?

Richard: It all start­ed on the sup­ply side as man­u­fac­tur­ing facil­i­ties shut down in Chi­na while the flow of goods through ports and flights com­ing out of Chi­na also were reduced. As the virus spread across oth­er coun­tries and regions, we saw huge demand changes. It start­ed with the health care indus­try and short­ages in safe­ty and test­ing equip­ment across the globe. 

As we were all told to stay at home, human nature set in and every­one was pan­ic buy­ing. It’s amaz­ing to me that the world seems to live on the same 20 or 30 dif­fer­ent prod­ucts like bread, milk, hand san­i­tiz­er, and, of all things, toi­let paper! Demand was sky­rock­et­ing for vital com­modi­ties, while demand for lux­u­ry items dropped off a cliff. It was the ulti­mate sup­ply and demand chal­lenge. We also began see­ing a short­age of capac­i­ty, both in man­u­fac­tur­ing facil­i­ties and in logis­tics around the world. Even if we had the mate­ri­als, and even if the man­u­fac­tur­ing facil­i­ty were open, social dis­tanc­ing guide­lines meant that com­pa­nies couldn’t ful­ly staff the man­u­fac­tur­ing facil­i­ty to make their prod­ucts. And even if they made the prod­ucts, they had logis­tics capac­i­ty con­straints that lim­it­ed their abil­i­ty to deliv­er them to the hot spots.

Jim: How has a lack of trans­paren­cy in the sup­ply chains been a fac­tor over the past few months? 

Richard: Vis­i­bil­i­ty across the sup­ply chain is always crit­i­cal. Hav­ing access to the infor­ma­tion to make the right deci­sions is always vital. But a dis­rup­tion of this mag­ni­tude high­lights both a lack of vis­i­bil­i­ty and risk mit­i­ga­tion strate­gies across the sup­ply chain. You need vis­i­bil­i­ty and strate­gies in place to be able to both sense and respond to a cri­sis. If you can’t see there’s a prob­lem, you can’t respond to it. But hav­ing vis­i­bil­i­ty is no good if you don’t have the abil­i­ty and agili­ty to change things in the phys­i­cal sup­ply chain. 

Jim: How did pan­ic buy­ing ear­ly on dur­ing the pan­dem­ic influ­ence the flow of goods? 

Richard: If you’re a sup­ply chain prac­ti­tion­er, you’ll know the bull­whip effect and how any unnat­ur­al spike or drop in demand has a rip­ple effect across the sup­ply chain. For exam­ple, the one that affect­ed us all was the toi­let paper short­age. The real­i­ty is the demand for toi­let paper is very sta­ble. There aren’t spe­cif­ic times of the year where you use more toi­let paper than oth­ers. When there was a run on toi­let paper, it’s not as sim­ple as a toi­let paper man­u­fac­tur­er sim­ply increas­ing pro­duc­tion. They can only pro­duce the same num­ber of rolls of toi­let paper every day, but they can pack­age it dif­fer­ent­ly depend­ing on where the demand is. For exam­ple, there was no demand from hotels, offices, or uni­ver­si­ties. The demand com­plete­ly switched to the con­sumer sec­tor. It became a case of how they can pack­age it dif­fer­ent­ly to meet the spe­cif­ic change in seg­ment demand.

Jim: How have com­pa­nies kept their sup­ply chains mov­ing as they’ve dealt with staff shortages?

Richard: The num­ber one pri­or­i­ty was to ensure the envi­ron­men­tal health and safe­ty of the employ­ees who are going to work. Are the process­es in place to make sure that they’re social­ly dis­tanc­ing? Can I increase the changeover times between shifts so that we can clean down the work­space before the next shift comes in? You also have to ensure that peo­ple aren’t swap­ping shifts. 

And then there is the tech­nol­o­gy aspect. You scan every­body as they come into the work­space to take their tem­per­a­ture and have pro­ce­dures before they come into the workplace. 

We’re also see­ing com­pa­nies lever­ag­ing tech­nol­o­gy to put sen­sors on hats and cloth­ing to make sure that peo­ple are social­ly dis­tanc­ing with­in the work­space. They are get­ting alerts if employ­ees are get­ting too close. We’re see­ing com­pa­nies lever­ag­ing tech­nol­o­gy to improve pro­duc­tiv­i­ty. A lot of com­pa­nies are look­ing at Indus­try 4.0 as an oppor­tu­ni­ty to do more with a small­er work­force. They’re look­ing at how they can lever­age tech­nol­o­gy to aug­ment work­ers, improve their pro­duc­tiv­i­ty, and give them more tools to do their jobs better. 

Jim: What are some of the weak­ness­es present in the glob­al sup­ply chain that COVID-19 helped expose?

Richard: For about the last 20 years, we’ve been look­ing to strip costs out of the sup­ply chain. Exec­u­tives have seen the sup­ply chain as a cost-sav­ing area rather than a dif­fer­en­ti­a­tion area. When you strip costs out of the sup­ply chain, you source mate­ri­als and out­source man­u­fac­tur­ing in low-cost regions, which are usu­al­ly a long way away from you. And this can increase the risk in sup­ply chains. The pan­dem­ic exposed this risk. For exam­ple, there was so much man­u­fac­tur­ing done in Chi­na that when the bor­ders shut down, it brought every­thing to a standstill.

COVID-19 has shown that com­pa­nies need to design their sup­ply chains with risk in mind. It can’t be all about cost reduc­tion. There needs to be a bal­ance between costs and risks. Do you have alter­nate sourc­ing strate­gies? Do you have an alter­na­tive sup­pli­er in a dif­fer­ent coun­try than your nor­mal sup­pli­er? Where do you keep inven­to­ry? How do you bal­ance your off-shoring, near-shoring, and no-shoring strategies? 

Jim: We’ve talked about the lack of trans­paren­cy, staff short­ages, and pan­ic buy­ing. As we near the hol­i­day sea­son, are these fac­tors that sup­ply chain oper­a­tors are try­ing to mitigate?

Richard: Things will be com­plete­ly dif­fer­ent this hol­i­day sea­son com­pared to any oth­er year. It’s a com­plete­ly dif­fer­ent shop­ping expe­ri­ence. It feels like e‑commerce has jumped for­ward six years in the past six months. Some con­sumers now expect con­tact­less and doorstep deliv­ery. That whole con­cept of the direct-to-con­sumer mod­el will roll through to Christ­mas and beyond. 

I wouldn’t be sur­prised if online orders pass store orders in the hol­i­day sea­son. But a direct-to-con­sumer mod­el is not just about tak­ing the order online. It means rethink­ing your logis­tics process­es, too. You will get a high­er vol­ume of orders at small­er quan­ti­ties. Instead of ship­ping bulk orders to retail­ers, you must work out how to ship direct­ly to the con­sumer, again, in much high­er volumes. 

Jim: Aside from the things you just laid out, what else are com­pa­nies doing to pre­pare for the 2020 hol­i­day sea­son? What things are they doing to strength­en their sup­ply chains to meet this demand?

Richard: It’s all about hav­ing the logis­tics process­es in place to be able to deliv­er on time. You need to lever­age net­works of car­ri­ers and rely on busi­ness net­works to dri­ve and improve cus­tomer sat­is­fac­tion. Com­pa­nies can’t do it all them­selves. We live in a net­worked econ­o­my where your ecosys­tem of part­ners is crit­i­cal in ensur­ing cus­tomer sat­is­fac­tion. Most com­pa­nies don’t have their own logis­tics orga­ni­za­tion and trans­porta­tion fleets. They rely on a net­work of logis­tics, providers, and car­ri­ers. I’m see­ing more trucks dri­ving up and down my lit­tle sub­ur­ban street in Mass­a­chu­setts every day. 

I also think we’ll see a lot more sub­scrip­tion-based gifts being pur­chased. When was the last time that you bought a CD or a DVD? It’s all on sub­scrip­tion now. There’ll be more and more com­pa­nies offer­ing ser­vices or prod­ucts as a ser­vice such as beer-of-the-month clubs. 

Jim: Do you think we’re going to see sig­nif­i­cant dis­rup­tion this holiday? 

Richard: I think the biggest chal­lenge is that we have been con­di­tioned for same-day and next-day deliv­ery by com­pa­nies like Ama­zon. I don’t think our sup­ply chains have recov­ered enough to be able to meet that ser­vice lev­el. My advice to con­sumers, like you and I, is to order early. 

Have you upgrad­ed your sup­ply chain tech­nol­o­gy stack, nav­i­gat­ed an SAP S/4HANA migra­tion, or solved an oper­a­tional busi­ness chal­lenge through tech­nol­o­gy or process improve­ments? Your peers are eager to learn from your expe­ri­ence at the upcom­ing ASUG Best Prac­tices: SAP for Sup­ply Chain vir­tu­al con­fer­ence on May 11 – 12, 2021. Sub­mit your pre­sen­ta­tion abstract for an oppor­tu­ni­ty to share your SAP jour­ney.