Supply Chain 2020 Vision – Part 2: Around the World and Around the Block

In our last entry, we explored the ways that data and AI will impact supply chains in the future. Today, experts share more insight on trends to expect in the coming year.

Global Concerns

While it may be getting easier to manage internal supply chain operations, modern political and economic climates aren’t quite as predictable. Heading into 2020, all eyes are on China and whether the escalating trade war will make it impractical for companies to continue manufacturing there. As it stands, many major corporations are looking to relocate part or all of their manufacturing efforts elsewhere—some already have.

“The biggest trend is going to be people moving from China to Vietnam and Indonesia and India,” says Lynn Smith, Vice President of Supply Chain Management at Katalyst Technologies. “With the trade wars and the tariffs and the political climate, you have a lot of people this year that didn’t move thinking it was going to smooth over.” Even so, the Chinese market may be too valuable to abandon entirely because of its continued economic growth rate.

“You don’t want to just walk away from China,” says Rosemary Coates, Executive Director of Reshoring Institute, a 501c3 that conducts research to encourage manufacturers to operate in the United States. “In the past, executives looked at cost structures and where they could get the cheapest operations, and where the supply chains were going. Now [companies] are more thoughtful and thinking strategically about global operations, so instead of just chasing the lowest cost market they’re trying to determine where should they be manufacturing to serve that market.” A company that sells a lot of product in China (or non-U.S. markets) will likely want to keep at least part of their operations in the country.  

China is also home to some of the most advanced technology, and resources elsewhere simply won’t be able to compete qualitatively. Companies looking for creative workarounds are likely to be disappointed. “If you were sourcing [raw materials for] products in China and doing final assembly in Vietnam, that would not qualify the product [as] being an import from Vietnam,” Coates clarifies. “Because of the component parts, it would still be a product of China.”

While the situation in China has garnered attention, the reality is that international supply chain structure has been shifting for years. “Supply chains are global,” Coates says. “That genie is out of the bottle.”

Location, Location, Location

Supply chains may be global, but modern consumer expectations force companies to look local as well. “The bigger players in the market like Amazon and Walmart can deliver for free in two days, so smaller businesses need to offer the same to compete,” says Calloway Cook, President of Illuminate Labs. “There’s not much a small business can do without a fulfillment partner in this regard.”  

“A successful customer or supplier must continually look at their supply chain and [see] how they can remove days [or] weeks from that process,” says Bob Dixon, a Boston-based supply chain consultant. “I also expect more companies will work with their suppliers to perform direct shipments to customers, so the inventory never actually resides in the ordering company’s facility.”

While it’s impossible to keep up with Amazon’s fulfillment centers—more than 110 in North America and counting—having multiple facilities could provide a competitive advantage for businesses looking to speed up shipping. “Ten years ago, the big deal was, open a warehouse in Memphis because it’s right by the FedEx hub,” recalls Davielle Panzullo, Senior Logistics Manager at Verizon Wireless. “What Amazon has proven is that by distributing your inventory and distribution all across the country, you can still get there faster and reduce the problems due to labor, due to weather, [and] carrier shortages.”

Turnaround on Returns

Warehouse distribution isn’t the only area in which companies are doing a 180 on past practices. Customer returns were once viewed as a necessary evil, but now businesses have found value in maximizing convenience for consumers as well as repurposing merchandise.

“A lot of companies have been very aggressive in the last ten years of moving returns from something that they don’t want to be involved into something that’s a moneymaker,” Panzullo says. Many e-commerce sites pride themselves on an easy return process, and products with minor or cosmetic flaws can be resold, such as Amazon’s Warehouse Deals. Of course, there are other markets to target. Selling refurbished product to schools, second-world countries, or discount resellers such as TJ Maxx are all viable options that make returns a win-win-win proposition.

A New Delivery

One way that e-commerce retailers are making returns easier for customers is by offering physical locations where consumers can effortlessly drop off packages to return. These also offer a place to pick up packages, which can help companies skip the often inefficient last-mile delivery process. Amazon Lockers can be found in over 900 cities across the U.S., some in designated standalone locations and others conveniently found in retail outlets, a mutually beneficial relationship.

“You go into a Walgreens to pick up your order which is from an entirely different vendor, and you’re already there so you go and you buy more products at Walgreens,” says Panzullo. “And that opens up a whole new thing with cross-marketing, anticipating the customers’ needs, knowing that they’re picking up the package…’You’re going to be heading over to Walgreens to pick up your package, here’s a $2 off coupon for Halloween candy.’”

Coming Up

In the conclusion to our three-part series on supply chain trends for 2020, experts will share exactly how to prepare for these and other developments. Staying on top of evolving directions is crucial for every organization, and Katalyst Technologies is ready to assist you. Contact us to find the perfect solutions for your business heading into the new year.

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