Supply-chain experts predict global trade will continue to shrink in favor of more decentralized delivery systems
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- In recent reports, business leaders in Europe pointed out decentralization as a major theme in the supply chain industry.
- Blue Yonder reported that over the next few years, usage of pop-up distribution centers, dark stores, and microfulfilment centers will double.
- Because of his work, Insider named Blue Yonder strategic advisor, Michael Feindt, to our annual list of the 10 leaders transforming supply chain in Europe.
- Visit Insider's Transforming Business homepage for more stories.
There's no doubt that the events of 2020 and 2021 have had a huge impact on supply chains across the world. Norwegian advisory organization Xynteo's recently published Choose Growth report canvassed 80 European business leaders to determine how current strategies are likely to help or hinder the wider transformation needed in Europe.
Supply chain was, naturally, a theme. "We are seeing changes becoming a reality that have been talked about for decades - among them decentralization through the application of the 15-minute city concept, whereby residents would be able to access the majority of what they need within a 15-minute radius," Dr. Amy Hochadel, director of global business at Connected Places Catapult, said in the report. Global trade and supply chains have continued to shrink, the report finds, suggesting that by 2025, trade restrictions will be five times higher than in 2018.
The pandemic has certainly altered how business leaders view our supply chains. McKinsey recently suggested that any given company can expect a shutdown lasting a month or so every 3.7 years. The report also suggests that companies will start to diversify their supply chains in response to climate change risks.
Blue Yonder, a supply chain management company based in the UK, recently published a Future of Fulfilment report suggesting that over the next two or three years, usage of pop-up distribution centers, dark stores, and microfulfilment centers will double as part of retailers' e-commerce strategies.
The pandemic has also altered how consumers behave, said David Grimes, founder and CEO of UK delivery company Sorted. "There's a new breed of 'I want it, and want it right now' customers demanding convenience and speed when they can't hit the high street, and national distribution centers - often centralized in one location - cannot meet the demands quick enough," he said. "With stock often situated hundreds of miles apart across the UK, or indeed stuck somewhere else in Europe as the early teething issues of Brexit surface, decentralized logistics paves the way forward for the delivery landscape. More so, the 'ship from store' proposition is a perfect example of how retailers are using a decentralized model and it's helping to tackle global logistical challenges."
Using the ship-from-store model retailers are converting local 'hubs' into a semi-independent distribution center for local orders. Grimes said, "With this seamless blend of the online and physical space - high street retailers are already using this decentralized initiative to claw back the competition from e-commerce traders. Retailers will need to be able to leverage a real-time view of stock levels and carrier performance and intuitive technologies are helping retailers maximize their insights to establish which stores can fulfill nearby orders and meet customer promises."
He added, "Retailers rethinking their operations and decentralizing their model brings further cost savings, growth and even maximizes the experience for their customers by expanding their delivery offering."
Inevitably, Brexit will make some goods more expensive - and locally produced goods will become competitive again, agrees Stefan Tärneberg, director of solution consulting at BluJay Solutions. "Some industries, like fresh goods and clothing, are more likely than others to be transformed by this 'going local' effect."
There is also growing public concern about the environmental impact of fast international delivery. Some groups, including the EU, are considering adding a 'CO2 tax' to make imported goods more expensive. Another potential policy is to lower the speed limit for long-distance container ships, which reduces emissions and makes international export goods less competitive in foreign markets.
The sort of financial recovery governments pursue will reshape the supply chain's future, Tärneberg said. "We can expect protectionist processes to put the brakes on supply chain globalization and favor local manufacturing instead for some sectors."
Tärneberg believes this could be a good thing for the sector. "The 'going local' effect will present an opportunity to supply chain operators who can adapt quickly."
"More local specialized production means a more distributed supply chain," Tärneberg said, "Rather than in one megastore, goods will be dispersed in different places. To make sure the supply chain remains effective and efficient, a new model of logistics will need to develop to handle this larger number of points of supply, production, distribution, and most crucially - delivery."
To answer this challenge, companies are now springing up to create delivery services which support buying local in an eco-friendly and cost-effective way. "Think of this as the Deliveroo of fresh goods, with multiple purchases of local produce from different shops all in one delivery to your front door," Tärneberg said. "In the next few years, we can expect jobs for the new model of 'collaborative delivery' to be created."
Tärneberg also believes that on a global level, new jobs will be created in the areas of customs technology, logistics planners and customs officialdom. "After many years being seen as a process part of business, logistics will be valued for its strategic importance and the chief supply chain officer will become a more common role in large companies."
Veronica Lie, Xynteo's foresight lead and vice president, said, "The regionalization of supply chains was already happening before COVID-19 and because of this intersection of different factors we will see a continuance of this. "However," she added, "The leaders we spoke to were robust that global openness is better for business and outcomes but nearly all felt that trade regionalization was a foregone conclusion."
Yes, localized supply chains could be safer and more transparent, but, Lie said, "We might be making a tradeoff with the good parts of globalization - the cultural exchange that happens, the bigger pie for everyone...As we reconstruct our supply chains, we need to be able to do so in a way that generates lower emissions and inclusive shared values."
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