5 Megatrends Shaping Supply Chain Innovations

5 Megatrends Shaping Supply Chain Innovations

5 Megatrends Shaping Supply Chain Innovations

Feature Article by Prof. Dr. Marco Tieman – CEO, LBB International

In these times of global turmoil, there are five (5) important megatrends shaping supply chain innovations in the coming years, namely in e-fulfillment, sourcing, food and agriculture, labour intensive operations, and halal supply chain management.

Companies need to re-evaluate their supply chain strategies, if they are still most optimal. They need to review their suitable supply chain objectives, supply chain design, and key performance indicators. Traditionally, supply chains were focused on minimising supply chain costs and a continuous effort to get supply chains lean, through programmes such as lean six sigma, and far less emphasis on risk management. Risk management, however, will become a critical skill for logistics and supply chain management in order to make the right supply chain decisions in these turbulent times.

Let’s better understand these 5 megatrends shaping supply chain innovations in the coming years.

  1. E-commerce boom requires a new urban logistics model

The E-commerce boom over the past years showed an exponential growth, which has become unsustainable in the way the logistics behind e-commerce is being facilitated, better known as e-fulfillment. The fast growth of ecommerce resulted in the entry of many new e-fulfillment players to take care of the last-mile delivery to the consumer. In many countries the e-fulfilment market is highly fragmented and immature, with a lack of collaboration among e-fulfillment players, quality standards, investments in sustainability, logistics best-practices, and efficient logistics operations.

Too many drops in one street per day by different couriers that run on petrol and diesel, putting high pressure on road infrastructure, unstainable high demand for cheap labour to drive these vehicles, e-fulfillment costs, and environment pollution.

Urban logistics innovation is urgently needed in metropolitan cities to better organise deliveries to the consumer in a more efficient, sustainable and environmentally friendly way. This requires centralised e-fulfillment centres and collaboration in last-mile delivery.

Centralise e-fulfillment centres are important, to be located near a metropolis, using high level of automation, allowing the facilitation of high e-commerce volumes. These e-fulfillment centres should also be heavy on solar power generation to meet the energy needs of both the facility as well as electric vehicles used in warehouse operations as well as for deliveries.

Last-mile delivery from these e-fulfilment centres to the consumer is facilitated by bio-diesel trucks, electric vans, electric bikes, and maybe even drones in the future. A further consolidation of logistics service providers is expected, as asset-based logistics service providers involved in advanced warehousing and transportation require high investments.

  1. From global to local and regional sourcing

Supply chain disruptions that started during the Covid-pandemic, are continuing, now fuelled by the Ukraine war. Supply chain disruptions resulted in shortages of consumer products as well as long supply lead times for industrial products. Companies are realising that high dependency on global sourcing from the cheapest source is a dangerous strategy in securing supply and continuity of manufacturing operations.

As global supply chains have become unreliable, global sourcing strategies have come against high risks. Secondly, global freight rates have seen an enormous increase over the past 12-months, which are unlikely to return soon to the rates before Covid. Sea freight and airfreight costs have become very expensive.

Hence, companies prefer local and regional sourcing against possible higher sourcing costs. Risks are further spread by insisting on dual sourcing (two suppliers) instead of single sourcing (one supplier only) of one particular raw material, ingredient, or component.

Restructuring a supply base can be in particular challenging for multinational companies that require high volumes as these volumes might not be easily available locally or regionally. Supply restructuring is highly complex, and several large companies will consider vertical integration, by taking direct ownership of large supply volumes rather than relying on suppliers. Is this the end of the outsourcing trend? Only future will tell.

  1. Self-sufficiency top priority for governments

United Nations Sustainable Development Goals (UN SDGs) and government climate change programmes are pointing to farmers as big contributors of carbon emission, forcing a transformation of food and agriculture. Over the past years there have been active government policies in Western countries, like in Europe and the USA, to reduce farming by government or institutional investors buying farmland from farmers.

As many countries in Asia, Middle East and Africa have been dependent on food imports from these agriculture surplus countries, self-sufficiency in agriculture production is high on the agenda for these countries as agriculture commodity prices will soar as supply will fall in the coming years, directly impacting hunger and poverty in countries which are still dependent on agri-food imports.

Hence, agri-food production will need to be developed in countries with possible low agriculture productivity due to climate and/or soil conditions. Some of these countries have poor agriculture expertise and skills available. Agriculture production clusters will need to be developed in these countries as well as urban farming programmes to be integrated in urban development. Agriculture production clusters will be vertical integrated agri-food production, where farming, processing, packaging, storage, distribution is located in an agri-food park.

Agri-food parks are located near metropolises, reducing supply chain lead times and increase freshness of agriculture produce. Urban farming will be stimulated in metropolitan areas. This can be through farming on rooftops; led-based farming in buildings producing high volume crops like lettuce, tomatoes, mushrooms, etc; as well as community gardens.

Our supermarkets and restaurants today are offering agriculture produce from all over the world so that the consumer has access to all kinds of fruits, vegetables, meat and fish, all year round against low costs. Agriculture production in the coming years will be more serving local and regional market needs. Seasonality of produce will be back in the supermarket, with less global produce (or available for those willing to pay high prices).

  1. The human factor out of manufacturing and logistics

The covid-pandemic has revealed the vulnerability of labour-intensive operations, in particular manufacturing as well as logistics operations. During the covid-pandemic many countries had restrictions in place to limit the number of people allowed to work at a site, as well as strict rules when staff found to be covid-infected.

These measures led to breakdown of operations and entire supply chains. As the World Health Organisation is warning for more frequent and more dangerous virus outbreaks and pandemics, labour-intensive operations become a high-risk strategy for both manufacturers and logistics service providers.

Therefore, the future of production and logistics operations is to take the human factor as much as possible out of the physical operations, to make the operations more robust from any future human virus outbreaks and pandemics.

Mechanisation of movements through conveyor belts, automation, digitalisation of logistics processes, and robotisation of physical actions will be important innovations that will change production and logistics operations in the coming years. Freight forwarding and customs clearance will likely be replaced by artificial intelligence in the coming years. The future of manufacturing and logistics is not anymore people centric, but technology centric!

  1. Halal logistics and supply chain management

The halal industry is a fast-growing industry, consisting of not only food, but also cosmetics, pharmaceuticals, modest fashion, media & creation, and Muslim friendly travel. Halal is not static, but is going through an evolution from a product approach (to halal), to a supply chain approach (to halal), where halal requirements are addressed all the way from source to point of consumer purchase: the restaurant, supermarket, or customer doorstep in case of e-commerce.

This changing halal requirements for companies serving Muslim markets in Asia and the Middle East, demand brand owners taking a supply chain approach to halal, similar to a maybe more familiar supply chain approach to food/product safety or cool chains. Halal requirements throughout the supply chain need to be aligned to the halal requirements of its destination market, effecting sourcing, production, and distribution. Halal industry will move to halal clusters/parks in advanced Muslim markets like Malaysia and Indonesia, to leverage the benefits of these halal advanced halal eco-systems.

In the coming years halal logistics will become mandatory for transportation and warehousing for various Muslim (majority) countries in Asia and the Middle East. Halal certified Logistics service providers will play a key role in supporting management and optimisation of halal supply chains.

The logistics service providers can play a far bigger role in organising brand owner halal supply chains than currently performed, including the materials management at production plants. Fourth party logistics service providers, logistics service providers without warehouse and transportation assets, could be perfect halal supply chain orchestrators for facilitating brand owner’s halal supply chains.

In summary, we live in turbulent times where logistics and supply chain innovations are required in response to market dynamics and new government regulations. It is certainly all hands on deck now for the logistics industry.

About the Author

Prof. Dr. Marco Tieman is the CEO of LBB International, a supply chain strategy consultancy and research firm with offices in the Netherlands, Malaysia, and Indonesia.

He is also a professor with HELP University and a research fellow with University of Malaya in Malaysia. He is the author of the book ‘Halal Business Management: A guide to achieving halal excellence’.

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