Blue Yonder report highlights e-commerce growth and supply chain investment and execution

A report issued this week by Scottsdale, Ariz.-based Blue Yonder (formerly JDA), a provider of AI-driven and end-to-end supply chain management service, in partnership with Reuters Events Supply Chain, examines priority strategies and investments for supply chain professionals across transportation and warehousing, across a few different themes, including supply chain and risk management within transportation and warehousing, among others.

The report, entitled “The State of Supply Chain Execution Report 2021,” was based on feedback from 589 global supply chain professionals surveyed between May and June 2021, with 40% of respondents from North America, 34% of respondents from Europe, and 26% of respondents from the Asia Pacific region. And 203 respondents were manufacturers and retailers, with 210 logistics services providers (LSP), and 176 solution providers and third parties.

The report observed that over 2020 and the first half of 2021, e-commerce purchasing activity saw a significant acceleration, with surveyed shippers indicating that online sales have increased more than 120% over the last 12 months, while LSPs cited a 200% increase, for the same period of times. And the report explained that this level of growth led to disruptions caused by the lack of availability of raw materials, transportation capacity, and visibility required to produce and move essential products.  

Raj Patel, Blue Yonder senior director, 3PL Industry Strategy, said that, given this rate of growth, there have been several lessons learned have been for shippers and LSPs, with an eye on the future.

“Shippers and LSPs need to continue to analyze the trends in the industry to ensure they have an investment plan to constantly improve their supply chain to ensure profitability and competitiveness,” he said.

These investments include things like:

• Upgrading their TMS and WMS, and integrating them to get full visibility and quick resolution to problems;
• Migrating solutions to the cloud so that they can get flexibility and add/utilize more advanced problem solving through AI/ML; and
• Managing resources better by adding capabilities to incentivize their workforce and to schedule them with visibility into constraints. Many are also considering how to add robots to the mix without affecting productivity and morale of the workforce

Looking ahead, Patel said that last-mile coordination and handling the customers are key initiatives going forward, explaining it will be imperative to have the right network and nodes to provide the increased flexibility and speed to address customers’ ever-changing needs.

“Retailers and LSPs will need to do more, frequent network design analysis versus annually or every three to five years,” he said. “To advance to a digital warehouse, retailers and LSP must consider utilizing 3PLs or investing in micro-fulfillment centers to get closer to consumer demand. This is especially true if same-day delivery becomes the norm. The challenge here is they need to balance cost to serve versus customer experience/expectations.”

Another key theme in the report addressed the need of diversification strategies and the necessity to tackle capacity shortages and prolonged lack of sustainability investment.

Patel said that Diversification strategies can be costly and may cause some organizations to pause but it is a tradeoff as it will pay off in the long term.

“Diversification allows logistics providers to have a back-up plan vs. spot markets and tabling the risk along the long supply chain,” he said. “Knowing how many diversification strategies is good enough can be another challenge. The answer to this requires having a risk management strategy, which is often not present in a lot of supply chain organizations. Risk management will be very important going forward because the supply chain footprint is changing continually. Being able and ready to predict and pivot quickly will provide a competitive advantage versus determining what to do now when a disruption happens.” 

With e-commerce activity running full speed ahead, with no signs of slowing down, the report made the case that in for companies to capitalize on omni-channel opportunities, there is a direct need—or prioritization—for more agile delivery and fulfillment models, such as a D2C (direct-to-consumer).

And it added that roughly half of shipper respondents (47%) say they already have a D2C model in place and that shippers are beginning to get more help from LSPs and, in parallel, increase the focus on micro-fulfillment centers. Another 13% are in the process of developing one, and 6% think they should have one.

“The D2C model offers an opportunity for LSPs to fill the gap on delivery and fulfillment, as well as manage omni-channel strategies,” the report said. “A key reason for the aggressive D2C push from shippers over the past year is the realization of value that comes from having a direct connection to the customer.”  

Getting a D2C strategy up and running can be an expensive proposition because organizations must set up a transportation network, a distribution network and the ability to fulfill a large number of orders that might be smaller in order size than they are used to, according to Blue Yonder’s Patel.

“In addition, you have external challenges you have to deal with like labor shortages, transport capacity and raw material availability to name a few,” he said. “The other challenge is organizations don’t have the ability to learn as they go. To do well in this new omni-channel world, organizations must hire professionals (sales and marketing) who can help them navigate this new channel.”  

Looking at the biggest challenges in e-commerce logistics, end-to-end visibility was at the top for LSPs, coming in at 22%, with warehouse capacity, at 12%, integrating systems, also at 22%, and missed deliveries, at 7%.

“Unlike their retail counterparts, LSPs have not traditionally had the technology or resources to follow an order from beginning to end,” said Patel. “The order pattern has changed to smaller-size orders and a larger number of orders make it challenging. How can LSPs deal with this additional magnitude of complexity and expect to deliver with good customer service levels while maintaining their margins?”

And he added that with these order pattern changes, the landscape of an LSP’s internal supply chain system is not able to handle e-commerce well.

“In addition, the connection to the consumer and showing fulfillment at the various stages must improve so that they can interact and respond quickly,” he said. “They need time to invest in these capabilities, but they are sometimes constrained. In order to provide the visibility that consumers are used to from UPS, FedEx or Amazon, LSPs need to have this information in their systems to show the many legs of the shipment movement.”