E-commerce places new pressures on supply chains

As two-week becomes next-day delivery, production runs are getting smaller and brands need inventory closer to the market, says Flexport COO.

Cross-border e-commerce growth is now transforming freight demand in terms of the speed of delivery required, placing new pressures on supply chain and inventory management, according to Flexport COO, Sanne Manders.

“Although demand is global, consumers want more uniqueness and identifications,” he told Lloyd’s Loading List. “This leads to higher perishability and smaller production runs.”

He said consumer behaviour such as reactions to social media trends often induced spikes in demand even within narrow geographical areas, creating inventory allocation problems for brands which need to learn how to anticipate demand shifts more quickly.

Moreover, he added, as supply chains were speeded up to meet the consumer’s desire for instant delivery, this resulted in more inventory being stored closer to consumers, requiring smaller warehouses instead of central distribution centres (Dcs).

“All together, this leads to more frequent smaller shipments, going into a distributed network of warehouses, and inventory reallocation between those network points,” he said.

“Air freight, premium ocean services, LCL/buyer console/OceanMatch are also products designed to speed up supply chains [to meet these changes in the nature of demand].”

Manders said there were two distinct ways to fulfil cross border e-commerce with cargo treated and shipped either as an international parcel or as a domestic parcel.

The first shipping method is the traditional cross-border e-commerce solution and, for example, might see the purchase of a product on Alibaba fulfilled as a parcel from China. The latter sees the cargo moved on the international leg as standard freight and is becoming more normal for modern online retail.

“My preference is to look at e-commerce in the second way, meaning, as a consumer who buys online, I don’t care if it comes from China direct or from a local distribution centre,” he said.

“The local distribution centre route is superior in terms of customer experience. Consumers want next or even same day delivery. International e-commerce will never be able to deliver that. I foresee most growth on the second route, where brands will have local inventory close to the consumer.”

Manders said every modern brand was now e-commerce, even if they sold partly through brick and mortar. “Their primary go to market is mobile and online, including marketing, brand positioning etc.,” he added. “10% of US retail is now online, but if you take out groceries and other segments that are not well suited for online retail, it’s actually much higher.”

In future he predicted e-commerce growth would see demand for air freight shipments and consolidation products grow. “Instead of sending a full container to a central DC, we’ll have people sending four pallets to a local fulfilment centre or store directly,” he said.

“Visibility when moving cargo is needed in a world where complexity is increasing exponentially.”

According to Manders, ‘disruptors’ such as Flexport have unique attributes that lend themselves well to the localized inventory system that retailers are now moving towards.

“In order to create this system, supply chains are going to get more and more complex,” he said. “As two-week becomes next day delivery, production runs are getting smaller and brands need inventory closer to the market. The more complex a network becomes, the harder it will be to manage with IT systems that have poor visibility.

“You need systems where your products on the go become part of your inventory, systems that ensure you are never out of stock and allow for dynamic rerouting to solve inventory allocation problems.

“In essence, entrants like Flexport empower brands to have more control to react to, and in the future read, demand.”

Source: Lloyd´s