The COVID-19 pandemic had a never-before-seen impact on global supply chains. Supply and demand shock that resulted from the pandemic was unprecedented. As lead times for raw materials production and wait times for finished products increased, the fragility of the traditional supply chain and logistics industry was brought to light.
The need for more diverse and resilient supply chains is now evident to supply chain managers and executives around the world. This has driven leaders to explore supply chain management strategies such as diversification to improve global supply chain resilience.
Why Diversifying Supply Chains Has Become Necessary
The traditional supply chain is global. It spans continents, opens new markets, and delivers economic benefits to developing countries. To sustain economic growth, supply chain resilience is crucial. Disruptions have caused industry leaders to question the resilience of traditional supply chains, however.
China is currently the world’s top exporter of goods and is the largest source of imports for over a third of the world. The country is also the second-largest economy and the leading trade partner to 128 countries. Consequently, disruptions to China’s manufacturing sector have had a major impact on global supply chains.
By expanding their 3PL partnerships, businesses can:
- Improve visibility
- Diversify transportation and distribution
- Expand manufacturing relationships
- Decrease lead and wait times
Many experts feel that expanding the sourcing of raw materials, moving manufacturing, warehousing, and transportation supply chain services nearer to consumers lowers the risk of disruption to supply chains. To mitigate risks, many businesses are diversifying their supply chains by implementing regionalization strategies like reshoring and nearshoring.
Reshoring refers to companies that locate their manufacturing facilities in home country locations. New Balance has recently implemented a reshoring strategy, opening a manufacturing facility in Massachusetts. Intel has also committed to reshoring. The company has announced plans to build two semiconductor chip factories in Ohio. Reshoring can be expensive however so businesses are utilizing nearshoring to cut costs.
Businesses nearshoring manufacturing has proved beneficial for some companies recently. The term nearshoring refers to a business process for which a manufacturer or service provider moves all or part of its business operations to a nearby country.
Clothing retailer Gap is an example of nearshoring in action. After factory shutdowns delayed its manufacturing operations, Gap began nearshoring to Mexico and Central American countries to reduce lead times.
The United States government has also taken steps to support supply chain diversification efforts. The U.S. International Development Finance Corporation recently announced a $500 million loan to finance a solar-cell manufacturing plant in India. In addition, the U.S. government recently authorized a $600 million bilateral agreement with Lithuania to produce energy products for U.S. markets. The deal will enhance Lithuania’s capacity to produce and export:
- Renewable energy
In April 2021, Japan, the U.S., Australia, and India introduced the Supply Chain Resilience Initiative. This program is designed to reduce the risk of disruption to global supply chains by enhancing digital technologies in supply chain management. The initiative aims to diversify trade and investment between the four countries, while also collaborating on best practices for improving resilience in current supply chains to benefit future supply chains.
Third-party logistics providers are vital to the success of supply chain diversification efforts. Do you know what is vital to the success of 3PLs? The diversification of their services. The ability to provide a wider range of value-added services differentiates modern supply chain and logistics companies from their competition, giving them a competitive advantage. By working with several companies in an array of industries, diversified 3PLs can offer expertise, resources, and an assortment of services to optimize the supply chain. This can help businesses improve supply chain efficiency as well as mitigate risks before they develop.
By expanding services to add to the value chain, 3PLs can manage nearly every aspect of the supply chain at more affordable rates for customers.
Diversified 3PLs strengthen the supply chain at multiple touchpoints by working hand-in-hand with suppliers and customers from raw material production to final product delivery and beyond. This is where 3PLs can make the most improvement in supply chain resilience. Let’s take a further look at how 3PLs are diversifying.
- Limit delays
- Reduce wait times
- Move products from congested points of entry to their destination
Diversified 3PLs have relationships that span the air, ocean, and land. These relationships come in handy when transportation providers are unable to deliver based on workforce labor shortages or closed borders and ports. By having the capability to pivot to other modes of transportation at moment’s notice, delays in shipping times can be reduced. This is also beneficial in helping businesses navigate rate changes. This added value enables 3PLs to develop a strategy to meet each customer’s needs.
3PLs with diversified transportation services can also combat dead freight costs that stem from shipping delays and unfulfilled orders by manufacturers. Their access to a wide range of shipping routes and import/export gateways enables 3PLs to:
- Limit delays
- Reduce wait times
- Move products from congested points of entry to their destination
Leapfrogging is another supply chain management process that 3PLs are implementing to further diversify their services. This strategy is formidable in helping businesses keep up with product demand while mitigating delays from disruptions, creating a more resilient supply chain. Leapfrogging occurs when businesses ship smaller quantities of products by air, while awaiting larger cargo shipments by ocean carrier. This can help speed restocking, which can improve a business’s inventory management capability.
A diversified 3PL also has the capacity to handle the needs of several different industries. This level of expertise gives them the ability to better understand their customers ‘needs so they can connect them with the proper supply chain resources. It also enables them to meet industry-specific needs, such as regulatory compliance. Therefore, a 3PL partner with the expertise to manage regulatory compliance can offer a competitive advantage. Having processes to handle requirements from food grade certifications and customs paperwork can help avoid border and port delays to maximize shipping operations.
- Inventory management
- Integrated supply chain management
- Reverse logistics
- Information Technology
As e-commerce has proliferated around the world in the era of COVID-19, many businesses found that they were at the mercy of one or two manufacturers. Shutdowns, specifically in China, have resulted in massive delays in the production of both raw materials and finished products. This has resulted in stockouts, which ultimately impacted customer satisfaction and the customer experience.
To diversify the supply chain, expanding the supply network is vital. 3PLs are diversifying their services to mitigate risks that can come from businesses having a small supply network. These services, such as consulting, can help locate and facilitate partnerships between multiple suppliers. This can reduce the risk of disruptions like stockouts. By utilizing already built relationships and forming new ones, 3PLs can access alternative manufacturing sources that can keep businesses moving.
3PLs are making use of advanced technology to diversify their services. By utilizing:
- The power of the Internet of Things
- Artificial intelligence
- Machine learning
3PLs can provide a variety of warehousing services for a variety of industries. For example, automated distribution technology such as robots and automated sortation systems give 3PLs the ability to manage everything from chemicals to perishable food supply to final products for consumers. In addition, diversified 3PLs operate a range of facility sizes, equipment types, and racking systems giving them the ability to offer each customer the proper service to match its exact needs.
The capabilities of diversified 3PLs also enables them to utilize a single facility to service multiple clients. This helps businesses save money by enabling them to only pay for the space that they need for their warehouse operations.
The E-Commerce Impact
If e-commerce showed the world one thing it is that consumers want their products faster than ever. This has made the ability to provide speedy order fulfillment services a competitive advantage. If a business’s products are located closer to its customers, products can get to the customer faster. A key benefit to working with a diversified 3PL business partner is that businesses can gain access to multi-site distribution and warehousing facilities. Diversified logistics providers can not only position inventory close to the final destination, but also source products quickly to replenish inventory. By working with a 3PL, businesses can utilize facilities located around the world to store inventory closer to consumers. This is also beneficial to businesses because it can lower last-mile delivery distances to improve efficiency.
3PLs are also diversifying their warehouse services to combat businesses hoarding warehouse space. As a result of product shortages due to COVID-19, suppliers began to secure 90-day inventory levels. This is nearly twice the average. As a result, demand increased and warehouses filled to the brim with products. Consequently, businesses hoarded warehouse space in the U.S. to hold the extra products. 3PLs are expanding their warehouse and distribution facilities to locations such as Reno, Nevada, away from the coastal ports. This has resulted in the conversion of vacant stores into fulfillment centers and the construction of multi-story distribution centers.
Consumers no longer only worry about product prices. They now care if the businesses that they purchase products from are committed to supply chain sustainability. Many businesses partner with third party logistics providers to provide supply chain and logistics management solutions. Therefore, it is essential for 3PLs to be as environmentally conscious as possible to reduce their carbon footprint.
One way that 3PLs are showing their commitment to resilient and sustainable supply chains is by implementing reverse logistics. Reverse logistics refers to the return process of an order. It involves the movement of products in the opposite direction along the supply chain. This process is helping businesses improve their brand image, protect the environment, and save money.
Experts predict that by 2024 there will be a 140-million-square-foot shortage of warehouse storage space in the U.S. In addition, over 21% of supply chain and business logistics costs are the result of storing old inventory. Reverse logistics helps to save money by enabling businesses to re-inventory sellable products, while discarding those that cannot be resold. This frees up storage space and supports faster inventory turnaround.
In a recent study, 76% of first-time buyers reported that they would purchase from a business again if the business provided an optimal order return experience. Diversified 3PLs that can handle reverse logistics can help companies improve customer experiences by enabling a seamless returns process. This can increase customer satisfaction as well as retention, leading to a better brand image and greater brand loyalty.
Enhanced digital supply chain transparency and visibility are a hallmark of a 3PL that can offer a diverse range of services. One reason they can offer this service is because they have invested in advanced technology. Another is that they put that technology to good use. Cloud technologies powered by the Internet of Things and supply chain control towers utilize artificial intelligence. This enables end-to-end visibility throughout the entire supply chain process.
Diversified 3PLs operate manufacturing facilities that assemble raw materials, fulfillment centers that store and package products, and transportation services that provide several forms of shipping. 3PLs can not only facilitate business communications through obstacles such as weather and traffic congestion, but also workforce shortages and inventory control issues. By utilizing technologies, businesses can use data collected from these supply chain processes to make informed decisions that can enable more efficient supply chains.
As supply chains diversify, they are slowly improving. Experts around the world are realizing that the future of the supply chain logistics industry is in the hands of third-party logistics companies. By partnering with a diversified 3PL, businesses can:
- Improve visibility
- Expand transportation capabilities
- Build manufacturing relationships
- Optimize warehousing and distribution operations management
Combined, these can result in entire industries strengthening their:
- Supply chain models
- Improving risk management
- Boosting cost effectiveness
- Increasing supply chain resilience
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