Retail, Health Care Logistics, E-commerceCOVID-19 disrupts vertical markets in different ways.We bought a one-year supply of sanitizing wipes and traded business attire for work-from-home sweatpants. The world was awash in excess milk, but Wendy's restaurants went begging for fresh beef. And a shortage of surgical masks became a matter of life or death.For people who'd never before thought much about supply chains, the COVID-19 pandemic offered a crash course on where products come from, how they get there, and what happens when supply and demand fall badly out of sync. The pandemic has highlighted vulnerabilities in different vertical supply chains and forced players in those markets to devise new solutions.Some of those pandemic disruptions persist today, while others have evolved. Here's how COVID-19 has transformed the apparel, consumer packaged goods, healthcare, agricultural produce, and electronics vertical supply chains. The Golden Age Of E-commerce?While COVID-19 has spread suffering around the world, the pandemic has also poured a bucket of Miracle-Gro on the e-commerce marketplace. Online shopping in the United States expanded by 49% between early March 2020—before widespread stay-at-home orders began—and April, according to Adobe's Digital Economy index. The biggest jump came in the grocery category, which saw a 110% increase during that time.E-commerce was on an upward trajectory in any case, but COVID-19 expedited that growth. "If you look at historic projections, this pandemic has probably skipped us two to three years past what consumers and retailers thought it would be," says Kris Bjorson, international director in the retail/e-commerce distribution practice at Chicago-based commercial real estate company Jones Lang LaSalle.Even as more brick-and-mortar stores reopen, and even when the risk of infection subsides, e-commerce volumes are likely to remain high, he adds.Companies that already have a mature omnichannel distribution infrastructure are profiting from this surge. Others are struggling to catch up. "Companies just getting into the game are relying on partners," Bjorson says. "That is more expensive than the way a mature omnichannel company is flowing product."Electronics retailer Newegg has dealt with the surge both in its own operations and in its Newegg Logistics business. "Our 3PL operation has been particularly busy these past few months, as we've been focused on helping our 3PL clients maintain business continuity during this challenging time," says Jamie Spannos, global chief operating officer at Newegg in City of Industry, California.Because Newegg is accustomed to managing seasonal demand spikes, it was able to quickly scale operations as needed. "Once we got through the initial influx and shock to the system related to volume, we focused on modifying our routines to meet increased demands more permanently within our network," Spannos says.Newegg accomplished this while also implementing social distancing and new hygiene protocols, and providing PPE to fulfillment center associates."This was no easy task, and early on we had to put some heavy work into sourcing PPE for our teams," Spannos says. Fortunately, the company started its sourcing efforts early, ultimately securing so many masks that it donated the surplus to hospital workers.Apparel: Dressed for DistressCOVID-19 has shaken the apparel industry from end to end. First, it shuttered Chinese factories that make fabrics, embellishments, and finished clothing for the world. Brand owners and retailers couldn't get the products they ordered, and then—as factories started to reopen—the pandemic shut brick-and-mortar stores, limiting sales channels for that clothing.Demand shrank as well. With no need to dress up for work, school, parties, or date nights, consumers had much less reason to buy new clothes. And with unemployment soaring, many also had much less money to spend."Raw materials were delayed," says Jag Gill, founder and chief executive officer at Sundar, a New York-based firm whose digital platform connects apparel brands and retailers with sources for garments, raw materials, and components. Even when factories were open, those delays kept them from completing customers' orders."Factories sat on products that were finished or semi-finished for orders that retailers had placed," she says, describing the situation in mid-May 2020. Then, when factories could ship those orders, some retailers—facing a sudden drop in demand—refused to accept or pay for them.Prices PlummetE-commerce has helped maintain some apparel sales. Still, many retailers faced the start of the summer shopping season with locked stores full of unsold spring fashions."Retailers that were hurting, or had liquidity challenges and maybe had too much inventory, are now being forced to 'fire sell' their inventory," says Sean Maharaj, managing director at the consulting firm AArete. To compete, even retailers that are doing well are slashing prices on apparel.Retailers that normally depend on revenue from spring and summer fashions to fund purchases for the fall will have a hard time in this environment. "A lot of that opportunity to generate cash flow is now gone," says Maharaj.Decreased demand also spells trouble further up the apparel supply chain. "We will see a glut of raw materials that go unused," Maharaj says. Some of that excess fabric could help fill demand for face masks and medical gowns, but much will sit unused in warehouses, perhaps fading or deteriorating over time.Traditional consumer demand forecasting models for apparel won't work in the current environment, says Gill. For some brand owners and retailers, the key to success might lie in the example of fast-fashion companies such as Zara, which keep inventories lean so they can respond to quickly evolving customer tastes.At the same time they adopt this just-in-time philosophy, apparel companies could also take a "just-in-case" approach to fabrics and embellishments, ordering fewer materials in larger quantities. "If they use certain core materials every year or every season, they'll keep more of them in stock rather than risk a supply chain disruption," Gill says.Some companies might also cut risk by getting manufacturers to make some of their components in house, rather than subcontracting all aspects of their product.These risk reduction strategies could influence how companies design apparel. "Designers may have less flexibility or leverage to work with many different suppliers and experiment with fabrics," Gill adds.Consumer Packaged Goods: Feast and FamineToilet paper and disinfectants quickly vanished from stores as COVID-19 spread across the United States. But those were far from the only consumer packaged goods (CPG) to see a surge in demand.As chief executive officer of 1010data, a New York-based analytics firm that provides market insights to manufacturers and retailers, Inna Kuznetsova has tracked the ups and downs of various product categories since people started sheltering at home in the United States.Early on, for instance, sales of pet supplies—mostly online—rose by 40%. Then they fell to a level 30% lower than in the comparable period in 2019."Everyone stocked up," says Kuznetsova. "And until Fido eats through three huge bags of food, there is no need to venture out to renew that."Sales of office supplies also peaked as millions of people prepared to telecommute. "Then as supplies ran out, we saw an increase again, starting in mid-April 2020," Kuznetsova says.Bare EssentialsConsumers kept buying basic cosmetics such as concealers and mascara—important for looking well-groomed in a Zoom meeting. "But certain categories, such as eye shadow and lipstick, went down," Kuznetsova says. With social life on pause, there's little reason to experiment with a new look, she reasons. And no one notices lipstick behind a mask.Specialty foods have also seen demand swings, starting with the race to load pantries in February and March 2020. "Everybody rushed out to pull in their favorite brands," says Phil Kafarakis, recent past president of the Specialty Food Association in New York. That group represents small, entrepreneurial businesses that sell an array of packaged products: cookies, jams, condiments, snack foods, seasonings, and more.The initial frenzy left CPG retailers and brand owners wondering how best to restock fulfillment centers and store shelves. "When certain categories were in high demand, everyone wanted to avoid empty shelves, yet also avoid overstocking," says Kuznetsova.Narrow It DownCompanies that produce specialty foods themselves, or contract with co-packers, have responded to volatile demand by narrowing their offerings. "If they had a portfolio of 10 different products, they focused on the top three, and let the other ones go," says Kafarakis. That helped brand owners respond quickly as retailers scrambled to refill shelves.Pressure from co-packers has also prompted brand owners to reassess their assortments. "Production facilities have had to adapt to new standards, new policies, and new cleanliness requirements," says Kafarakis. The need for social distancing and frequent deep cleaning could reduce a plant's output. "The plant will make the highest-selling products," he says. "And then maybe the secondary products will be made intermittently."In this situation, co-packers will give priority to their own brands and to higher-velocity customers, Kafarakis says.Now that they've realized the fragility of global supply chains, brand owners that source ingredients or packaging materials from overseas are also rethinking those strategies."The dependencies that might have existed around the world are clearly major risks," Kafarakis says. For some companies, sourcing from the United States, Mexico, or Canada could be a safer bet.HealthCare: Critical ConditionIn spring 2020, as COVID-19 infections reached disastrous levels in parts of the United States, healthcare systems and state officials scrambled to secure ventilators, personal protective equipment (PPE), and testing supplies to meet the emergency. That desperate time revealed some stark truths about the healthcare supply chain."The so-called autonomy of healthcare in the United States is a myth," says Jay Srini, chief strategist at SCS Ventures, a Pittsburgh-based company that brings together venture capitalists and healthcare companies and institutions. "We're so reliant on the global infrastructure. We need to look at the supply chain and logistics, the cradle-to-grave from innovation to accessibility."Because healthcare products are so critical, issues connected with the global supply chain often become geopolitical. Consider, for example, what might happen if an eventual COVID-19 vaccine is produced in India, where healthcare is a government function."Already we hear that the first vaccines that are produced should be used for the people in India, since they're producing it there," Srini says.Nearly 80 countries have restricted the export of medical supplies in some way, according to an April 2020 article from the United Nations Conference on Trade and Development.Supply chain challenges extend from healthcare staples such as gowns and masks, to critical products such as vaccines, to small, mundane commodities. Srini points to a challenge that Bill Gates has described: "Even if we can produce 2.5 billion vaccines or the serology testing that we need, can you imagine the glass bottles and small vials we'll need? Will we run out of glass?"Avoiding a Swab ShortageFor a while, the United States was dangerously short of one simple-seeming but crucial medical product: the swab. "Despite warnings about supply shortages by health experts and governors at least as early as February, the federal government took until late April to ramp up domestic production of swabs—a universal ingredient in the most common type of COVID-19 test," said a National Public Radio report on May 12, 2020.One effort to correct that situation came from medical device manufacturer Resolution Medical of Fridley, Minnesota, and 3D printing company Carbon 3D of Redwood City, California. "The Resolution Medical Lattice Swab, crafted with Carbon technology, went from initial design to launch in only 20 days," says Joe DeSimone, executive chairman and co-founder of Carbon 3D.Fifty days later, the company completed a clinical trial with nearly 400 patients. As of early June 2020, Resolution had the ability to produce more than 1 million swabs per week. More than 50 hospitals have used them.To make the swabs, Carbon used 3D printing capabilities it had already applied to products such as an advanced shoe midsole for Adidas and auto parts for Ford. Since the material for the swabs was already used in dentistry, the Lattice Swab won quick approval from the Food and Drug Administration.Carbon also designed a face shield and offered that design on its website so anyone with an industrial-grade 3D printer could produce it, DeSimone says. Carbon's production partners have used the design to deliver more than 250,000 face shields to healthcare responders.In the future, 3D printing could help the healthcare industry overcome supply chain disruptions for other critical products as well."Because of the visible and clearly demonstrated flexibility and adaptability of digital manufacturing platforms like Carbon's, this is a critical moment that is likely to change how companies think about supply chains and how and where products are made," DeSimone says.Agricultural Produce: Diverting the FlowCOVID-19 has wrenched supply and demand out of sync in different ways for different kinds of agricultural produce.When the pandemic shut restaurants, college dining halls, and other dining venues, for example, farmers dumped milk that they suddenly couldn't sell. When viral outbreaks forced major meat-processing plants to close, shoppers stripped stores of chicken, pork, and beef, afraid that there would soon be none to buy.For dairy producers, there has been some good news. Some excess milk, cheese, and yogurt ended up in food banks, where demand was high. And some went to bolster the supply at grocery stores, where customers were loading up on dairy along with other staples.Early in the shutdown, Capital Logistics, a third-party logistics (3PL) company based in White Plains, New York, got a call from one of its customers, a national retailer whose shoppers were clamoring for milk. Typically, Capital delivered two or three truckloads of milk per day to the retailer's distribution centers. Now the customer wanted 50 to 60 truckloads per day. And Capital had only three or four days to make the change.As the retailer's milk supplier ramped up production, it asked Capital to bring in trailers to wait for the product. "Some drivers sat for 24 hours waiting to get their loads," says Greg Ackner, vice president at Capital Logistics. "It was all about getting product to the stores, at any cost."Capital Logistics also hauls a lot of fresh fruits and vegetables. Demand for those commodities tapered to normal after an initial spurt of panic buying. But it has been harder than usual to find trucks to move produce from California to the rest of the county. With much of the economy shut in early-to-mid spring, drivers had trouble finding backhauls to finance their return trips, Ackner says.Bypassing Backhaul ChallengesCapital Logistics' transportation management software and freight visibility solution, both from Descartes Systems Group in Waterloo, Ontario, help the 3PL keep up with demand fluctuations as it manages customers' loads. Descartes recently added a function that mitigates the backhaul challenge."We have a capacity co-op, where brokers share unused capacity to fill in those empty miles and make it more profitable for the driver, and also provide more utilization and a better opportunity for the brokers to work with those carriers," says Brian Hodgson, senior vice president of industry strategy at Descartes.West Pak Avocado in Murrieta, California, lost business for a few weeks from food service operators that deliver to restaurants. "But there was an increase in retail customer orders," says Johnny Garcia, the company's senior logistics coordinator.To navigate the shifting market for avocados, West Pak called on its 3PL, Atlanta-based Nolan Transportation Group (NTG). "NTG helped cover our increase in retail customer orders," Garcia says. "They provided trucks, scheduled delivery appointments, and helped manage drivers who were subject to increased wait times at retail distribution centers."Other produce companies that NTG serves have also offset lost food service business with more sales to grocery stores. NTG is helping produce companies adjust to the requirements of major retail chains."For companies not familiar with the ins and outs of scheduling appointments, meeting retail chain demands is very challenging," says Steve Meverden, the 3PL's regional vice president. For example, one major retailer accepts inbound freight only in the middle of the night. Because NTG has teams available to execute those deliveries, it can help produce companies accommodate the demands of their new customers.Electronics: Business is ZoomingCOVID-19 struck the global electronics industry early in 2020, starting with the first outbreak in China. When Chinese manufacturer Foxconn shut its factories in January, for example, it interrupted the flow of iPhones to Apple, prompting Apple to cut its sales projections for the quarter.As of late June 2020, the components pipeline had largely recovered. "Many companies that source components from China, Korea, or Japan now report normal levels of production at supplier factories," says P.S. Subramaniam, a Dallas-based partner in the strategic operations practice at Kearney, a consulting firm.That doesn't mean buyers can relax, though, as some Asian countries, such as China and South Korea, face a possible second wave of the virus that will impact businesses there.Some countries, such as India, have imposed lockdowns as they monitor the spread of the virus region by region. "Most of continental Europe and North America report normal levels of manufacturing output. Latin America, and Brazil specifically, appear to be still operating in crisis mode," Subramaniam says.Transportation also poses a problem for the electronics industry. "Air and ocean inbound freight has seen significant capacity shortages and a raise in the price index," Subramaniam says.That makes it harder to get components to global factories. "It also forces electronics manufacturers to use circuitous routing for air and parcel," he adds. That, in turn, forces more variability in lead times, due to longer transits and a greater risk of customs bottlenecks.While companies have wrestled with supply shortages, the pandemic has also increased demand for electronic products. "Once people started working and schooling children from home, we saw a material spike in 'essential goods' to keep families and workplaces connected, such as web cams and laptops," says Spannos of Newegg. The e-commerce electronics retailer has also been selling more TVs, streaming devices, gaming components, and other entertainment products.Demand-Driven LogisticsTo keep pace with demand, Newegg watches sales trends, makes projections, and works with vendors and third-party sellers that use its platform to ensure products are available when customers want them. "We saw an increase in first-time customers who found us because we were able to ship orders on time when others could not," Spannos notes.To balance supply and demand in the current environment, Newegg needs to thoroughly understand its supply chain and closely work with vendors and marketplace sellers. "We do this through constant communication and daily information sharing at all levels of the organization," Spannos says.Things have calmed down at Newegg since its mid-March order spike. "But we're still well above seasonal averages for just about every product category," Spannos says. "Whether this trend continues hinges a great deal on how and when businesses open up again, as well as the general economic health of the countries we sell into."
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