Will logistics companies restructure?

"Just-in-time": This is the mantra that has shaped the logistics industry for decades. The aim is to minimise stocks at the processing site by delivering goods that are accurate in time and quantity. In order to save storage costs, fast and direct supply chains are increasingly being used. Safety buffers are hardly available. This type of logistics system requires a smooth flow of goods and is therefore extremely susceptible to disruptions, for example due to environmental influences or traffic congestion. If the supply chain is interrupted by production downtimes or the like, just-in-time is no longer possible because the limited quantity of goods in the warehouse is quickly used up.

It is not surprising that the current corona crisis is leading to considerable disruptions in this finely timed system in some places. Instead, the current situation shows us the importance of a functioning supply chain and how crisis-prone the logistics sector is at the same time.

Ensuring basic supply through greater storage capacities and higher delivery density

Miles and miles of traffic jams caused by border controls and closures, the absence of employees who have to go into quarantine or look after their children at home, and a major change in consumer behaviour – all factors that logistics companies are currently facing. While business in some sectors, such as industry and retail, has come to a complete standstill in some cases, food markets have been experiencing a rush since mid-March, the kind of rush previously seen only before seasonal holidays such as Christmas and Easter. In order to ensure the basic supply of the population with food, drugstore and hygiene products, medicines, fuel and everyday necessities during the crisis, freight forwarders and transport companies have already increased their loading capacity and delivery density. The Federal Government has also relaxed the ban on Sunday driving for trucks. In order to be able to increase stocks during the crisis, new storage facilities and logistics areas are being sought in the short term, especially in conurbations.

Expansion of production capacities at the multi-logistics level

As already reported in our last article of the series Game Changer Corona Crisis, due to the current output restrictions and contact blocks, more orders are being placed online. Amazon is the main beneficiary of the crisis. The US company announced in March that it would be creating 100,000 full- and part-time jobs in logistics centres and the delivery network in the USA. According to the online retailer, 350 new jobs will be created in Germany. But the e-commerce industry is also experiencing difficulties and interruptions in the supply chain because transport and parcel delivery services are overloaded due to high demand or goods are stuck abroad. Although production in China is gradually picking up speed again, the supply of goods is still stagnating due to the rampant virus.

Even before the Covid 19 outbreak, it could be observed that production is gradually being shifted back from China to Europe. This relocation close to the sales market is also known as "nearshoring". When the crisis is over, there will probably be a shift towards building up production capacities increasingly on a multi-logistics level.

Higher inventory levels for greater crisis resistance

The current situation could have a long-term impact on processes in the logistics industry and lead to a rethink: away from "just-in-time" and towards larger safety stocks in order to be better prepared for future crises. There will also be a stronger trend towards warehouses close to sales and a general shortening of delivery routes. In this way, the availability of the required goods can also be ensured in the event of a crisis. "If you have a sufficiently large stock, you can make use of it and do not immediately fall into the production hole because assured quantities do not come regularly and as agreed," explained Carsten Knauer from the Federal Association of Materials Management, Purchasing and Logistics to Mitteldeutscher Rundfunk. Corona puts existing structures and processes in logistics to the test and leads to them being rethought.

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This article is part of the "Game Changer Corona Crisis" series