Q&A: Richard Howells, VP of Solution Marketing for SAP Digital Supply Chain

Logistics Management Group News Editor Jeff Berman recently caught up with Richard Howells, VP of Solution Marketing for SAP Digital Supply Chain. Howells provided a detailed overview of how the COVID-19 pandemic has impacted logistics and supply chain operations, as well as key aspects of inventory management, and what we may expect a year from now, among other topics. Their conversation follows below. 

Logistics Management (LM): What do you consider to be the biggest shifts, or changes, in the logistics and supply chain sectors, as they relate to thing like retail shippers handling unexpected challenges, such as the COVID-19 pandemic, among others?

Richard Howells: For the past 10-15 years we have been looking for ways to reduce supply chain costs. We have outsourced manufacturing and sourced materials from lower cost regions. But while reducing costs, we also increased the risk. So when the pandemic hit and plants and boarders closed this unfortunately, came back to bite us.

LM: In what ways?

Howells: We started with shortages in supply, because the manufacturing center of the world shut down, and the borders were closed. We then saw  volatile demand for critical products. For a while it felt that everybody was looking for the same 20 or 30 products, and there was panic buying of vital commodities such as bread, milk, and of all things, toilet paper. And companies that were making luxury items saw demand drop off a cliff.

We also had capacity issues and constraints, in logistics, due to port closures, and reduced flights taking place, which would usually be full of cargo to be shipped across the globe. The supply chain has also been constrained due to the  shortages of people, as we were required to stay at home. For essential workers, social distancing was enforced to ensure safety and environmental health.

All of this has brought supply chains to the forefront. I would not have predicted [in March] that supply chains would be part of any presidential or gubernatorial update. Supply chains are now a boardroom discussion and a dining table discussion among families, too. They are now front and center, and some of the risks in supply chain have been exposed. But also we have seen cases of agility as companies have had to adapt and make products they have not manufactured before.

LM: Can you please provide some examples of that?

Howells: The uptick in online sales has been amazing. It has  jumped exponentially in recent months. We are now seeing people of all ages embracing online purchasing, for everything from groceries to garden chairs. Although this was out of necessity, many will not go back to the traditional approach.

LM: What do you think are some of the key supply chain and logistics “lessons learned,” related to handling and dealing with the pandemic, to date?

Howells: One is that you cannot have a single sourcing strategy, for vital products or materials. Also, companies are looking at their manufacturing strategies to balance off shoring with near shoring and onshoring. I think there will be a mix there, and I think we will see more local manufacturing. Will companies’ manufacturer to bulk through outsourced manufacturers and finish orders closer to consumers so they have more flexibility to change in customer demand?  

Companies are also looking at  where they position inventory across the globe. Where to locate safety stocks and which products or materials should have inventory buffers.

We have also seen the benefit of planning tools that can provide “what if?” analyses, to see how companies can adjust and respond to change.

The reality is that this is the biggest disruption that, hopefully, we will ever have, but there are always disruptions in the supply chain. There is always hurricane season, there are always snowstorms, and, more recently there are trade wars, and port closures, and strikes. It is just that, in the case of the pandemic, it is if they all happened at once. Nobody was prepared for that.

The supply chains that have done well had risk mitigation strategies in place. They had a plans for alternate sourcing strategies. They did not single-source or manufacture in one location, so they were more risk-averse. They had the tools to make better decisions and to have the visibility, if something is happening. And they could put it into the right business context to make the right decision and then have the flexibility within the supply chain to make the physical changes as well.

LM: The ongoing changes in e-commerce, due to the pandemic, have seen parcel carriers do a full year’s worth of work in half the time, in advance of the holidays. What is your take on that?

Howells: It is no good having an omni-channel sales strategy if you don’t have an omni-channel logistics strategy as well. Some of the biggest retailers are in the best position to have an e-commerce strategy, because they have inventory all over the country. They now need to have a last-mile delivery strategy, and use their retail stores as distribution warehouses, as well as retail stores.  

LM: Looking at inventories, there has been consensus that retailers, in a sense, are making bets, to a large degree, based on what they think is going to happen over the course of the holiday shopping season. That said, what does inventory management, or allocation, for things like having buffer stock and others, mean from a logistics and supply chain planning perspective?

Howells: We are seeing lots of companies look at things like pop-up warehouses, to have inventory closer to where they think demand is going to be and having their finished goods inventory closer to the end consumer.  

Inventory optimization is also a key strategy to ensure high customer service. It is not just a case of stockpiling finished goods close to the demand. It is making a network decision of optimizing where I should be keeping finished goods and where I should be keeping intermediates, or semi-finished goods, so I can finish them to order, based on customer demand.

LM: Do you think that scenario may spell the end of Just-In-Time inventories, at all?

Howells: I think for vital products some people are going from just-in-time to just-in-case and keeping extra inventory. That becomes a risk discussion: do I have a just-in-time strategy for all products? Or am I better served to keep a buffer stock of the top 20% of products? This decision should be made at a product category or even individual product level. 

LM: What would be the preferred, or ideal, outcome, say one year from now, for the supply chain and logistics sectors?

Howells: I see companies coming out of the pandemic looking for both resilient and sustainable supply chains. The pandemic has shown that a lot of business can be done remotely, which will help reduce the carbon footprint of unnecessary travel.

Companies will look at their manufacturing and sourcing strategies and have a combination of global and local supply chains. Some manufacturing will come closer to the consumers, and this will also reduce the carbon emissions of supply chain logistics.

Before the pandemic, sustainability, climate control and environmental issues were top of mind. This, rightly, took a back seat during the pandemic. But sustainability is, and will continue to be a major topic both in consumers’ minds and environmentally conscious businesses.