Distribution will change in a post Covid-19 world

Distribution models are being upended in a Covid-19 world. (Photo: iStock)

Doors are beginning to reopen as governments lift some of the business restrictions imposed during Covid-19. But Cyndi Brandt, Omnitracs vice-president – sales enablement, knows distribution models have been upended and that some operations will never re-open.

“Business is never going to be business as usual,” she said during a company webinar about the post Covid-19 world. “You’ve got changing demand patterns right now … Amazon, Walmart, Instacart – all companies with great infrastructure. Every single one of them is now struggling.”

Other businesses would be happy with such struggles.

While online shopping has surged, straining existing distribution channels, restaurants are trying to consider how they will survive in an era of restricted seating capacities.

The customers you served yesterday may not survive the shutdowns. Even where storefront businesses have introduced curbside pickup services, they aren’t processing as many customers, Brandt said.

David Palle, senior director – product management, referred to massive shifts from on-premise purchases to direct-to-home deliveries.

Some companies have successfully leveraged telematics tools such as proactive alerts, communicated ETAs, and live tracking to support such business opportunities, he said. Signatures are not always needed, either, supporting the idea of contactless deliveries. (“There’s still probably an opportunity to better leverage this type of technology.”)

But he identified particular challenges for food service distributors who have traditionally seen independent on-premise establishments as their “bread and butter”. Chain restaurants tend to have their own established supply chains, after all. Even beer wholesalers, while finding new sales channels, haven’t been able to offset the losses connected to bars and restaurants.

Waste and recycling collection volumes have been affected as well, he said. Commercial accounts have dropped 80-90%, while residential collection volumes are up 25%.

There are challenges at both ends of the distribution spectrum. Some businesses are struggling because of massive drops in volumes, others are unable to keep up with demand – especially in the case of fast-moving items.

“Inventory takes up room in warehouses and trucks,” Palle said, noting how businesses will need to take a hard look at the SKUs that are selling, and remove low-velocity products.

A look at the products being delivered can also have a significant influence on the number of customers to be served. He referred to a retailer in the United Kingdom that is able to serve 6,000 additional households per week by eliminating flowers and bottled water from deliveries.

Even newly required personal protective equipment will play a role in delivery times. The protocols introduced at the beginning and end of a shift are just one consideration. Each stop might require another 30 seconds or so to put the PPE in place. It doesn’t seem like much, but it can make a difference over the course of a day.

“Every minute counts, and sometimes that adds up to not being able to get to another stop,” he said.

As businesses prepare for the shifts to come, Palle recommends planning models that consider what the transition from restricted activities to a “new normal” will look like, how long that transition might take, and what would happen if restrictions are reintroduced.

Modeling like this will require more than routing tools that focus on daily orders, volumes and stops, however. The data needed for this additional layer of planning will need to consider multiple days and weeks.

“A tactical, dynamic routing tool by no means allow you to do that,” he said.

Today’s reality also requires a different mindset, unlike the traditional planning approaches that involve looking at six to 12 months of historical data and making adjustments accordingly.

“The last six to 12 months may not be indicative of what we need to do in the short term,” he explained.

Businesses tend to plan for predictability and don’t consider contingency plans for events such as the 2007 housing crash, mergers and acquisitions, or suddenly shifting consumer trends, he added. “We tend to wait until something happens.”

But in doing so, they end up losing precious time.

“There’s going to be wildly different increases or decreases in demand when you’re doing this contingency planning,” Brandt said. Questions might need to consider consolidating routes, or looking at M&A opportunities – whether as a buyer or a seller.

“What happens if you immediately have a surplus or a huge shortage in labor,” she asked, referring to another consideration.

It will all be part of the new normal.

Pandemic behaviors

Covid-19 consumer trends and their affect on distribution

Cyndi Brandt, Omnitracs vice-president – sales enablement, refers to six consumer behavior thresholds identified by Nielsen, each of which has an impact on the supply chain:

Proactive health-minded buying – As localized cases of Covid-19 emerged, there was more interest in products that support health and wellness. “We all went out and bought some vegetables,” she says as an example.

Reactive health management – Reports of local transmission, and government health and safety campaigns, led to the supply chain prioritizing health and public safety goods such as face masks.

Pantry preparation –As limited quarantines and closed borders emerged, consumers began to stockpile shelf-stable foods and a broader assortment of health and safety products. “This is where we start to see the stockpiling,” she said. “We start to see a huge spike in store visits, a huge spike in basket sizes.”

Quarantined living preparation – Closing schools and public places, and localized Covid-19 emergency actions, led to more online shopping and a decline in store visits. Businesses such as Instacart and Amazon began to benefit. “This is when we really started to see the strains on our supply chains.”

Restricted living – Currently we’re at a time of locked-down communities, closed restaurants, and restricted gatherings. “Fulfillment is extremely limited,” she said. Prices are beginning to rise as well.

Living a new normal – Eventually, this all leads to a “new normal” as quarantines lift outside of specific hot spots. But the use of e-commerce and hygiene practices are expected to remain.

“We’re starting to see a lot of small restrictions start to lift,” she said. “People are really trying to understand what is the new normal.”