More than other areas, the Covid-19 pandemic forced the logistics sector to adapt quickly to the new regional, supply chains and consumer needs and test new flexible, digital and shared organisational models. The starting point for the next challenges.
Prof Marco Melacini, professor of Logistics Management, Director of the “Gino Marchet” Contract Logistics Observatory
School of Management Politecnico di Milano
The health system is at the forefront of the emergency response which work with other sectors providing essential services. Logistics, with its roots in military supply systems, provide the foundation to meet today’s challenge, ensuring these sectors’ operations by supplying necessary products. Although we are still in full emergency, it is useful to start thinking about “phase 2” and how the logistics will change, especially as it is unlikely that the country will return to normal in the medium term and there may be several “stop and go” moments, perhaps by limiting the “red zones” to smaller areas.
The best way to answer the question of how logistics will adapt, is to observe the last month’s reaction to the crisis which disrupted the lives of people and companies, and particularly the logistics of the pharmaceutical and food supply chain, which remained fully operational.
Adopting a “smart” rather than a cost-minimising strategy to handle the foreseeable demand, was seen as important. Practically this meant greater resource redundancy (firstly warehouses) to quickly locally reallocate stocks and overcome critical issues, such as stoppages. Implementing this strategy requires quicker decision-making, with increasingly dynamic and data driven choices. The smart working method was adopted for planning. This was more effective for companies that had experienced remote working and adopted cloud technologies and software. The latter allow remote access to computer systems and increase visibility along the supply chain.
However, there were some activities which must remain on site, such as order picking and transport. For these, it was essential to use social responsibility for workplace safety. Practically, this meant Personal Protective Equipment (PPE) distribution for workers, frequent workplace sanitisation (warehouses, transport cabins, and terminals or handling aids such as drugs delivery boxes), body temperature monitoring of everyone before site access, and reviewing operating procedures (e.g. to reduce the resource sharing, such as voice picking headsets, and increasing operating distances between operators). Reducing physical “contact” was a good reason to move to supply chain digitisation — making it possible to avoid printing and paper handling of transport documents.
The “smart” strategy is based on flexibility and allows quicker implementation of the most suitable solutions to respond to any change. The logistics tertiarisation and the related model used across the country enabled companies to be flexible. Some logistics operators quickly reallocated goods across more than 25,000 sqm of warehouse space. Horizontal cooperation between contract logistics operators (a sector worth more than € 84 billion in turnover) is and will be essential to a sharing economy. This cooperation consists of the use of stationary trucks/drivers from other supply chains to manage the high growth in demand especially sudden consumption peaks generated by fears in the population. It was possible to move warehouse personnel from mothballed sites making up for the reduction in operating capacity in the face of a physiological rise in absenteeism. The close relationship between company and worker, typical of the cooperative model, favoured communication within the company, reducing potential risk areas, and providing greater operational flexibility, to partially offset the inevitable productivity loss. We started daily planning, working closely with customer companies to align logistics capacity as closely as possible to market demand. This was essential to ensure economic sustainability in a low-margin environment such as contract logistics.
The situation we are experiencing led to a specific coordination model for emergencies: frequent alignment meetings, adoption of choices that in the short term do not always optimise costs (for example the greater difficulty of finding return trips or mandatory distances in the warehouse, to the detriment of productivity) but ensuring service continuity, cooperative customer company relationships that go beyond an outsourcing contract, an open book approach while sharing market signals and operational choices.
At the strategic macro-choice level, alongside the critical analysis of the future service to be provided based on contingencies (some companies have reduced the number of deliveries per point of destination to reduce order fragmentation), we noticed the centrality of delivery capacity in urban areas. This included home deliveries (e-commerce has made the definitive leap forward in its Italian development and grown by more than 50 per cent) and the individual sales point, with the rediscovery of the value of proximity stores (often used as omnichannel preparation points for urban deliveries). These urban logistics, with their city-centred origin and destination, will be increasingly important. In the transportation field there has been the development of road-rail inter-modality, which is fundamental to overcome transport blockages between EU countries, and future management of the crossing and supply of new “red zones”. Lastly, warehouse automation, which is still underdeveloped, will be increasingly important to promote work in protected areas with a lower concentration of people.
“Border” crossing times between European states (source: sixfold.com/covid-19)
In conclusion, it is not simply a matter of returning to a logistical “normality”, but finding new balances that will allow us to face this and future challenges, such as any economic recession and the need to increasingly focus on climate change.