Main challenges in procurement and logistics for 2022


How do manufacturers and retailers deal with logistics challenges?

In December 2021, the Coordinating Council on Logistics, together with TransRussia, the 26th International exhibition of transport and logistics services, warehouse equipment and technology, undertook a large-scale study of the logistics of manufacturing and retail companies. This study enabled them to collect reliable data on the industry, understand key trends in its development, and look at the following questions:

•    Expected growth of costs for the main items of expenses (personnel, technology, floor space)
•    Expected level of resource shortage
•    Business priorities for companies regarding logistics
•    Logistics technologies worth investing in 2022.

The first part of the study results will be presented at the 25th Moscow International Logistics Forum (MILF) to take place from 16 to 19 March.

On the eve of MILF 2022, the Coordinating Council on Logistics held a large live stream "Top 3 Killer Problems in Procurement and Logistics in 2022 and How to Solve Them” where the speakers talked about how manufacturers and retailers can deal with the most urgent logistics challenges. The stream's host was Ksenia Kuvshinova, head of the CPOCLUB project. The experts included Vasily Demin, Dr. of Technical Sciences, Deputy Director of the Coordinating Council on Logistics, and Viktor Kodanev, International Supply Chain Manager at Dodo Brands.

Three main challenges in logistics:

  1. Shortages and business-critical increases in the cost of key resources

In 2021, the lack of warehouse line personnel, vehicles, warehousing capacity and technologies became an acute challenge. This increased in the price of key logistics resources. Experts also noted that very few companies today use electronic trading platforms (ETP), and some have not learned how to work with them.
The Decathlon was an example of a company that did not experience difficulties in 2021, such as a shortage of personnel. They were able to avoid troubles due to a good internal production culture, loyalty to the company, labour ergonomics, and robotization.

To overcome the lack of warehouse space, the speakers suggested moving low-cost goods to low-value warehouses.

  1. Increasing the cost of order processing in e-commerce 

Another significant logistical challenge was the increase in e-commerce order processing costs for retailers and distributors when dealing with marketplaces. The reason for this was the increased labour intensity of the processes. According to experts, e-commerce is a place for those companies that are ready to incur losses for a long time but eventually win their proper position in the market.

Today, e-commerce sales channels are under transformation. A company can cooperate with marketplaces, but not many people yet understand how to work with them most effectively. Or the company can create its own online store and sell through it.

  1. Increased lead time

The issue of increasing order fulfillment time is demonstrated by goods delivery from China in 2021: instead of 2-3 months, parcels are arriving in 8-9 months. This resulted in lower turnover of inventories and working capital, as well as lower sales volumes due to a mismatch between actual inventories and demand. The market faces a scenario where warehouses are full of goods, but demand is falling, resulting in products not being sold, and there is a shortage of storage space.

It's important to understand that product delivery time consists of how we process the requirements, the lead time, and the delivery time. Therefore, the delivery time can be reduced as follows:

•    Reduced order processing time
•    Establishment of long-term relationships with suppliers
•    Flexible matrices for agreeing on deals, contracts, and specifications
•    Elimination of obsolete approval cycles for various processes
•    Automation of these processes.

The main thing is to improve the quality of planning in the company:

•    Analyse macroeconomic factors
•    Analyse demand and consumer behaviour
•    Take into account the commodity index and weather forecasts

To deal with the increase in lead time, we need to enhance transparency and publicity in the supply chains, as this is the key to the company's competitiveness, and to share forecasts with our suppliers to establish a trusting relationship with them.

In addition, one should pay attention to the presence of multinational corporations, medium-sized companies, large and small businesses, Eastern, Western, and Russian suppliers within each pool.

As part of the stream, the speakers also discussed how the ESG trends had impacted logistics processes. Experts believe that ESG will not improve the situation in logistics in the coming days. On the contrary, it will create issues in cost and lead time. However, the largest companies in Russia have shown how important the ESG strategy is.

The second part of the Coordinating Council on Logistics study results will be exclusively presented at TransRussia, the 26th International exhibition of transport and logistics services, warehouse equipment and technology.

The Coordinating Council on Logistics is a co-organizer of the SkladTech special project dedicated to warehouse equipment, storage systems, material handling equipment, and warehouse automation tools, which will be held during the TransRussia exhibition.

TransRussia 2022 exhibition will be held on 12-14 April in Moscow (Crocus Expo International Exhibition Centre, Pavilion 1)

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