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KEARNEY & CSCMP: How the Logistics Industry is Navigating the COVID Crisis

New report from Kearney and CSCMP paints a picture of a resilient industry that’s increasingly turning to technology and automation to help navigate the COVID crisis and subsequent economic downturn.

Coming off a very strong year in 2019, the logistics industry is proving itself to be both adaptive and resilient in the face of major adversity in 2020. Impacted by the convergence of a global pandemic and economic downturn, the industry is in the process of shaking off these negative impacts and learning how to operate in the “new normal” business environment.

These and other insights were recently unveiled in the 31st Annual Council of Supply Chain Management Professionals (CSCMP) State of Logistics Report. Developed by Kearney, CSCMP, and a team of industry leaders, the annual report covers the macroeconomic factors affecting logistics, insights from industry leaders, discussion of important trends, detailed analysis of each major logistics sector, and a strategic assessment of the industry.

“Globally, countries are grappling with halting recoveries of supply, ongoing demand destruction, and secondary waves of infection—and the U.S. is no exception,” Kearney points out. “This painful and chaotic period is causing logisticians and all who depend on them, to adapt and evolve. As they fight to survive, to operate, and then to win anew, both shippers and carriers will depend on more quickly adapting logistics capabilities.”

Recovery Ahead

In 2019, U.S. business logistics costs (USBLC) rose 0.6 percent to $1.63 trillion, or 7.6 percent of 2019’s $21.43 trillion GDP. “Yet in mid-2020, that all seems like history,” Kearney points out. “The pandemic, and global measures taken to reduce its further spread, have decimated supply chains, scrambled logistics capabilities, and destroyed huge swaths of demand. The size, shape, and timing of a recovery remain in question.”

According to Kearney, the pandemic has also highlighted the value of the logistics industry. “Whether it’s delivering critical medical supplies or allegedly hoarded toilet paper, logistics is essential to national security and wellbeing,” it says. “Many of its employees were rightly labeled as essential workers.”

Some signs are optimistic. E-commerce continues to boom, amplified by the online shopping of those sheltering at home, Kearney reports. And, some carriers maintained profits despite declining volumes in 2019, suggesting a commitment to pricing discipline that may help them survive the bigger drops of 2020.

Going forward, it says supply chains will need to become more resilient, better able to adjust to, and recover from future difficulties. “The shift away from single-source, cost-focused supply functions may pose new challenges to logistics,” Kearney cautions, “which itself is having its resilience tested in this crisis.”

Warehousing is a Bright Spot

According to Kearney, the warehousing market continues its growth. In 2019, rents kept rising and vacancy rates stayed near historic lows. E-commerce continued to drive growth, especially in smaller, high-amenity urban warehouses. “The fourth quarter of 2019 represented the highest square footage completed in a single quarter on record,” it says, “and the vacancy rate barely budged.”

In 2020, the disruption of consumer supply chains caused by the coronavirus pandemic is expected to drive a new surge in warehousing demand, especially for temperature-controlled warehouse space, as more consumers order food online. “Pandemic e-commerce is leading to an expected increase in adoption of warehouse automation solutions to keep costs and operational complexity in check even further,” it says.

For example, sales of autonomous mobile robots (AMRs) are estimated to double to $27 billion by 2025. Overall, it is estimated that a 5 percent bump in safety-stock inventory will require about 750 million square feet of industrial space as companies soften their lean-inventory strategies.

“The rise in stock levels should spur industrial activity,” Kearney predicts, “given the expectation that the warehouse construction pipeline will remain full and warehouse availability will remain tight.”

Agility Trumps Forecasting

In a recent article by Supply Chain Dive entitled Unilever CSCO: Agility beats forecasting when the supply chain is stressed, Chief Supply Chain Officer Marc Engel emphasizes the need for an accelerated digital transformation during these challenging times. He comments why

“Agility does trump forecast[ing],” the CSCO said. “At the end of the day, every dollar we spent on agility has probably got a 10x return on every dollar spent on forecasting or scenario planning.”

Unilever is working toward automating processes and leveraging the data collected to become more agile and accelerate its supply chain.

Technology Drives Logistics

The implications of the COVID-19 crisis have reemphasized the value of technology in logistics. Even providers previously hesitant to invest in digital yard management solutions, shipment location tracking, or electronic signatures, claiming such digital technologies were unnecessary, are now embracing them as table stakes.

With rising labor costs, and despite the COVID-19-induced recession, shippers and 3PLs are looking to automation to make logistics more efficient. While a serious uptake of autonomous trucking is still five to 15 years away, legions of mobile robots are already working alongside humans in warehouses and automated systems for yard and transportation orchestration are enabling those organizations to gain agility.

“In general,” Kearney says, “winners will emerge from this crisis with more digitally savvy logistics operations, especially in the areas of creating transparency and interfaces while reducing needs for physical labor across modes and nodes.”

Digital Yard Management Proves Essential During COVID-19 Disruptive Times

New Gartner Market Guide for Yard Management shows the role that YMS plays in helping companies automate processes and offset the impacts of the global pandemic and other supply chain disruptions.

It didn’t take long for global supply chains to take center stage during the worldwide pandemic, what with the many shipping delays, supply disruptions, and related issues that made the world’s headlines. A critical juncture that sits between the warehouses where goods are stored and the end destination for those supplies, the yard quickly became a focal point for companies that scrambled to develop more streamlined, frictionless supply chain strategies.

Some of the world’s largest brands would agree that yards are the most significant opportunities for digitization and optimization in the supply chain. As inventory often goes through multiple yards during their shipment lifecycle, any inefficiencies or errors in the yard are propagated through the entire supply chain. Additionally, 80% of transportation delays happen when trailers and containers are at distribution centers and manufacturing plants, costing organizations millions of dollars in inefficient operations and excessive accessorial charges and transportation contracts.

Driving Greater Yard Efficiency

To drive greater efficiency for the yard and better collaboration with carriers, vendors are focusing more on yard orchestrated automation capabilities as part of their offerings. “Companies have put considerable effort into optimizing their processes in the warehouse and transportation,” Gartner analysts Bart De Muynck and Simon Tunstall point out in the new Gartner Market Guide for Yard Management (subscription required.)

“However, operations in the yard that connect transportation and, specifically, the truck to the warehouse, for both inbound and outbound operations, have in many cases been left behind or ignored,” they continue. “Often, the yard operations operate in a very manual and non-technology-driven way. The need for more automation and digitization caused by the recent disruptions and concerns around social distancing has created more visibility of the gaps that exist in many yard operations.”

The 2020 Market Guide for Yard Management, which identifies PINC as a Representative Vendor, says “shorter transportation lead times and increasing transportation costs push companies to increase their efficiencies in the yard, as time spent on a yard can be unproductive and costly. More regulated hours of service and an increasing driver shortage have a negative impact on the total number of hours trucks are on the road at any given point. Consequently, it becomes even more critical for shippers to find time savings elsewhere in their supply chains. Boosting throughput by using a YMS means trucks spend more minutes with their wheels turning.

More Enterprise YMS Wanted

The report further states, “in 2020, Gartner saw an increase in inquiries from clients in this area and has seen additional developments from both WMS vendors and niche providers” and “companies are looking into YMS solutions to help close the supply chain gaps that exist in their own backyards such as long trailer wait times, unproductive personnel numbers, poorly synchronized movement of goods and ineffective dock planning.”

Based on PINC customer data, here’s how shippers can close those gaps and deliver value across the network:

Finding and assigning trailer assets and associated loads automatically through their life cycle, and optimizing their movement between gates, yard, and docks.
Minimizing the operational footprint (people & assets) required to operate the facility effectively.
Improving sustainability by reducing truck idling time, eliminating excessive reefer trailer and yard spotters fuel consumption, and reducing empty miles.
Supporting the management of transportation contracts and accessorial charges from a site and enterprise level.
Optimizing driver turnaround times while becoming a Shipper-of-Choice.
Taking advantage of all available data exchanges between the TMS, YMS, and other transportation system data sources.
Enhancing operational capabilities by promoting social distancing during the COVID-19 pandemic.

Gartner, Market Guide For Yard Management, Simon Tunstall, Bart De Muynck, 25 June 2020.

Gartner Disclaimer

Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner’s Research & Advisory organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose.

PINC Receives Significant Growth Equity Investment From Accel-KKR

Investment Will Fuel PINC’s Strategy to Become a Global Category Leader in Supply Chain Management Software

Union City, CA – June 16, 2020 – PINC, the leader in digital yard™ solutions, today announced that it has secured a significant growth equity investment from Accel-KKR, a leading technology-focused private equity firm. The investment will fuel PINC’s momentum in becoming a global category leader in supply chain management software through strategic acquisitions and a focused organic growth plan.

Gartner has estimated supply chain management software to be a $17 billion addressable market growing at approximately 10% a year. However, with 66% of logistics budgets spent on moving only 10% of total inventory, the remaining 90% of inventory at rest is not optimized for bottom-line impact and efficiency gains.

Since its founding in 2004, PINC has been a pioneer in providing real-time visibility and workflow orchestration to yard operations across distribution centers and manufacturing plants worldwide – achieving Gartner’s “best of breed” status in this category. PINC’s platform is currently utilized by an array of Fortune 1000 enterprises and gives companies a cost-effective way to move inventory faster and optimize their supply chain.

“As global trade and consumer demands drive more complexity, effective yard management has quickly become pivotal in robust supply chain management practices,” said Matt Yearling, CEO of PINC. “The linkage between transportation and warehousing needs to be more seamless when complexity increases, and strong digital yard management can be a major operational cost driver in improving inventory management, labor costs, asset utilization, sustainability and facility costs. Together with Accel-KKR and its deep domain expertise in supply chain management technology, PINC is well-positioned to become a category leader in a fast-growing field, and ultimately serve the market and our customer base with more innovations and strategic acquisitions. We are tremendously excited about the company’s future with Accel-KKR.”

“We are thrilled to welcome Matt and the PINC team to the Accel-KKR portfolio,” said Park Durrett, Managing Director at Accel-KKR. “Our firm has a strong track record of investing in and building successful supply chain software businesses, and we look forward to doing the same with PINC.”

“While transportation and warehouse management have been the focus of supply chain management tech spend over the last decade, there is now substantial demand for the digitization of the yard,” said Andrew Zbella, Vice President at Accel-KKR. “PINC is truly best in class and poised to solve complex and costly inventory management problems for customers whose businesses could grind to a halt with the smallest hiccup in their supply chain.”

“Indeed, there has not been a more important test of PINC’s capabilities than during this unprecedented time of disruption caused by the COVID-19 pandemic. PINC supported numerous essential Fortune 1000 companies seamlessly despite a massive surge in volume and velocity, ensuring that these organizations have been able to serve their end customers under challenging circumstances,” Accel-KKR’s Durrett added. “PINC perfectly embodies the kind of investment that Accel-KKR seeks: mission-critical software in an enduring industry with compelling growth opportunities led by a strong management team.”

About PINC:
PINC provides scalable software, hardware, and services that enable companies to identify, locate, and orchestrate inventory throughout the supply chain predictably and cost-effectively. The company’s cloud-based real-time tracking platform, powered by an Internet of Things (IoT) sensor network that includes passive RFID, GPS, computer vision, cellular, and other sensors, provides actionable insights and connected expert guidance that allow organizations to optimize their supply chain execution. Visit PINC at www.pinc.com.

About Accel-KKR:
Accel-KKR is a technology-focused investment firm with over $9 billion in capital commitments. The firm focuses on software and IT-enabled businesses, well-positioned for topline and bottom-line growth. At the core of Accel-KKR’s investment strategy is a commitment to developing strong partnerships with the management teams of its portfolio companies and a focus on building value alongside management by leveraging the significant resources available through the Accel-KKR network. Accel-KKR focuses on middle-market companies and provides a broad range of capital solutions including buyout capital, minority-growth investments, and credit alternatives. Accel-KKR also invests across a wide range of transaction types including private company recapitalizations, divisional carve-outs and going-private transactions. Accel-KKR is headquartered in Menlo Park with additional offices in Atlanta and London. Visit accel-kkr.com.

Media Contact:
Rafael Granato
Vice President of Marketing
PINC
+1 (510) 474-7509
press@pinc.com

Todd Fogarty
Kekst CNC
T +1 (212) 521-4854
todd.fogarty@kekstcnc.com

Practicing Social Distancing while Keeping Inventory Moving during COVID-19 pandemic

In these uncertain times, companies are turning to technology to help them comply with social distancing rules and to keep their workers and drivers safe in any conditions.

The global pandemic has thrown manufacturers, distributors, and retailers into a mode that most have never experienced before. While social distancing rules, shutdowns, and high demand for certain product groups are top-of-mind right now, employee and driver safety should also be factored into an organization’s overall pandemic response.

Research firm Gartner, Inc. sees technology as a key enabler for companies that are implementing new driver and safety measures. “As capacity continues to tighten and there are fewer drivers on the road, it’s a requirement to keep them safe,” Gartner’s Carly West said in a press release.

“While safety is especially important now, it should be a key issue for logistics leaders at all times,” West continues. “Fortunately, there are a variety of technologies available that increase driver safety and also help run more efficient operations now and in the world after COVID-19.” Gartner’s top options for companies looking to enhance employee and driver safety include:

Tech-enabled virtual practices enabling social distancing

“Technology solutions help reduce physical contact to a minimum. Routine procedures like gate check-ins and paperwork signing can move to the cloud via software-as-a-service (SaaS) solutions. Real-time transportation visibility platforms flag shipments carrying essential goods, so staff can already prepare with protective gear, such as face masks and be in place to retrieve or offload quickly,” West said. “Proactive alerts are also a good practice for the last-mile delivery to end consumers. Tracking technology allows them to see when the delivery is approaching their home, as well as when it has arrived.”

PINC’s YMS solution, for example, offers functionalities like gate automation, appointment scheduling, real-time visibility in the yard, trailer movement automation, automated alerts and notifications, and enterprise visibility.

PINC offers two types of self-service gates PINC Kiosks and PINC Dropbox. PINC Kiosk includes a touchscreen kiosk with an optional PINC RFID tag dispenser for drivers to self-check-in or out. Shipment/appointments information can be automatically provided during check-in through integration with any system of record. Once the details are validated by the driver, he or she is presented with a drop location based on criteria (i.e., live/drop, type of inventory, type of equipment, load status, etc.). The gate arm opens automatically and the driver proceeds.

On the exit side, PINC Dropbox is an automated system for auto-check-out drivers and trailers from facilities. During check-out, drivers insert PINC’s RFID tags inside of a dropbox similar to a mailbox, and the driver and trailer will be checked-out in the PINC YMS, and the gate arm will rise automatically if all criteria are met.

Some of PINC’s customers are leveraging PINC Kiosk and PINC Dropbox to emphasize social distancing at their facilities and protect employees and drivers coming to these facilities. There’s no more the need for gate personnel or shipping and receiving office teams to interact with drivers at check-in and check-out.

“Allowing drivers to wait in their truck makes it easier for all of us to practice social distancing. Previously, the driver would be waiting in the lounge to talk to the DC after completing check-in.“ – L. M., Major Beverage Manufacturing company.

These automatic processes streamline gate procedures, increases the velocity of check-in and check-out of trailers, yard trucks, shuttle trucks, tractors, and drivers, and loads can be electronically reconciled with purchase orders or bill of ladings. The information to be captured at the gate during check-in or check-out can be customized in the YMS. More importantly, they enable organizations to keep truck drivers and their employees safe during this public health crisis.

Monitor and Locate Critical Items Moving Through the Supply Chain with IoT Sensors

For product safety, supply chain leaders should consider using sensors on products and trailers to keep products safe. Sensors can be used within trailers or products to track the movement of the product on the road and set alerts for deviations or issues,” Ms. West said.” Using technology to track critical and expensive products is a smart practice for companies to have better control on location and safety of their assets.”

As we know, misplaced or stolen trailers and containers parked at facilities also cause a major disruption to the supply chain. We would like to add to West’s point that It’s also imperative that trailers, containers, and inventory are tracked not just over the road but also while these assets are parked at facilities across the U.S.A.

PINC Real-time location system (RTLS) enables users to track and locate assets in real-time using passive RFID, GPS, and other sensors. All the information collected is presented online on PINC’s yard platform. Through PINC’s yard management application, users access real-time yard inventory lists, count, and history information eliminating the need for yard checks.

Information is readily available in the application in the form of reports, digital yard maps, digital whiteboard, and dashboards. Also, information can be filtered, and this functionality enables users to define, create categories of trailers, and group them to facilitate and expedite trailer search. Also, resulting matches can be used to feed other activities like recommending specific slots for where the assets should be parked, dock doors they need to be moved to, or displayed on the facility map.

PINC also provides the system of record to the assets (trailer, container, dry, reefer, …) on the yard to the customer’s systems such as WMS, TMS.

Our customers call the PINC YMS the “Google of trailers.” Because it’s easy a fast to find any information associated with a trailer or shipment in PINC’s yard management application.

Your Facility Live in 2 Weeks

PINC’s yard management system is highly configurable and modular. It is the only turn-key solution that can evolve from SaaS only implementation to SaaS + IoT Hardware and is scalable to enterprise-wide.

PINC’s automation engine enables facilities to simplify workflows and improve efficiencies by letting PINC YMS automatically check-in and out trailers, recommend a parking spot to drivers, notify a user about an event, notify a carrier about a load status, send an email informing about demurrage and detention fees, generate a report and share it, change the status of an asset, auto-create a move for an asset, and much more.

To help you navigate through these tough times, PINC has a dedicated team that can bring your facility operational in 2 weeks and our deployment and training can be totally virtual.

PINC named Top Logistics IT provider in 2020

Union City, CA – April 27, 2020 – PINC, the leader in digital yard solutions, has been recognized by Inbound Logistics magazine as Top Logistics IT Provider in 2020 because its solutions address critical logistics and transportation needs and help organizations to truly become demand-driven enterprises.

Every April, Inbound Logistics editors recognize 100 logistics IT companies that support and enable logistics excellence. Drawn from a pool of more than 300 companies, using questionnaires, personal interviews, and other research, Inbound Logistics selects the Top 100 Logistics IT Providers who are leading the way in 2020. Editors seek to match readers’ fast-changing needs to the capabilities of those companies selected. All companies selected reflect leadership by answering Inbound Logistics readers’ needs for scalability, simplicity, fast ROI, and ease of implementation.

Since 2004 and with hundreds of locations deployed around the globe, PINC Yard Management System helps the largest global companies to identify, locate, and orchestrate inventory throughout the supply chain predictably and cost-effectively.

“Recent events remind businesses to focus like a laser beam on improving enterprise operations through technology investments. The challenges are many and are now top of mind. Improving end-to-end visibility, achieving closer integration with value chain partners, finding efficient sources of transport lift, nailing down chain of custody and sustainability concerns to limit liability, and inventory scalability have clearly become survival issues for many,” said Felecia Stratton, Editor, Inbound Logistics. “Inbound Logistics is proud to honor PINC because its solutions address these critical needs and help companies move along the continuum to truly become demand-driven enterprises.”

“The largest brands in the world understand the importance that distribution centers and manufacturing plants’ yards have in their supply chain. Since their inventory stops at multiple facilities until it gets to its final destination, any delays or mistakes can cause a ripple effect,” said Rafael Granato, Vice President of Marketing at PINC. “PINC is the only digital yard platform that can truly automate yard operations and provide real-time visibility to trailers, inventory, and shipments not just to the local facility but also across the entire enterprise. To be recognized for that is very reassuring and flattering.”

About PINC

PINC provides scalable software, hardware, and services that enable companies to identify, locate, and orchestrate inventory throughout the supply chain predictably and cost-effectively. The company’s cloud-based real-time tracking platform, powered by an Internet of Things (IoT) sensor network that includes passive RFID, GPS, computer vision, cellular, and other sensors, provides actionable insights and connected expert guidance that allow organizations to optimize their supply chain execution. Visit PINC at www.pinc.com.

About Inbound Logistics

Since its inception in 1981, Inbound Logistics’ educational mission is to illustrate the benefits of demand-driven logistics practices, give companies the knowledge to help them match the inbound flow of materials to their demand, and align their business process to support that shift. Inbound Logistics offers real-world examples and decision support to guide businesses to efficiently manage logistics, reduce and speed inventory, and offset rising transport costs, supporting business scalability across their value chain. More information about demand-driven logistics practices is available at www.inboundlogistics.com

Global Chemical Company Uses PINC YMS to Cut $1.5 Million in Detention and Demurrage Fees

The Chemours Company adopts a yard management system that has helped organize the chaos of managing a high-volume DC.

Founded in 2015 as a spinoff from DuPont, The Chemours Co., is a global chemical company that makes performance chemicals used by the oil refinery, agricultural, automotive, energy, and consumer electronics industries.

Based in Wilmington, Del., the manufacturer’s logistics operation includes 63 global warehouses and 47 contract manufacturing locations. Up until 2018, the company managed its yards and equipment using a mix of redundant, manual processes. As a result, it struggled with numerous logistical and supply chain issues, including no single source of truth for data and insights.

Finding the Right YMS

Starting with its Pass Christian, Miss., plant, Chemours investigated about 10 different types of YMS before selecting PINC YMS for an initial implementation at that location. “I whittled my list down to about four providers and then had our internal indirect buying group help map out our project scope,” says Paul Day, global category manager for warehouse and airfreight. “PINC won the bid by providing the biggest benefit for us.”

Chemours has since reduced detention and demurrage fees by about $1.5 million (for both ocean and truckload). With its YMS, Chemours can maintain and manage its equipment needs in almost real-time. It has visibility over its trailers and carriers and knows exactly how many assets are empty and where they’re located.

Organizing the Chaos

With one source of truth to work from and a less congested yard, Chemours has also improved its throughput with visibility across six total yards. “Once we could see our equipment across those six yards, it started to unlock other opportunities for continuous improvement,” says Day, whose team stopped using spreadsheets and cut down on the amount of redundant work that it was doing.

“We also eliminated all radios, so there’s no more having to call drivers to find out where they are,” says Day. “We all know what’s going on.” Chemours experienced similar results when rolling out PINC YMS at its New Johnsonville, Tenn., location in 2019. It’s now looking to replicate those wins at some of its other high-volume locations.

“The PINC project management methodology helped us look at our ‘as-is,’ compare notes with other companies that have done this before, and then pick and choose what option best suited us,” says Day. “For us, it was a slam dunk; a no brainer. Our YMS organized the chaos of managing a high-volume DC.”

PINC’s Matt Yearling named Rock Star of the Supply Chain by Food Logistics magazine

UNION CITY, CA – April 6, 2020 — Food Logistics, the only publication exclusively dedicated to covering the movement of product through the global food supply chain, has named Matt Yearling, CEO of PINC to its 2020 Food Logistics Champions: Rock Stars of the Supply Chain award.

The Food Logistics Champions: Rock Stars of the Supply Chain recognizes influential individuals in our industry whose achievements, hard work, and vision have shaped and attained milestones in safety, efficiency, productivity and innovation through the global food supply chain. From early pioneers and entrepreneurs to non-conformist thinkers and executive standouts, this award aims to honor these leaders and their contributions to our industry.

“The 2020 Food Logistics Champions: Rock Stars of the Supply Chain exhibits the true rock stars of the industry, those that go the extra mile, so to speak, to ensure their company’s supply chains are being operated in an efficient, safe and transparent manner,” says Marina Mayer, editor-in-chief of Food Logistics. “These professionals are a true example as to why today’s food and beverage supply chains are in a position to curtail tomorrow’s consumers’ demands, and why today’s youth should consider the supply chain and logistics industry as a possible path of employment.”

“We understand the important role we play in serving the global food supply chain industry and appreciate the trust our customers have in us for their yard management and inventory management needs,” said Matt Yearling, PINC CEO. ”This award is more of a nod to the entire PINC team. They are all rockstars for their dedication, especially during this challenging time.”

Recipients of this year’s 2020 Food Logistics Champions: Rock Stars of the Supply Chain award will be profiled in the March 2020 issue of Food Logistics, as well as online at www.foodlogistics.com.

About PINC
PINC provides scalable software, hardware, and services that enable companies to identify, locate, and orchestrate inventory throughout the supply chain predictably and cost-effectively. The company’s cloud-based real-time tracking platform, powered by aerial inventory robots™ (drones) and an Internet of Things (IoT) sensor network that includes passive RFID, GPS, computer vision, cellular, and other sensors, provides actionable insights and connected expert guidance that allow organizations to optimize their supply chain execution. Visit PINC at www.pinc.com.

About Food Logistics
Food Logistics is published by AC Business Media, a business-to-business media company that provides targeted content and comprehensive, integrated advertising and promotion opportunities for some of the world’s most recognized B2B brands. Its diverse portfolio serves the construction, logistics, supply chain and other industries with print, digital and custom products, events and social media.

Countering the Bullwhip Effect in a COVID-19 World

By shifting from a forecast-driven ordering system to one that enables high levels of visibility and information-sharing, companies can effectively avoid the dreaded “bullwhip effect” in their supply chains.

A distribution channel phenomenon in which inaccurate forecasts quickly turn into supply chain inefficiencies, the “bullwhip effect” refers to increasing swings in inventory in response to shifts in customer demand as one moves further up the supply chain.

With COVID-19 taking its toll on supply chains around the world, more companies will experience this detrimental impact, which was originally identified back in the 1960s and then weaved into supply chain vernacular in the 1990s. That’s when Hau Lee of Stanford University told a story about Volvo to illustrate the bullwhip effect’s impact on the supply chain.

Suffering a glut in “green” cars at the time, Volvo’s sales and marketing developed a program to move its excess inventory. The program helped raise interest in the cars, but Volvo’s manufacturing department was unaware of the campaign and wound up reading the increase in sales as an indication of a growing demand for green cars. In response, it ramped up production, thus adding to the glut and creating a bigger issue for the car manufacturer.

“The supply chain is a complex group of companies that move goods from raw materials suppliers to finished goods retailers,” Osmond Vitez writes in The Bullwhip Effect in Supply Chain. “These companies work together when meeting consumer demand for a product; supply chains allow companies to focus on their specific processes to maintain maximum probability. Unfortunately, supply chains may stumble when market conditions change and consumer demand shifts.”

What Causes the Bullwhip to Snap?

According to Vitez, the bullwhip effect surfaces when changes in customer demand push organizations to order more goods to meet the new demand. From there, the bullwhip effect flows up the supply chain—from the retailer to the distributor to the manufacturer and right through to the raw materials supplier. In many cases, the problem can be traced back to forecasting errors.

For example, when companies introduce new products, they estimate the demand for goods based on current market conditions. “Most companies in the supply chain order more than they can sell, attempting to prevent shortages and lost sales of goods,” Vitez writes, noting that this excess inventory begins to increase or decrease during the normal market fluctuations of supply and demand.

“In the bullwhip effect, demand for items amplifies up a supply chain like the crack of a whip. Imagine a bullwhip—a tiny, swift flick at the whip’s handle results in an uncontrolled, widely snapping motion at its tip,” Amy White describes in The Causes and Impact of the Bullwhip Effect on Supply Chains. “Similarly, a simple action such as a manager ordering products at a store can result in unpredictable effects at the top of the supply chain like a manufacturer or wholesaler.”

This variable and unpredictable demand leads to significant supply chain inefficiencies that include (but aren’t limited to), buying and storing excessive inventory, lost revenues, ineffective transportation, missed production schedules, out-of-stock products, poor customer service, and higher costs for consumers.

Addressing the COVID-19 Bullwhip

In the wake of the COVID-19 health crisis, images of empty store shelves have triggered a few things: even more panic buying, a social media frenzy of hoarder shaming, and even gang activity linked to toilet paper theft in Hong Kong. “For many supply chain leaders, this presents the enormous and potentially costly challenge of dealing with the bullwhip effect,” Jenny Reese points out in Preparing for COVID-19 and the bullwhip effect: What happens to the supply chain when you buy 100 rolls of toilet paper?

“When major swings in inventory occur from panic buying and hoarding, the impact of this sudden demand is magnified as it moves upstream in the supply chain (similar to the way a bullwhip’s thong amplifies in a wave as it moves away from the handle),” Reese writes, noting that little or no visibility into demand patterns and limited understanding of demand drivers are the primary culprits in this scenario (of course, COVID-19 came with little early warning, hence the paper goods shortage).

“How long can this boom in freight volumes last?” FreightWaves’ Daniel Pickett asks. “I have to imagine we are seeing a one-time pull of inventory as pantries, garages, and freezers are filled. Inevitably, the shelves at home will be full, and we will see a ‘demand hangover’ in grocery retail and trucking.”

Building Bridges with Partners

For companies that want to avoid or counter the bullwhip effect within their own supply chains, the answer lies in accurate, real-time demand information across the supply chain. To achieve that, companies must shift from a forecast-driven ordering system to measures that enable information-sharing with the supply chain partners and provide complete visibility of the actual customer demand.

Using real-time inventory and shipment information, companies can effectively minimize the risk of disruption while moving more inventory at a predictable, reliable cadence. In How to reduce the bullwhip effect, George Lawton tells companies to educate themselves on the causes of the bullwhip effect, build better trust across supply chain partnerships, consolidate supply chain data (i.e., aggregate efforts across suppliers), and gain an understanding about partner processes. “Building bridges with other supply chain partners is critical to preventing the bullwhip effect.”