Last week, on July 16, 2020, I held a keynote speech at the Virtual Supply Chain Summit. The summit focused on how our supply chains can recover from the impacts of the COVID-19 pandemic. I spoke about the e-commerce sector, which in my eyes is one of the clear winners of this crisis. Here are the main takeaways from my keynote.
During the past three months, a lot has happened. COVID-19 forced us into widespread lockdowns, manufacturing slowed down, and global supply chains were disrupted. The latter actually should not have come as a complete surprise. For decades, we prioritized cost efficiency over resilience when it comes to supply chain design.
On the positive side, we have witnessed a significant growth in e-commerce by more than 50 percent across various markets. This development holds great potential, but to tap into this, we need to rethink and adapt our supply chains.
“The e-commerce push requires a fundamental redesign of supply chains.”
Pivoting towards a ‘new normal’ starts with understanding how the e-commerce game has changed.
New Rules: The Pandemic Is Rewriting the Rules of Online Shopping
Suddenly, we found ourselves staying at home and being afraid to catch the virus when going outside. Things we used to do, we could not or did want to do in the same way anymore. This new reality has acted as a new set of rules to which our consumer behavior had to adjust. An adjustment in favor of online shopping has followed.
Being bound to our homes, we moved towards so-called shelter-in-place consumption. An example of this is getting a doctor’s consultation and purchasing medication online rather than visiting your local doctor or pharmacy. Consequently, online medical platforms have thrived. The rise of online grocery shopping also exemplifies this pattern.
Another trend is the increase in at-home alternatives to entertainment and spare-time activities, previously enjoyed outside of the house. Cooking at home replaced going out for dinner. Now we are doing sports at home rather than going to our local sports club. This translates into a redirection of spending, e.g. on gaming and fitness equipment.
Government stimulus packages initiated during the crisis, have additionally spurred consumption, which has partly gone into online shopping.
So how have these new rules played out in the e-commerce market?
New Players to Meet Greater E-Commerce Demand
These new rules triggered a change in e-commerce demand: there are more online consumers, each consumer spends more per online purchase, and consumers buy new product categories on the web (e.g. DYI and home office supplies). These effects multiply to result in a drastic increase in demand.
New demand, in turn, attracts new players to the game of e-commerce. Over the past months, we could see new businesses entering the space of online sales. At the same time, existing players such as Amazon, Walmart and Target have elevated their online game capturing a large part of the market. Increased cross-border movements play into this too. Sellers have started to offer delivery of goods to consumers in other countries. As a German consumer, I can now buy shoes from a Spanish shop. This is another factor changing the competitive landscape.
This leads us to a key question: Is this just temporary or can we expect a long-lasting shift in e-commerce? Here is my outlook.
A New E-Commerce Game?
Looking at different scenarios for virus resurgence and economic recovery, one thing becomes clear: the e-commerce push will stick. Even in the most positive scenario, where the pandemic is quickly contained and our economies rapidly return to pre-crisis levels, e-commerce will grow by ca. 25 percent year-over-year (compared to pre-crisis growth expectations of ca. 13 percent for this year).
When analyzing more daunting scenarios – where the virus may continue to spread, or we may face returning lockdowns or a second wave, all impacting our economic recovery – e-commerce is expected to grow even more, up to ca. 32% year-over-year.
This will lead to a long-lasting shift in consumer behavior. Many consumers just discovered the ease and convenience of buying online and they do not intend to return to their pre-crisis habits.
It is clear that one of the winners of this crisis is e-commerce. What does this mean for your supply chain?
Are You Ready to Play the New E-Commerce Game?
Reverse logistics and next-day delivery have become must-haves. Consumer expectations are high and to live up to these, a redesign of your supply chain to fulfill closer to the end consumer is something to consider. Here are three steps to get started:
1. Know your customer
Collect and leverage data on your customers in order to understand their expectations and predict demand levels and timing.
2. Balance your operating model
Identify where you need to bring your inventory closer to the consumer and adapt existing infrastructures accordingly.
3. Use a trial-and-error approach
Start small with a minimal viable product, and test this in smaller markets. Afterwards, you can roll out to bigger markets and continue to make improvements.
The e-commerce challenge requires not only supply chain leaders to rethink their approach. Various functions, like product and sales, need to work together to get the right building blocks in place.
E-Commerce in the ‘New Normal’
The COVID-19 pandemic has presented business and society with a unique challenge. At the same time, the acceleration of the already growing e-commerce sector is a valuable opportunity resulting from this crisis.
Now, we have the chance to fundamentally rethink our supply chains to capture the true value of e-commerce and grow more resilient to better withstand future crises.
How are you adapting to e-commerce in the new normal? I am looking forward to hearing about your experiences in the comment section below or on my LinkedIn channel.