Point of View

The retail and logistics industries must look to AI to prepare their supply chains for the impacts of crises like COVID-19

April 9, 2020

The COVID-19 crisis has shocked the retail and logistics sectors, who have been fighting around the clock to ensure that it did not impact day-to-day business functions. Governments worldwide have enforced quarantines aimed to curb the rate of transmission of COVID-19, and self-isolation is on the rise as a result. People staying at home to follow stay-at-home orders has caused increased online shopping and bulk-buying of goods. Supply chains are under extreme stress as a result. Supply chain leaders should look to AI and smart analytics to ensure resilience in times of crisis.

 

COVID-19 has resulted in empty shelves, panic buying, and an increased online shopping—if shelves are empty, you can’t make more money

 

Supermarket shelves are running low; if you’ve been to a supermarket recently, you’ve no doubt noticed that certain goods are hard to come by. Supermarkets have advised the general public not to panic buy because of supply chain strain, but the stockpiling has continued.

 

It’s problematic for retail if stores can’t fill shelves fast enough—the longer shelves are empty, the less money a store makes.

 

Shortages of goods is a dilemma because supply chains can’t distribute products fast enough, whether via online shopping or delivery directly to shops, leading to empty shelves and more panic buying because of a general belief of inadequate stockpiles of goods, proceeding to an unsustainable cycle.

 

Work cultures changing could result in higher supply chain demand than pre-COVID-19; retailers and logistics companies need to learn lessons quickly or face greater supply chain weakness in future crises

 

As a result of COVID-19, the world might experience a permanent shift toward increased working from home, and online shopping habits could also become a more frequent and permanent fixture. Retailers have been failing to cope with the current increase—if the high levels of online shopping remain, they will continue to strain the supply chain. In addition, consumers will continue to stockpile until they regain their confidence in the supply chain. Even if buying patterns return to normal and bulk buying decreases, if the population becomes comfortable with online shopping and a new virus or other crisis hits, it will impact already-stretched supply chains. In the UK, for example, it was originally thought that 40% of the grocery market would have moved online by 2025. This prediction is far from the truth; less than 10% is currently online. In 2019, this prediction decreased to just 7.7% by 2024. With a declining food delivery service before COVID-19, it’s evident retailers were not prepared to face an event so serious that their online deliveries and shops would fail to supply their customers. It’s important to note that certain countries have shut their borders and airlines have canceled international flights—moving goods is becoming more difficult.

 

Exhibit 1: Many European countries have entered a state of emergency and closed their borders from air, land, and sea—no doubt disrupting retailers’ supply chains

 

 

 

Source: Frontex operational data as of March 2020

 

 

The retail and logistics industry must look to AI to fix fractured supply chains or face a damaging cycle of failing to meet demand

 

The retail and logistics industries need to be able to predict what items will be in high demand in times of crisis. If suppliers can identify high-demand items early, they can prioritize supply. Stocked shelves will reduce the cycle of panic buying. Experts have suggested that panic buying is a psychological response to seeing others do the same.

 

As panic buying occurs, it must be tracked by the retail and logistics industry, the data needs to be shared and saved for when the next crisis hits, allowing extra lorries to be on the road before shelves run empty. There are multiple organizations out there that are already tracking goods and shipments, and, as previously mentioned, some goods have made media headlines. Suppliers must look to organizations with tracking solutions such as PROWLER, which uses AI technology to support supply chains. The product VUKU utilizes advanced probabilistic modeling techniques to learn from history and create a plethora of models with multiple outcomes, each with different demands for resources such as truck scheduling, pallet collection, or taxis and shared rides.

 

The HFS Retail and CPG (consumer packaged goods) Top 10 has covered service providers with vast experience using AI to bolster supply chains. Capgemini uses a customer-driven supply chain with SMAC enablers that allow tailored shipments, prediction of future demand, cooperation with partners and suppliers, overall optimizing retail networks. Of interest would be Capgemini’s in-store-focused analytics that can monitor customer behavior, identifying where customers go and what they buy. TCS also uses AI in its ALGO Retailing model, which monitors stock and logistics. In particular, its products Omni Stock and Omni Flow products focus on flow control, route optimization, and freshness of products, which aids supply chain decision making by sending proactive notifications, leading to product flow optimization.

 

Exhibit 2: HFS data shows that enterprise suppliers are not focusing enough investment in AI, with 50% not investing in further acceleration of initiatives

 

 

 

The Bottom Line: COVID-19 restrictions and panic buying have stretched supply chains; adapt quickly and adopt AI smart analytics or face financial loss or fractured day-to-day business

 

The COVID-19 crisis has sent shock waves through the retail and logistics industries, which are struggling to keep up with increased consumer demand, and the cycle for demand could increase before things settle down. Experts have suggested that a vaccine for the virus could take up to 18 months to develop, indicating that supply chain demands will continue. Retailers and logistics companies need to adopt AI and learn from this chaotic period then better prepare these industries to combat overstretched supply chains, keep products on the shelves, and, importantly, get products to customers to ultimately keep money flowing.

 

Retailers can take these four actions so that they’re more prepared next time:

 

  • Record which items are in high demand and how demand adapts as the crisis continues.
  • Look for waves of panic buying, their frequency, and how quickly they started.
  • Wargame your supply chain regularly.
  • Adopt AI and smart analytics to predict what products are going to be in demand and when.

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