Top 10 stories from Supply Chain Dive

Three years ago at this time, thousands of retail doors across the U.S. were shuttered as COVID-19 began its rapid, deadly spread.

Factories in Bangladesh, Sri Lanka, Pakistan, Cambodia, Ethiopia and other global manufacturing hubs also shut their doors after large retailers and brands — facing deep uncertainty in their own businesses — canceled many billions of dollars’ worth of orders.

The two sets of closures are related, but the ultimate outcomes were vastly different and unequal.

Most retailers and brands in the U.S. shrugged off the financial impact of the store closures within a year. Meanwhile, many smaller factories closed for good, while workers were laid off and lost desperately needed income. Debt, forced labor and hunger followed the lost wages for many factory workers, especially in apparel and footwear, where incomes historically have been low to begin with.

The early period of the pandemic revealed the cracks in supply chains as well as the underlying dynamics that are still very present by many accounts, and which predated the crisis.

For all the talk of partnership between buyers and suppliers, the COVID-19 crisis showed just how contingent the relationship often is between powerful brands and overseas vendors and their workers, as research since that time has shown.

“It lays bare the vulnerability of the supply chain for the workers,” Pamela Abbott, a professor of education and director of the Centre for Global Development at the University of Aberdeen in Scotland, said in an interview.

‘They were just in shock’

Walmart. Target. Aldi. Kohl’s. Gap Inc. H&M. Inditex. VF Corp. Carter’s. J.C. Penney. Tesco. Those are just some of the companies that canceled orders with suppliers early in the pandemic crisis, according to academic researchers.

By late April of 2020, major brands had canceled $3.8 billion worth of apparel orders in Bangladesh alone, as Mark Anner, labor professor and director of the Center for Global Workers’ Rights at Penn State, found by using a database released at the time by a trade association of Bangladeshi manufacturers. And that was in just one country.

Some of the order cancellations were especially damaging financially. In many cases, suppliers had already spent capital to procure raw materials or had manufactured the products — some orders were even on boats in transit to their buyers.

“They were just in shock,” Anner said in an interview with Supply Chain Dive. “[Suppliers] were in debt, operating on credit, and getting paid later and later over time. … When you cancel on them, when they’re in debt to the banks and everyone else, the ripple effects are very severe.”

Force majeure — previously a boilerplate contract and legal term — took on new and dire meaning for suppliers. Literally meaning “a superior force,” buyers began invoking it to cancel orders en masse. Many suppliers were caught completely off guard. “‘Where is this clause?’” Anner said, describing supplier confusion at the time.

If the orders were already produced, suppliers were typically stuck with the goods. Garment factories in Bangladesh, for example, had to sell into local markets at much lower prices given that clothes for Western markets are very different from what people in those areas wear on a daily basis, as Muhammad Azizul Islam, chair in accounting and professor of sustainability accounting and transparency at the University of Aberdeen, noted in an interview.

And cancellations weren’t the only damaging actions by buyers. Brands also reduced new orders, delayed payments and started paying on longer terms as they tried to minimize their own risk. In effect, they shifted financial and operational risks to their suppliers, researchers and activists said.

About half of factories in a survey of Bangladeshi apparel producers reported that retailers engaged in at least one practice deemed unfair, whether it be order cancellation, price reduction, refusal to pay for dispatched goods and delayed payments, according to a paper from this January by Abbott, Islam and other University of Aberdeen researchers. Larger brands and retailers were more likely to engage in those practices compared to their smaller counterparts.

Debt, hunger and instability

Suppliers didn’t simply absorb all of the financial pain. As research has found, it moved further down the chain to workers. And many are still living with the ramifications today, three years later.

As store and factory doors shut, workers had their hours cut, or were furloughed or laid off.

The University of Aberdeen authors found that at least 25% of factory workers in Bangladesh lost their jobs during the March-April period in 2020, based on a survey with factory owners. The figure could be similar in other production areas around the globe.

Nearly 80% of garment workers who lost their pre-pandemic contracts had not received full severance pay, and more than two-thirds had received nothing, according to a 2021 report from University of Sheffield and Workers Rights Consortium researchers that surveyed over 1,110 workers.

Wage claims amounted to $24 million across 467 factories in six countries for Levi’s, Nike and VF Corp., according to a joint report from Asia Floor Wage Alliance and Global Labor Justice-International Labor Rights Forum.

That number covers only a small fraction of the supply chain. But if the average from that survey — $1.1 million in wage claims per factory — is any gauge, the unpaid pages owed to workers from the COVID-19 crisis would amount to many, many billions of dollars across the global supply chain just for the fashion industry.

The decimation of worker incomes had several consequences. Looking at workers in Ethiopia, Honduras, India and Myanmar, a team of researchers working with the WRC found that supply chain workers in the garment industry saw their living conditions worsen, as the few who had savings had to spend it to survive, and many more took on new debt. Along with borrowing costs, the nature of lending in many areas has made workers more vulnerable to forced labor and other abuses since 2020.

Workers also faced food insecurity and outright hunger. In a survey from November 2020, 88% of garment workers reported that their household had to reduce food consumption because of diminished income, and 77% said they or a family member had gone hungry at some point, according to a separate WRC study. Twenty percent of workers said they experienced hunger on a daily basis at the time.

Returning to factories after economies reopened in the West didn’t resolve the difficulties for workers. Islam said that employers pushed new contracts on those who had been laid off, and workers were desperate enough to sign even at less pay.

“Whatever the employer offered, you had to accept it,” Islam said.

When sales in wealthy countries picked back up and brands tried to restock in a hurry, schedules became frenetic, and many workers reported unpaid overtime.

Accelerated production schedules put even more pressure on those workers who still had jobs after the initial crisis. Many since have reported unpaid overtime. Those overtime wages are critical, as many workers in poor countries rely on them to make ends meet.

"Intensified production targets and all types of wage and hour violations that the garment industry is kind of known for has been heightened over the past years, because of the instability in supply chains and suppliers trying to make up for their margins on the backs of workers," said Sahiba Gill, senior staff attorney with GLJ-ILRF.

None of these ills for workers were new to the pandemic. Below-cost purchasing, rapid timelines, and last-minute order changes by buyers have pressured factories and in turn their employees.

“Workers weren’t very well off before COVID-19,” Abbott said. “COVID-19 just exacerbated pre-existing issues.”

A ‘character moment’ for buyers

After the initial crisis, many brands began paying for canceled orders. Anner pointed out that this was in part due to public pressure on brands, as they were called out for their actions in public.

Workers and suppliers began collaborating on activism, including through what was dubbed #PayUp, a campaign to pressure buyers to pay for canceled orders during the crisis.

As Anner wrote in a 2022 paper, collaboration between workers and factory owners on activism happened as “suppliers realized that they needed the moral legitimacy of activists and worker rights advocates, and because worker rights advocates understood that if suppliers went out of business, millions of workers would lose their jobs.”

Much of the visibility to the issue has passed with the initial crisis. And the cases of brands financing lost severance remain extremely small in number. One of the very few is Victoria’s Secret, which came to a historic settlement with workers in Thailand in early 2022 over wages lost amid a 2021 factory closure.

Again, that’s the exception for now. At the end of 2022, 90% of factories studied by the Asia Floor Wage Alliance had not resolved workers’ wage claims going back to 2020, and more than half had not paid for owed overtime also tracing back to 2020.

And that is after years of activist pressure on the brands in the study. One of those brands, Nike, was recently the subject of a complaint by unions and activist groups with Organisation for Economic Co-operation and Development over treatment of workers in the sportswear giant’s supply chain, much of it tracing back to the early 2020 period.

For Anner and others who study the relationships between buyers and suppliers in fashion and other markets, the crisis in 2020 highlighted just how unequal the partnership can be, and how workers in poorer countries ultimately absorb the brunt of buyers’ actions.

“Buyers squeezed suppliers on price, order volume and payment terms, with devastating consequences for suppliers and especially for workers,” Anner summed up in his 2022 paper. “Millions of workers lost wages, jobs and severance payments.”

The lasting impact is relational as well as material. “Partnerships and trust were severely damaged — between buyers and suppliers, and between factory owners and their workers,” Anner said in an interview. “That has to be rebuilt.”

It’s unclear what has changed in the relationship between large buyers and overseas suppliers. Among big brands, 72% were paying below the cost of production in late 2021, and 68% were buying from factories that were struggling to pay their workers the local minimum wage, according to the University of Aberdeen authors.

Some say the plight of workers in supply chains is just as precarious today, if not more so, and that buyers’ actions remain just as problematic.

“From what we've heard, I would say a lot of the buyers have not improved their relationships, and they've actually doubled down on some of their practices,” said one researcher who studies labor issues in supply chains.

For Abbott and Islam, the issues are systemic. As they explain, countries compete to be manufacturing hubs and attract foreign investment. Factories within those countries and in others all compete to win contracts. Buyers, facing investor pressure to generate profits, push down suppliers’ prices as far as they can. The rock-bottom prices and pressures on factories can lead to all manner of abuses against workers. And everyone in the system is competing to supply consumers vying for status and trying to keep up with cultural norms.

While the global supply chain crisis of 2021 showed just how much buyers rely on their suppliers, the following year saw buyers rolling back and canceling orders — albeit not with the same level of destructiveness as in early 2020 — once sales began to decline. But researchers Supply Chain Dive spoke with said workers are once again feeling the pain of buyers’ defensive actions.

"It is a real bellwether character moment for the industry, and they can still make good,” Gill said. “We're really hoping that they will find a way to pay back workers and their supply chain, and they can also change the way they do business moving forward.”

Deliveries continue to get faster, but further improvements will be hard to realize in an era of shifting consumer preferences and cost mitigation among shippers.

In April, the time between a customer placing an order and final delivery fell to an average of four days, according to project44's "State of Last Mile" report published in May, compared to 5.6 days in April 2022. The company’s supply chain visibility platform tracks more than 1 billion shipments annually.

"Looking farther back on historical delivery times, 2023 is seeing the quickest delivery times that the Last Mile market has seen in years," the report said.

Carson Krieg, project44's head of industry growth and last mile solutions, told Supply Chain Dive that a "healthy average" for end-to-end fulfillment is between four to six days. That raises the question of how much more delivery times can shrink.

"I think there's going to be some mediation to the norm," Krieg said.

What's fueling faster deliveries?

There are many reasons why delivery speeds have improved, according to Krieg.

On the transportation side, parcel carriers no longer have the capacity constraints that challenged their service levels in the early days of the pandemic. Shippers have diversified their carrier mix, tapping into speed advantages new delivery providers may have on certain lanes.

"A two day point for UPS going from Southern California to Northern California may be a next day point for OnTrac," Krieg said.

On the fulfillment side, companies have moved inventory closer to end consumers, most notably Amazon and its shift to a regional network model. Retailers have been pushing for years to better compete with the delivery speeds offered by Amazon's massive warehouse network, said Martin Dresner, professor and chair of the University of Maryland's logistics, business and public policy department. The pandemic accelerated those efforts, particularly for ship-from-store initiatives.

Other major retailers have also been bolstering their fulfillment investments and efforts. Walmart's store-fulfilled delivery sales nearly tripled over a two-year period, with the company seeing more than $1 billion a month in that category. Meanwhile, Target announced a $100-million investment earlier this year to leverage its store footprint for next-day deliveries, building upon its stores-as-hubs strategy.

It’s not just the Amazons and Walmarts of the world speeding up deliveries. American Eagle and Nordstrom have reported quicker timeframes to reach customers on recent earnings calls.

"We are delivering better service to our customers through faster delivery, with overall delivery speed up 9% from last year," Nordstrom CEO Erik Nordstrom said last week.

Cost mitigation, consumer wants could slow deliveries

A confluence of factors will likely limit delivery speeds from going much faster, if not slow them down outright.

Retailers have been cautious in recent months about leveraging higher-cost shipping services in an inflationary environment that's biting into their bottom line. In turn, the demand for express deliveries using air cargo networks has waned, with many shippers instead calling for more economical ground transportation.

"We can be in that three to five day click-to-deliver timeline," said Laura Ritchey, COO at e-commerce fulfillment provider Radial. "It gets really expensive to go faster than that."

Companies shifting to more regional fulfillment models like Amazon could lower transit times and shipping costs. But it's a risky venture for companies lacking the robust infrastructure and forecasting capabilities that Amazon has. If demand starts to shift, inventory may be stationed in areas where it isn't as economical or fast to ship out of, said Vijay Ramachandran, Pitney Bowes' vice president of go-to-market enablement and experience.

"The more you segregate your inventory across the country, the more you have to be really buttoned up with demand planning and have a good idea of where your demand is going to surface geographically," Ramachandran said.

Poor forecasting makes it harder to deliver on time, which is likely to lead to unhappy shoppers, even if transit times are still relatively fast. Sixty-two percent of consumers say an accurate estimated delivery date is more important than fast shipping, according to Pitney Bowes BOXpoll market survey data.

But many retailers haven't slowed down their delivery promises to improve accuracy. On-time performance dropped from 83.9% to 80.4% YoY in April, per project44, which attributed much of this decline in its May report to "the aggressive timeframe that some companies promise to deliver within."

Retailers will need to strike a balance between cost mitigation and meeting consumers' expectations in order to improve their delivery offerings for the long run, experts say.

"We're in a post-COVID environment, but it is not the same as where we were pre-COVID,” Ramachandran said. “That shift requires some new assumptions around what's important to consumers.”

Toyota is reassessing some aspects of its approach to inventory management after the pandemic exposed the challenges of operating a just-in-time supply chain, an executive said.

The automaker’s lean production model has often been hailed as the gold standard in the industry, and the company had taken major strides in the past decade to insulate its supply chain against disasters similar to the deadly 2011 tsunami in Japan. Still, contingency plans — which included a revamp of its procurement system to shift to alternate products when needed — were not enough to shield it from the effects of the pandemic forever.

Kevin Austin, group vice president of demand and supply management at Toyota Motor North America, said dealer inventories plummeted to zero “almost overnight.” 

“We always thought we were one of the best in the industry of managing stock with a level of discipline,” he said at Reuters’ Supply Chain USA conference.

Toyota typically keeps around 45 days of stock on hand to sustain inventory levels even during a crisis, Austin said. Although the company successfully navigated semiconductor shortages at first, it eventually had to slash production beginning in late 2021 due to supply chian challenges. 

“While we thought we were being customer minded, it wasn’t good enough,” Austin said.

The auto giant’s operating model was only meant to handle one or two major disturbances at a time, not the dozens of supplier disruptions Toyota encountered during the pandemic, Austin said. The company is now considering ways to evolve its inventory strategy and make supply chain resilience a priority across all aspects of the business, especially as it ramps up production of battery electric vehicles.

Toyota CEO Koji Sato, who took the reins in April, is already looking to make big changes within its production model of EVs. In addition to restructuring its EV leadership, the automaker plans to simplify production by rolling out a new manufacturing platform designed specifically for electric vehicles. 

Toyota is always looking for ways to improve production in accordance with the Japanese principle kaizen, or continuous improvement, Austin said. Literally “good change,” the word refers to a company philosophy of continuously improving processes for productivity, quality and efficiency. 

“These experiences [during the pandemic] created a little bit of pain,” Austin said. “But the pain plus reflection is a sign of progress.” 

Dive Brief:

• Microsoft introduced new artificial intelligence capabilities to its supply chain management platform in March that will allow shippers to flag and respond to potential disruptions.
• The feature, called Dynamics 365 Copilot, is part of a wider push to offer businesses across industries interactive, AI-powered assistance. Supply chain managers can use Copilot within Microsoft’s Supply Chain Center platform to track potential risks such as weather, and then generate predictive insights.
• Once Copilot flags an external risk, supply chain planners can then draft an email to suppliers using AI to send alerts and mitigate potential disruptions, Ray Smith, vice president of supply chain, business applications and platforms, told Supply Chain Dive.

Dive Insight:

Copilot, which can also be applied to other Microsoft business applications, aims to help busy supply chain managers quickly make sense of massive amounts of data, Smith told Supply Chain Dive.

When you’ve got large volumes of data and busy supply chain managers, AI is needed to help elicit problems and risks, and propose mitigation plans, he added.

“A lot of people in the supply chain would say they don’t have time … to look at dashboards if there’s potential data there, let alone engage the suppliers in something that potentially may happen,” Smith said. “The generative AI — the email, communications and business contexts — allows us to really expedite that mitigation and the engagement with the suppliers.”

First, the AI algorithm scans news articles and takes other steps to identify any potential risk that may impact suppliers or partners across a network, such as geopolitical or financial risk. From there, an AI-drafted message can be sent to suppliers asking whether they expect any disruption and to confirm if purchase orders will be impacted.

“The supplier can then close the loop by replying back, and collaborating,” Smith said.

Microsoft initially launched its Supply Chain Center in November as a command center that unifies data across ERPs and third-party management solutions to help solve existing supply chain challenges.

Other players in the tech space have also been looking to pool and utilize data to promote supply chain visibility. That includes Amazon Web Services, which launched a cloud application in November.

More recently in January, software company Oracle launched new updates to its Transportation Management and Global Trade Management platforms, part of its Oracle Fusion Cloud Supply Chain Management application. The company, which updates its SCM capabilities every quarter, intends to further enhance its sustainability features in the second half of 2023.

Dive Brief:

• Amazon’s fulfillment network cuts have bled into 2023 as the e-commerce giant continues to slash operating expenses, according to data from a consulting firm tracking the company's logistics footprint.
• Amazon has canceled, closed or delayed 99 facilities, impacting nearly 32.3 million square feet of active or planned ground-level space in 30 states, Marc Wulfraat, president and founder of MWPVL International, said in a Feb. 24 email. In September, the firm had recorded 66 impacted facilities totaling 24.6 million square feet of ground-level space.
• Amazon spokesperson Steve Kelly disputed MWPVL's figures in a statement, arguing the firm “says we’re selling or abandoning land or buildings that we’re keeping, or buildings that we never had in our possession to begin with." Kelly did not specify which recorded closures, cancellations or delays were incorrect.

Dive Insight:

After a whirlwind of facility openings to keep up with the pandemic-fueled e-commerce boom, Amazon made big cuts to its operating costs throughout 2022 as excess capacity in its fulfillment network weighed on profitability. Those efforts are slated to continue this year.

In a Feb. 2 earnings call, Amazon President and CEO Andy Jassy said reducing the cost to serve customers within the company's operations is a top priority. Amazon's aggressive efforts to expand its fulfillment center and transportation network have created areas within it where the company is working to become more efficient and productive.

"To figure out how to be really efficient across all those links and have them be highly utilized and to get the flows in those facilities working the right way, it takes time," Jassy said. "So we're working very hard on it. I'm pleased with the progress we made in Q4, and you can see that in some of the results. But that work will extend into '23."

Fulfillment centers, which pick, pack and ship orders, and delivery stations, which prep orders for final-mile delivery, are the facility types that have been most affected by the cost-cutting measures. Twenty-one facilities in five countries outside the U.S. have also been closed, canceled or delayed, according to MWPVL.

“Of course, as we’ve always done, we evaluate our network to make sure it fits our business needs and to improve the experience for our employees, customers, partners, and drivers,” Kelly said. “We may close or delay facilities, enhance existing facilities, or open new facilities, and we weigh a variety of factors when deciding where to develop future sites or maintain a presence.”

Despite the purported closures and cancellations, Amazon still has plans to open 231 facilities totaling more than 82 million square feet, per MWPVL data. More than half of these buildings are slated to be delivery stations, but Wulfraat noted that Amazon's cost-cutting actions could put some of these openings at risk.

"I am seeing in some instances they're opening up new delivery stations in geographies where they don't currently operate," Wulfraat said of Amazon. In other situations, the company "built a brand new delivery station and the developer handed over the keys and they immediately threw it onto the sublease market. So right now, we're in a state of flux and it's hard for me to say."

FedEx made additional cuts to its Express unit last quarter as the company continues to right-size its fleet amid stagnant demand.

Last quarter, FedEx implemented a variety of cost-cutting measures, including reducing flight hours by 8%, chopping salary and benefit expenses by 4%, grounding nine aircraft and downgauging on select routes, CEO Raj Subramaniam told analysts during a March 16 earnings call. As a result of these steps, the company mitigated 45% of total revenue declines.

The CEO noted that the company’s Express network is “vast and complex, and requires time to adjust to changing demand conditions.” In turn, FedEx is phasing out its MD-11 aircraft as the company reconfigures its air network in favor of a more modern, agile and flexible fleet. 

“Our aircraft modernization program and use of 777s and 767s affords us the ability to flex our plans,” Subramaniam said. “As we operate more collaboratively, we are leaning [onto] ground transportation more, requiring less CapEx while enabling us to reconfigure our network more quickly.”

FedEx has 58 MD-11s in its fleet as of Feb. 28, with two scheduled lease expirations in 2023, three in 2024 and two in 2025, according to the company’s Q3 statistical book. Meanwhile, FedEx currently has commitments to purchase 27 767F aircraft and six 777Fs.

Subramaniam further noted that FedEx intends to park an additional six aircraft during the fourth quarter.

“The MD-11 was that flex fleet, and as we now look at the demand environment, we don’t see that high demand coming through,” the CEO told analysts.

Express took the brunt of softening demand last quarter as it saw the sharpest revenue drop. In Q3, operating income for FedEx’s Express segment fell 77% YoY to $119 million, according to the company’s 10-Q form.

Air cargo volumes across the industry have dropped as shippers opt for cheaper modes of transport amid a normalizing ocean shipping environment and inflationary pressures. In turn, FedEx has been restructuring its air network to respond to the flatter market and generate long-term savings.

The changes include leaning on third-party providers to move less urgent shipments while FedEx’s fleet focuses on transporting priority volumes.

Terminals at the Port of Los Angeles and Port of Long Beach effectively shut down due to a lack of labor starting the evening of April 6.

Ports, trucking groups, shipping lines and terminal operators have reported widespread terminal closures at the twin ports. The closures continued throughout Friday, April 7, according to several stakeholders.

Port of Long Beach Executive Director Mario Cordero said in a statement four of the port’s container terminals are closed for the full day, noting that terminal operators shut down after workers did not report for the day.

“We have no further information as to the situation, but it is expected that normal, regularly scheduled hours and operations will resume tomorrow,” said Cordero.

The Port of Los Angeles said in a statement it is working with stakeholders, including federal officials, to "support a return to normal operations in the San Pedro Bay."

The Pacific Maritime Association, which represents West Coast port employers, said the disruptions were caused by a local union at the twin ports, which withheld some labor for the April 6 evening shift. Widespread labor shortages then halted operations at terminals.

“The action by the Union has effectively shut down the Ports of Los Angeles and Long Beach – the largest gateway for maritime trade in the United States,” the PMA said in a statement.

The International Longshore and Warehouse Union, which represents dockworkers across the West Coast, declined to comment, referring inquiries to ILWU Local 13. 

The local union did not take credit for a labor action, instead pointing to a monthly union membership meeting on April 6, which was attended by several thousand workers and union members taking a religious holiday on Friday, April 7.

"Cargo operations are ongoing as longshore workers at the Ports remain on the job," ILWU Local 13 said in a statement, which was texted to Supply Chain Dive.

Limited terminal operations are common at ports worldwide ahead of Easter Sunday. On the U.S. West Coast, monthly union meetings also typically limit operations at the terminal, and typically occur during low-volume shifts, such as the second shift.

But labor shortages and terminal closures across both ports over the past few days have led some to question whether the disruptions were solely tied to an administrative meeting.

Ian Weiland, chief operating officer at Junction Collaborative Transports, said in a LinkedIn post terminals typically give truckers far more notice of closures ahead of union meetings, but this time, truck drivers only got a few hours' notice.

In a separate post, Weiland warned of potential delays and disruptions for shippers in light of the action at the San Pedro Bay ports.

“If your container was scheduled to be pulled last night, today, or over the weekend, expect delays in pulling the container. If your empty has not yet returned, expect delayed empty returns and unfortunately additional charges,” Ian Weiland, chief operating officer at Junction Collaborative Transports, said on LinkedIn.

Other logistics providers have sent their customers similar notices, outlining the effects of the port closures.

Maersk, for example, said in a customer advisory four of its vessel services — TP6 Maersk Eureka, TP8 Maersk Antares, WCCA Maersk Newcastle and TP2 MSC Livorno — had been affected by the work actions. The ocean liner said that ILWU Local 13 crane operators and top handler drivers “decided to reject their job assignments that were ordered by the employers for the evening’s second shift, impacting all Los Angeles and Long Beach terminals.”

Meanwhile, at least one terminal, Long Beach Container Terminal, has marked its truck gates as closed for the Easter Sunday holiday. 

Port disruptions come at a tough time for the nation’s largest port complex, which continues to lose market share as shippers shift volumes elsewhere to avoid potential disruption from ongoing negotiations. While union leaders and port employers had insisted no major disruption would result from the talks, a lack of an enforceable contract has led to smaller disputes and other limited disruptions over the past year.

“These actions undermine confidence in West Coast ports, and threaten to further accelerate the diversion of discretionary cargo to Atlantic and Gulf Coast ports. The health of the Southern California and state economy depend on the ability of the Ports of Los Angeles and Long Beach to stem this market share erosion,” the PMA said.

Dive Brief:

• The Home Depot is undergoing a $500 million cost savings push that will see the company reduce its supply chain holding capacity, EVP and CFO Richard McPhail said during a June 13 investor and analyst conference.
• The home improvement retailer expects to complete the effort in fiscal year 2024. Savings will focus on reducing fixed operating costs beyond product and transportation expenses that were "built up as a result of the rampant increase in transactions during 2020 and 2021," McPhail said.
• The Home Depot had to expand its supply chain footprint at a higher cost than it wanted in order to handle the surge in demand, the CFO said. "We are now gradually reducing that holding capacity as transactions normalize."

Dive Insight:

After heavy investments in its supply chain over the past few years, The Home Depot is trimming excess warehouse capacity as its sales have fallen from their pandemic-driven heights.

The company is also aiming to save costs in its downstream supply chain, which focuses on delivering directly to customers, by optimizing its forecasting and labor management process and leveraging technology and robotics, EVP of Supply Chain and Product Development John Deaton said at the conference. That push comes as the company has already boosted productivity in its upstream network, which moves product to stores from distribution centers and fulfillment centers, through "further automation and mechanization," he added.

Much of The Home Depot's supply chain spending is still poised to benefit it for the long haul, even with its cost-cutting efforts.

The company began a push in 2017 to reach roughly 90% of the population with next-day or same-day delivery that has since become a competitive advantage, Deaton said. It met this goal through various investments geared toward creating what he called "the fastest, most reliable, and most efficient supply chain in home improvement."

Many initiatives focused on fulfillment and delivery. The company opened more than 100 facilities with enhanced capabilities in those areas over the past five years, Deaton said.

The Home Depot has also targeted improved appliance delivery by managing it in-house rather than using a third-party provider, which Deaton said has reduced complexity and improved customer satisfaction. Further bolstering these efforts, the company acquired Temco, an appliance delivery and installation company that has been one of its largest partners for bringing big and bulky items to customers.

"There are significant opportunities ahead as we differentiate ourselves, particularly with respect to delivery," Deaton said.

Last year broke the crystal balls.

Some of the largest, most sophisticated companies in the world overbought or overproduced inventory by many millions of dollars last year. The reason, at its simplest, is that consumers did not behave as predicted.

Planners don’t have the luxury of blaming consumers for not acting according to their forecasts — especially when many of those customers were reacting to historic inflation in food, fuel and housing.

“Demand planning went out the door for three years,” said Rick Jordon, senior managing director with FTI Consulting. “Now they’re picking it back up, because they have all this excess inventory everywhere. And they’ve forgotten how to do it, or they didn’t do it well before.”

After three years of pandemic disruption and economic volatility, sharpening demand forecasts and inventory planning across industries seems both as imperative and challenging as it has ever been.

To get better results, companies are turning to new data sets and new technological tools like artificial intelligence to analyze them.

From spreadsheets to AI

An executive survey by McKinsey from early 2022 found that spreadsheets are still the primary planning tool for supply chain leaders, with 73% of respondents relying on them.

But, 43% said they planned to use artificial intelligence and machine learning for some planning activities. Another 17% said they planned to use AI and machine learning for most activities at some point.

A survey this year from BlueYonder, a supply chain software company, found that demand forecasting and inventory optimization are among the top uses of AI and machine learning technologies by supply chain executives

“We're moving well beyond Excel, and just moving to a more advanced tool set,” Ron Scalzo, senior managing director with FTI Consulting.

In Jordon’s view, AI technologies will at some point help remove human bias from forecasting and lead to more systematic predictions, as well as run multiple predictive scenarios at the same time.

Jordon noted that AI is needed to process through many data sets and help make sense of a company’s own internal data. “Most organizations have a lot of data,” Jordon said. “Are they using that to the best of their ability, utilizing the best technology and ignoring that noise? That’s really where the next three or four years of development will happen.”

Finding the right data to analyze the right way

At the most basic level, AI takes in data and spits out predictions. To get the best predictions, the data fed into them might matter even more than the AI tools themselves.

“There are systems pulling in data which is lying inside the company already, from across their enterprise systems, POS systems, the inventory levels from their stores and all that,” said Meher Dinesh Naroju, director of AI services at Centific. “There are very few companies that actually go outside of this box and get data from sources that are completely unstructured.”

Such data sources include things like social media, which can provide clues about burgeoning market trends. Customers are “actively engaging and leaving opinions and clues about various things they intend to do in the market or a specific category,” Naroju said.

Even images from a retailer’s store cameras might house data relevant to customer behavior in the aggregate, including reactions to certain products, brands and categories. “It’s a long shot, but it can help,” Naroju said.

Other sources, such as weather data, can provide early hints about supply chain timelines and inventory arrivals, he also noted.

Still, all of these data sets have to be put into the context of local and regional cultures and other marks of differentiation.

“It is of the utmost importance to pick and choose what data you need and very clearly segment the data you want to analyze,” Naroju said.

Once a company has the best, most refined and useful data it can get, that’s where AI tools become critical. The technology can derive insights from large pools of unstructured data that “no human being can do in so short a time,” Narajou said.

But even with the most creatively sourced data and advanced tools available, a prediction is still just a prediction.

“If you crack the code on a perfect forecast with the consumer today, you're quickly going to be the richest person in the world,” said Jake Self, vice president of operations for third-party warehousing and logistics company Smart Warehousing.

‘So much noise’

Businesses for generations have relied on the past to help them anticipate the future. That may seem outdated after the pandemic and then inflation scrambled the usual patterns, with volatile cycles piggy backing on each other since 2020.

But for many, historical trends are still the most useful forecasting data. “It’s not especially sexy, but we’ve actually philosophically been using the perspective that history is the best predictor of the future,” Destination XL Group CEO Harvey Kanter told Supply Chain Dive in an April interview.

“I think there's been so much noise in the last three-plus years that the roller coaster we’ve been on is almost impossible to predict,” he added. “I don’t know that the greatest level of AI and ML can predict what the consumer is going to do.”

Kanter went on to note that the apparel retailer still looks at pre-pandemic revenue and historical revenue contributions by day, week and month over the past 10 years, which he said has remained remarkably consistent.

Other businesses simply don’t have the budget to pay for or justify advanced technological tools. Smart Warehousing’s clients run the gamut from small brands operating out of their garages to Fortune 500 companies. For some of the smaller companies looking for replenishment and warehousing help, their forecasting process amounts to “hopes and dreams,” Self said.

For those companies, historical data is by leaps and bounds better than no data. “We've spent a lot of time on our replenishment program, really putting an algorithm in place that learns and understands based on historicals where we're going to need to be,” Self said.

Smart Warehousing can do that having invested in forecasting and replenishment technologies for more than two decades, and with an entire team of specialists dedicated to that one skill set. An algorithm for cold replenishment operations out of Missouri “looked like something out of Good Will Hunting,” Self, referring to the film that features actor Matt Damon playing an unknown mathematics prodigy.

But even with those resources, prediction is still tough in the current environment. “If you're not planning for an element of the unexpected, then you're probably not planning right,” Self said.

The Biden administration is ramping up a program that aims to give a real-time picture of U.S. supply chains through the exchange of company data.

Fifty-three companies representing the end-to-end supply chain are now part of the Department of Transportation’s Freight Logistics Optimization Works. FLOW participants share shipment data on a daily or weekly basis that is then used to create a tool measuring container demand and fluidity.

New FLOW members include retail giants Costco and Walmart, in addition to railroad Union Pacific. The program is also expected to expand to additional ports, Celeste Drake, deputy director of the White House National Economic Council, said at a forum in May .

As FLOW has continued to grow, Drake said the program’s goal has evolved from “answering the very simple question of ‘Where's my stuff?’ to ‘How do we create a forward looking integrated picture of the supply chain condition in the US?’” 

The tool aggregates anonymized data from members, which, depending on the company, can include information on terminal slots, chassis, warehouse space and even shipper purchase orders or bookings. As a result, FLOW participants can see “which shipments are coming into which ports as much as three months ahead of time,” Transportation Secretary Pete Buttigieg said at the forum.

The program is expected to grow even further, and the Biden admin’s fiscal 2024 budget request includes $5.3 million to scale the tool and respond to industry interest. 

FLOW, first announced last March, came in response to the pandemic-fueled supply chain meltdown where a lack of visibility into operations contributed to shortages, ship backups and other delays. While congestion has largely eased, Buttigieg said FLOW will be essential to help navigate the next big disruption.

“Hopefully COVID is the last pandemic of its kind that we will see in our lifetimes,” Buttigieg said. “But we know that it won't be the last serious supply chain shock.”