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Evgeny Nepeyvoda, co-founder and CEO of Novo BI, a Skolkovo resident company, spoke about how logistics is forced to change, which companies are still winning and how businesses can rebuild processes to stay afloat.
our country is faced with an unprecedented number of sanctions and restrictions. Experts predict that the period of economic turbulence will continue for another year. The restoration of the same indicators will take not months, but at least 5-10 years.
In addition, dozens of countries have closed the airspace for our country, which means that deliveries are still possible only by land transport. Now sanctions have also been imposed on Belarus, so the only alternative ways are Kazakhstan, China, Turkey and some countries of the Persian Gulf. However, these options also have difficulties: high cost and extended delivery time. So, if earlier it was necessary to order goods from China four months in advance, now it is necessary to lay down 8–9 months.
But even in such a situation, you need to look for pluses – now industries that were previously dependent on the West will be able to rely on import substitution, which will give them a boost in development.
How did the crisis manifest itself?
Empty shelves or overstocked stores
The reason for empty shelves today lies in the fact that people are massively buying essential goods. Retailers were even allowed to impose restrictions on the sale of socially important products in one hand, so that these goods do not disappear so quickly. And a price increase of more than 30% for some categories (coffee, juices, carbonated drinks, etc.) leads to the fact that products corny accumulate on the shelves – not everyone is ready to pay twice as much for familiar goods.
Supply disruptions and transport closures
This problem was before – to recall at least the difficulties with parcels from China during the lockdown. Due to protests on the Polish-Belarusian border in mid-March, about 800 trucks were stuck carrying goods from the EU to Russia. And due to the fact that the shipping companies Maersk and Hapag-Lloyd have suspended shipments to Russia, bananas that have not been exported to the Russian Federation are rotting in the ports of Ecuador.
Exit of foreign companies
Within a month, cooperation with Russia was suspended by dozens of large foreign companies, including such IT giants as Oracle and SAP, which seriously affected the work of many companies. Therefore, all organizations working on imported programs, including logistics companies, are also forced to solve the problem with software.
Under such conditions, logistics will no longer be the same, and in 2022 companies will face the fact that they will have to almost completely redesign processes and look for alternative ways of supply and sales.
How the logistics industry is transforming in 2022
Companies will switch to Russian software
The current situation is a unique precedent and driver for the development of Russian software. In logistics (as well as, for example, in energy), companies relied more than others on foreign programs. Now difficulties can arise both with the functionality and with the stability of their work, which is extremely important in logistics for forecasting demand, supplies, etc. However, the focus on import substitution has increased many times over the past month – perhaps in a year or two, retailers will use Russian developments. For example, database alternatives, PostgreSQL, are already actively used, and 1C is suitable for automating most processes.
No matter what they say, the transition to our software will never be seamless – we are still losing to foreign companies in terms of ease of use, speed, service, etc. It will be difficult, but the time will come and retailers will be able to fully implement developments.
Business will reorient itself to Russian production
Under such conditions, companies that position themselves as completely Russian have found themselves in an advantageous position. But, unfortunately, in most cases, raw materials and part of the components (even the smallest) will be foreign. Moreover, high-precision mass production is poorly developed in our country due to the lack of technologies, for example, semiconductors for electronics. Local producers quite win in the moment, but it is still difficult to make global forecasts. However, there is hope that domestic companies in the context of import substitution will begin to look for a Russian replacement for foreign raw materials, parts, and so on.
Supply chains are reorienting to the East
All EU countries have closed the skies for Russian aircraft, and shipping companies have suspended transportation to Russia. In such a case, it is important to keep a backup plan in order to “change shoes” faster than the shortage begins due to delayed supplies. There are alternatives for cooperation, such as trade-important states that do not support sanctions.
For example, logistics chains are already emerging through the UAE or Turkey, and goods are imported to Russia from Asian countries through Far Eastern ports. It is necessary to look not only for alternative ways, but also for goods and suppliers. Some components can be replaced with, while the rest can be ordered in Asian countries – all the more, this will significantly reduce costs due to relatively inexpensive goods. By the way, retailers have recently faced the risk of a shortage of cash register tape – it is produced by only two foreign companies. A rational alternative in this case is electronic checks, which, by the way, is also environmentally friendly.
If before, so many goods that are positioned as European ones were produced in China, now there will be even more of them and, accordingly, supplies from this country will increase. It is likely that many companies will rebrand and become “honestly” Chinese so as not to lose market share.
Cost optimization
The goals of business today are to maintain stability and not lose even more. Therefore, many companies will optimize budgets: analyze the cost of services and reduce costs. For example, some of them are already reducing the size of warehouse space, saving on the production of rigid packaging and on paper. Moreover, in order to save on logistics and curb the rise in prices for goods, companies will cooperate to transport products from warehouses. Collaboration will mainly take place between non-competing producers that complement each other – for example, between those who sell cheese and sausages.
Digitalization in logistics will become ubiquitous
Of course, digital transformation is not a magic wand that will save the entire country from the crisis. However, it will help logistics companies optimize processes and make forecasts, so that in the face of changing demand every day, if not bring the business to its previous level, then at least normalize it.
Now you can only plan for one day, because the economic situation is constantly changing. Therefore, logistics companies need to react extremely quickly to changes.
Artificial intelligence will take over routine tasks such as demand planning, inventory of goods in warehouses. And a person will deal with strategically important issues where personal presence is necessary – to restore business, look for partners, promote the company, etc.
Of course, you can continue to do calculations in Excel, but it will take two weeks – and that’s all to find out the costs for the month ahead. And when the task arises to track delivery times, control demand in the face of transport difficulties and changing exchange rates, and do all this quickly, you can no longer handle this manually, you need to connect artificial intelligence.
This is what AquaArt did, which supplies ready-made solutions for bathrooms to the CIS countries, Russia and China. In 2020, the home furnishing market was growing too fast, and the business was afraid of not keeping up with new trends. In addition, when measuring the timing, it turned out that the statistical planning of the assortment sales plan has to be dealt with as much as two weeks a month. Therefore, it was decided to automate this process and implement the NFE software product for joint planning and organization of supply chains.
As a result, labor costs were reduced tenfold (from 580 man-hours per month to 40). At the same time, the accuracy of planning increased by 20% (up to 77%), and sales increased by more than a third, while the inventory did not increase.
Today, digital systems are already being used in logistics, which simplify work and help solve various problems:
- Inventory and shipment of goods. EME.WMS is a smart warehouse management system that, by connecting various technological blocks, optimizes acceptance, shipment, placement, storage and other warehouse procedures.
- Processing and assembly of goods. PIT Vocamate Interactive is a highly effective technology for voice control of warehouse operations. It helps to quickly and accurately collect goods in high-load warehouses without paper documents and data collection terminals.
- Supply planning. Novo Forecast Enterprise is a predictive analytics tool that helps you forecast demand and organize supply chain planning.