Strategies INTERNATIONAL Internationales Verkehrswesen (72) 3 | 2020 31 Heading into “The New Normal” Potential development paths of international logistics networks in the wake of the Coronavirus pandemic Coronavirus, Covid-19, International logistics networks, Risk, Volatility, Focus group The Coronavirus crisis is putting international logistics networks to the test and it is already clear that the crisis is relentlessly exposing problems that international logistics networks must change as a result of the crisis. This article aims to reveal future developments in international logistics networks and discuss potential development paths. On the basis of a structured discussion with 23 logistics managers and a follow-up survey among them, current challenges and possible solutions were identified and theses on potential developments of international logistics networks were evaluated. This revealed that digitalization and the automation of processes have top priority for efficient risk and volatility management. In addition, there are tendencies toward more localized, agile logistics networks, which, with the aim of greater resilience, may also generate higher costs than those seen before the crisis. Frank Straube, Benjamin Nitsche T he logistics world is changing. Most manufacturing companies have faced serious disruptions in their logistics networks over recent months and, even if most companies are back in operation, constantly changing dynamics and extreme volatility are “The New Normal.” What, at the beginning of 2020, appeared to be a regional problem affecting the supply side of most companies that were sourcing from China is now a global pandemic and almost every company is feeling the effects of this crisis in some way. Although most industries are being negatively affected, some will benefit from the situation. On the one hand, old and aging business models are in jeopardy; on the other hand, the crisis also provides huge opportunities for new ideas and business models. However you frame it, change is inevitable in most industries, and logistics networks are about to change accordingly. However, how they will change is highly uncertain. The only thing that is clear is that the crisis is also acting like a burning glass for logistics networks. Inefficient processes are being clearly revealed, as are networks that have been overoptimized to minimize costs, and now problems that were already Photo: Dimitri Houtteman/ Unsplash INTERNATIONAL Strategies INTERNATIONAL Strategies Internationales Verkehrswesen (72) 3 | 2020 32 known in many places before the crisis, but had not been clearly addressed, are more likely to become apparent. Even if the crisis can be overcome quickly, it is already clear that, for many companies, it has become an important trigger for changes in logistics, though most are still unsure how to react. To contribute to this discussion, the Competence Center for International Logistics Networks, funded by the Kuehne Foundation, at the Chair of Logistics at the Berlin University of Technology conducted an initial focus group workshop with industry experts at the end of May 2020. Further discussions are ongoing. The focus group consisted of logistics managers from multiple manufacturing industries (automotive, consumer goods, electronics, and others) as well as logistics service providers. Participants had an average professional working experience in logistics of 16 years and the majority held senior management positions in logistics (department manager or higher). To initiate structured discussions, each participant was asked to present the current challenges the international logistics network of his or her company is dealing with and how they are seeking to address those challenges in the short and long term. Based on this input, the authors of this articles synthesized the challenges and strategies presented using the logistics design areas strategy, network, processes, technology, and people to outline the status quo. In addition, to contribute to the discussion on future development paths of logistics networks after the crisis, the authors synthesized 20 theses on potential developments within the aforementioned logistics design areas based on the focus group discussion. Subsequently, those theses were assessed by the same group of experts through a postworkshop questionnaire. The status quo of challenges and strategies, as well as first indications on future development paths of international logistics networks, are outlined in the following discussion. Challenges and consequences for international logistics networks As stated previously, companies’ logistics networks are challenged by the crisis across multiple phases, including the strategy, network, process, technology, and people levels. Figure 1 summarizes the challenges identified through the focus group discussions. From a strategic point of view, logistics managers feel a need for change on various levels. Current sourcing strategies, as well as past developments toward costoptimized logistics networks, are currently being discussed more critically than ever before. However, the current uncertainty about future developments is a major hindrance to managers, which is why there is a danger that they will focus on firefighting to tackle acute sub-problems to ensure security of supply and will postpone strategically important decisions. There is a risk that even long-planned strategic initiatives and investments may be withdrawn in the course of massive cost-saving initiatives. On a network-level, experts reported that disruptions and high volatility have to be considered as “The New Normal” and current networks are, in general, unable to meet the flexibility requirements of such a crisis. To react promptly, real-time transparency on locations of goods, available capacities, and so on, throughout the entire logistics network, are necessary, but often cannot be ensured. This problem existed long before the Coronavirus crisis, but has now becomes more prominent. In addition, the global transport market is prone to a new type of volatility. Air freight is experiencing strong demand but, owing to limited (passenger) flights, this theoretical demand cannot be covered, and the total freight volume is much lower compared with last year. At the same time, sea freight volumes have decreased and Europe’s road transportation market is expecting a reduction of at least 4.8 % and, in a worst-case scenario, up to 17 % [1]. On a process level, restructuring of operational, labor-intense processes to comply with hygiene standards was one of the major priorities at the beginning of the crisis; most • Globalization and sourcing strategies (low-cost countries) have to be reconsidered • Danger of withdrawal of long-term logistics initiatives (e.g. sustainability and CSR initiatives) • Restructuring of some business model needed (some are more prone to crises than others) • High uncertainty on future developments dampens the ability to make strategic decisions timely • Logistics networks not able to meet flexibility requirements of crisis (e.g. due to off shoring) • Network disruptions and volatility are “The New Normal” • Real-time data transparency would be necessary but is not available (e.g. locations, available capacities) • Increasing transport lead times globally and decreased supply from hot zone countries (e.g. Italy, Spain, China) • Demand peak in air freight but limited capacities (due to limited passenger flights) • Demand increase for rail related transport between China and Europe possible • Demand decrease for traditional transport modes (road and sea freight) • E-commerce structures are not built for current boom but delivery has to be secured • Increased inventory stocks lead to the risk of a warehouse collapses Strategy • Labor-intensive processes often take longer and must be reconsidered due to hygiene standards • Process errors become more obvious (need for process standardization and automation) • Collapse in demand leads to low capacity utilization for most manufacturers • Demand increase in certain industries cannot be covered by current processes • Predictive systems reach their limits (demand planning, ETA predictions etc.) • IT-infrastructure (national, company-level and network-level) not build for new requirements (i.e. boom in home office) • Digitalization on all phases become inevitable Challenges & Consequences • Staff shortage in some industries (e.g. stationary and online retail) but excess staff in most industries • Protection of employees from getting infected • Fear of loss of employment can inhibit performance of employees Network Process Technology People Figure 1: Coronarelated challenges and consequences for international logistics networks Strategies INTERNATIONAL Internationales Verkehrswesen (72) 3 | 2020 33 companies adapted to the situation quickly, although a reduction in process efficiency has been reported. Nevertheless, especially in reacting as quickly as possible to constantly changing network requirements, the dependence on people’s actions quickly became obvious. In order to increase the speed of reaction, reduce dependency on people, and thus be able to establish security of supply more quickly, participants often stressed the need for process automation as one of the core future challenges. From a technological point of view, the crisis stressed once again that there is an urgent need for digitalization of logistics networks. This digital transformation has often been identified as one of the major challenges for future logistics managers [2,- 3], but the core problems that occur on the pathway of digitalization seem to remain the same in the wake of the crisis. IT infrastructure within companies, and also across companies on an international level, has reached its limits. However, even predictive algorithms that were previously considered intelligent must be adapted to match the new environmental conditions in a new age of volatility. Regardless of the decisions that have to be made at different levels, there are always people who have to deal with the changed situation. In this area in particular, the crisis has already shown that a stronger focus on employees and their needs is necessary. In an age of increasing work from home, growing process automation, and declining sales in many industries, social issues are increasingly coming to the fore; issues that are quickly forgotten in times of economic upswing. Keeping employee satisfaction high in these difficult times is challenging, but necessary, in order not to lose performance in the long term. Current strategies dealing with the Coronavirus crisis To tackle the challenges arising from the pandemic, companies reacted very fast in adjusting their processes and networks to the current needs. Figure 2 outlines the shortand long-term strategies implemented by participants of the expert panel. In the short term, companies participating in the discussions did very well in setting up cross-functional crisis teams that met on a daily basis with master planners and constantly evaluated the situation, implemented contingency plans, and reevaluated and adjusted forecasts more often. Timely reactions were key to success and, while fighting for backup supply and transport capacity (especially air freight capacity), most companies switched from pure costthinking to availability-thinking to ensure security of supply. While doing so, some participants implemented supplier risk towers in the short term by using automated supplier surveys that provided them with up-to-date criticality scores for their supplier portfolios, thereby enabling them to manage the crisis more efficiently. However, such a crisis can increase the possibility of overreacting to signals and overriding network partners. Participants mutually agreed that trust in their network partners and joint collaboration with their logistics service providers play vital roles in managing crises in general. As good as companies have been at adapting to the new circumstances in the short term, they are currently finding it difficult to adopt long-term strategies and make decisions today for the long-term design of their international logistics networks. This is, of course, also due to the fact that future developments are highly uncertain. However, some developments can no longer be denied today, and companies will be forced to think about what level of structural flexibility should be achieved in their logistics networks. This includes decisions on offshoring rates in low-cost countries, or whether there should be a long-term attempt to relocalize value creation toward highly automated suppliers in industrialized countries. In addition, there is already evidence of an increased drive towards digitalization and automation, which were considered important previously but have • Decide on level of flexibility in logistics needed (trends towards more supplier and carrier alternatives) • Corporate decision on off shoring and nearshoring rates • Create synergies in strategic initiatives (e.g. combine network redesign with sustainability initiatives) • Decide on the “human factor” in decision making and level of automation Strategy Short-term Mid & Long-term • Enable structural flexibility through multi sourcing (materials & transport capacities)  trend towards more decentralized network structures • Reduce network complexity • Increased outsourcing of logistics activities (potentials for LSP) • Facilitation of nearshoring if possible • Turning away from stock-less JIT supply approaches possible Network • Have trust in network partners, trouble-shooting can make it worse • Fight for backup supply and transport capacities • Increase in safety stock levels if supply is possible • Supplier Risk Tower (up to date supplier assessment with vulnerability scores) with automated supplier survey • Short-term switch from cost-thinking to availabilitythinking (taking air freight over other modes of transport) • Risk mitigation jointly with 3PL • Establishment of logistics crisis plans and processes for the future Process • Daily cross-functional crisis team meetings and calls with master planners to develop and implement contingency plans • Adjustment of workflows / digitalization of processes • Increased frequency of forecasting and demand planning intervals • Reduced lot sizes • Defining a catalogue of measures for a safe restart of production and logistics • Roll-out of automation approaches to support monitoring and logistics planning (e.g. through multi agent systems) • Development of early alert systems following AI approaches Technology • Learn from crisis data to improve forecasting algorithms • interdisciplinary training in companies in order to broaden the areas of application of employees • Think about home office as a long-term alternative People • Enable home office opportunities • Short-time work & reinvented shift-systems • Lateral cooperation to increase employee utilization (e.g. Aldi/ McDonalds example) Figure 2: Short and midor long-term strategies dealing with the Coronavirus crisis INTERNATIONAL Strategies Internationales Verkehrswesen (72) 3 | 2020 34 become more pressing in the wake of the crisis. To contribute to these decisions, the authors drew up theses on future developments in international logistics networks in the course of the crisis on the basis of the discussions held; these were subsequently evaluated by the expert panel. Future development paths of international logistics networks Following the discussions with logistics managers, 20 theses on potential future developments of international logistics networks were formulated and assessed by the same group of experts through a questionnaire. Figure 3 presents excerpts from the most strongly agreed theses. It can be observed that the need for digitalization of logistics networks will be pushed because of the Coronavirus pandemic. This will include, in particular, the need for process automation in order to gain partial independence from personnel; however, increasing speed of reaction to a constantly changing environment has also been rated as a top trend that will be further pushed by the crisis. In addition, other technological advancements, such as intelligent ETA predictions, are seen as major success factor of future logistics networks. As stated with regard to current challenges, it has been confirmed that problems with digitalizing international logistics networks will remain the same (e.g., data access and accuracy) and could be even harder to solve. However, technological solutions are available on the market that could be able to tackle challenges arising from the crisis, although companies are struggling to achieve the appropriate task-technology fit. Moreover, the role of logistics within manufacturing companies seems to have been strengthened owing to the crisis which can be seen as a positive development from the participants’ point of view. However, although the role of logistics is strengthened, most companies struggle to determine the future role and goals of logistics. Managers stressed that it must be decided at an early stage whether, based on the lessons of the crisis, international logistics networks should plan to become more resilient and agile, or whether they should position themselves as efficient and cost-optimal, but less reactive. Without a decision on future goal parameters, adjustments of logistics networks are not possible. Nevertheless, based on the discussions and theses assessments, a slight tendency toward more agile and resilient networks, that are allowed to cost more, can be observed; this is also in line with other expert-based studies in the field of logistics [4]. Most participants are currently evaluating localization/ nearshoring opportunities or, at least, dual/ multisourcing options. A move away from singlesourcing models is likely, although the future is still highly uncertain at that stage. Nevertheless, it should also be mentioned that there are currently no signs that the megatrend of globalization will be completely reversed in the coming years because of the crisis. As the number of experts participating in this questionnaire is relatively low, this has to be understood as a first indi- ADDITIONAL WEBSITE LINKS The research results of the Competence Center for International Logistics Networks on this and other topics related to international logistics networks can be found online in the freely accessible logistics planning tool TUB Logistics Navigator (https: / / navigator. logistik.tu-berlin.de/ ). Additional information about the Coronavirus crisis and its effects on logistics can be found on the website of the Covid-19 expert network of Turku University (https: / / sites.utu. fi/ covid-supply-chains/ visiting-experts/ ), initiated by Prof. Lauri Ojala, where new articles are regularly published in the field of logistics by, among others, the Chair of Logistics of the TU Berlin. 5"66 7"66 2"66 8"66 9"66 : "66 ; "66 5 7 2 8 9 : ; < = 56 55 Figure 3: Extract of most strongly agreed theses on future developments of international logistics networks after the Corona pandemic Strategies INTERNATIONAL Internationales Verkehrswesen (72) 3 | 2020 35 cation of potential future developments; more in-depth investigations are necessary to draw more reliable conclusions from it. Summary of fields of action and outlook From our investigations into current developments in international logistics networks because of the Coronavirus crisis, four main field of action are proposed that manufacturers should focus on to prepare their logistics networks appropriately. These are: (1) digitalization and automation, (2) risk and volatility management, (3) visibility, and (4) sustainability. Digitalization and automation are hot topics in the wake of the crisis and need to be tackled now. To react as fast as possible in comparable situations in the future, companies need to think about ways to automate important decision-making processes to gain speed of reaction and partial independence from personnel. Pathways of digitalization in logistics have been investigated in the past [2], but it is possible that these development paths will be completely redesigned in the course of the crisis and that developments may gain even more momentum. In conjunction with that, risk and volatility management needs to reconsidered. This includes, on the one hand, logistics network redesign and a potential shift to more localized and resilient logistics networks, and, on the other hand, target-oriented use of already existing tools and, if necessary, development of new ones to facilitate fast processes for timely reactions. For example, to manage volatility efficiently, previous research developed an approach that enables manufacturers to perform a case-based evaluation of the current state of volatility in a logistics network [5]. Those approaches are necessary as managing volatility is a complex task that requires crossfunctional management approaches [6]. Also relating to managing risks and maintaining reactiveness, machine learning approaches to enable smart ETA predictions in intermodal transport chains have been developed recently, but need to be challenged with respect to new environments [7, 8]. Achieving and maintaining upto-date visibility of increasingly complex network structures, even over several tiers of the logistics network, while ensuring data accuracy and availability, is certainly one of the basic requirements in managing risks and volatility in a timely fashion. Although the crisis has given rise to the risk that longterm strategic sustainability initiatives will be withdrawn under strong cost pressure, the crisis actually offers an equivalent opportunity to implement a holistic approach to sustainability that also gives greater weight to employee satisfaction and other social factors and to move away from a purely short-term cost perspective. ■ REFERENCES [1] Transport Intelligence (2020): European Road Freight Market Sizing 2020: Covid-19 Impact Analysis, p. 7 [2] Straube (Ed.); Junge, A.L.; Verhoeven, P.; Reipert, J. and Mansfeld, M. (2019): Pathway of digital transformation in logistics: best practice concepts and future developments. available at DOI: 10.14279/ DEPOSITONCE-8502 [3] Kersten, W.; Seiter, M.; von See, B.; Hackius, N. and Maurer, T. (2017): Trends and Strategies in Logistics and Supply Chain Management: Digital Transformation Opportunities. DVV Media Group GmbH, Hamburg, available at: http: / / logistiktrends.bvl.de/ en/ system/ files/ t16/ 2017/ Trends%20and%20Strategies%20in%20Logistics%20 and%20Supply%20Chain%20Management%20%E2%80%93%20 Digital%20Transformation%20Opportunities%20Kersten%20 von%20See%20Hackius%20Maurer.pdf [4] Kille, C. (2020): Die Wirkung der Corona-Krise auf den Wirtschaftsbereich Logistik aus Sicht der Logistikweisen. BVL-Blog, 20 May, available at: www.bvl.de/ blog/ wirkung-corona-krise-logistiksicht-der-logistikweisen [5] Nitsche, B. (2019): Development of an Assessment Tool to Control Supply Chain Volatility. Vol. 40, Universitätsverlag der TU Berlin, Berlin, available at DOI: 10.14279/ depositonce-7940 [6] Nitsche, B. and Straube, F. (2020): Efficiently managing supply chain volatility - a management framework for the manufacturing industry. Procedia Manufacturing, Vol. 43, pp. 320-327 [7] Straube, F.; Weinke, M. and Poschmann, P. (2020): Hohes Potenzial für lernende Systeme in logistischen Entscheidungsprozessen. Logistik Für Unternehmen, available at: www.ingenieur.de/ fachmedien/ logistikfuerunternehmen/ produktionslogistik/ hohespotenzial-fuer-lernende-systeme-in-logistischen-entscheidungsprozessen/ [8] Weinke, M.; Poschmann, P. and Straube, F. (2018): Künstliche Intelligenz in Logistiknetzwerken. Verbesserung der Zuverlässigkeit maritimer Transportketten durch akteursübergreifende ETA-Prognosen. Internationales Verkehrswesen, Vol. 70 No. 4, pp. 71-75 Frank Straube, Prof. Dr. Head of Chair of Logistics, Technische Universität Berlin straube@logistik.tu-berlin.de Benjamin Nitsche, Dr. Project Team, Chair of Logistics, Technische Universität Berlin nitsche@logistik.tu-berlin.de Annual Conference of the Association for European Transport 09-11 SEPTEMBER,2020 An even greater opportunity to participate @EuTransportConf #ETC2020Online www.aetransport.org AET European Transport Conference (ETC) ETC is going online: book your place now! 2020 has presented worldwide challenges with Covid-19 impacting lives both immediately and for the foreseeable future. Managing the health and welfare of the population returning to normality, combined with economic effects and changes to travel patterns, will all be up for discussion this year’s European Transport Conference. 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