This dovetails with a new, more resilient “Just-In-Time 2.0” inventory philosophy that emerged in the aftermath of recent supply chain disruptions. After learning some important lessons, the domestic supply chain has rebuilt itself, retaining key advantages of the Just-In-Time model while prioritizing shorter, more resilient lines of transport with greater redundancy.

Key to this has been the robust move toward nearshoring supply from Mexico and Canada. This shift was predicted in the wake of the supply chain disruptions of 2020, but few expected it to happen so quickly, outpacing almost all estimates, especially in regard to Mexico. In 2023, with its labor prices now significantly below those seen in China, Mexico became the United States’ number one trading partner.  The speed and flexibility of shorter, overland routes showed their advantages over sending freight across the Pacific. 

“Some product areas are static and well understood, but those with more volatile demand patterns are moving more quickly than ever thanks to the internet and social media,” says Dr. Robert Handfield, professor of operations and supply chain management at North Carolina State University’s Poole College of Management. “In the past, this was primarily a backward-looking exercise, but with the ability to see same-store sales data in real time, retailers can create forecasts that are automatically tied to changes in stock requests.”

On the manufacturing side, companies are using artificial intelligence (AI), machine learning (ML), and the Internet of things (IoT) to automate processes, predict maintenance schedules, manage quality control, and optimize production—a paradigm known collectively as Industry 4.0. These practices lead to a more precise understanding of supply needs, which then filters down into their logistics and supply chain operations. 

In a 2024 McKinsey survey, 65% of respondents report they were using generative AI regularly, with 26% of consumer goods and retail companies investing more than 5% of their annual budget into generative and analytical AI. In addition, companies saw the most meaningful revenue increases from AI around supply chain management, with 53% of companies seeing revenue increases of 5% or more.

It’s worth underlining that this is not new commerce, but instead a shift in where commerce is happening. Overall sales remained flat in 2023, but ecommerce in the B2B sector grew by 17%. According to a Digital Commerce 360 study, 7 of 10 B2B buyers prefer to transact business online, rather than through conventional channels, and B2B ecommerce grew by 100% in 2023. 

“The pharmaceutical industry adjusted to this years ago,” says Handfield. “Stores will get several shipments a week, and often when they order something it comes the next day. We're also seeing strategies that resemble omnichannel retail moving into the B2B space.”

As B2B begins to resemble B2C, purchasers are developing consumer-like assumptions. 

"The way B2B buyers shop is changing, and B2B merchants need to adapt. Buyers are turning to online channels to research, compare and purchase products,” said Lance Owide, general manager of B2B at BigCommerce, a leading global ecommerce platform, said to USA Today. “B2B merchants need to have a strong online presence and offer a seamless omnichannel shopping experience to keep buyers loyal and converting — or risk losing market share.”

Retailers now expect faster speed-to-shelf times. They want each stop in the value chain to move faster and be both more efficient and resilient.

“Ecommerce changed everything,” says Handfield. “Millennials are now the decision makers in many of these businesses, and they expect to do business the same way they conduct everything else in their lives, digitally, with online ordering, faster shipping times, and low shipping costs.”  

“We’re seeing people use analytics to get a whole lot smarter about inventory,” says Handfield. “They're ordering in smaller quantities and restocking more frequently, because they’re doing more market testing, using real-time data to better plan, forecast, and predict, in order to lower carrying costs. The brands still sit down with retailers and plan the year in advance, but as they get closer to sell-in dates, they continue to refine and update those plans, based on new data coming in.”

As major retailers begin using real-time sales and predictive analytics to predict demand more accurately, they no longer need to carry as much shelf stock of each item they sell. This allows them to place smaller orders more frequently. Where a grocery chain might have needed two facings of a popular item in the past, they might find they can drop to a single facing, ordered twice (or slightly more or less than twice) as frequently. This trend will in turn put pressure on manufacturers, who may need to create different case sizes to accommodate different retailers, and lead to capital costs for retooling production lines.

“The faster things get, the nimbler folks have to be,” says Todd Polen, Vice President of Pricing Services at Old Dominion Freight Line. “We’re seeing a lot more last-minute shifts. But when we’re connected directly to the customer via back-end APIs it makes changes like this much easier.”

In 2023, 88% of small- and medium-sized businesses planned to transfer some of their business to Mexico. 45% planned to transition all of it. Also in 2023, Mexico replaced China as the United States’ top trading partner, growing 30% since 2019.  

The trend toward manufacturing in Mexico is clear. The Mexican Association of Private Industrial Parks recently revealed plans to develop 50 new industrial parks, which are expected to begin operation in 2024 and 2025. Goods coming from Mexico are not subject to the bottlenecks, disruptions, and spiraling costs of ocean shipping. Traffic through the world’s two most important canals has slowed. The Suez canal is beset by armed unrest, while Panama is facing severe drought which has dramatically lowered its canal’s throughput due to lack of water for its locks. Given these conditions, short, overland transits from Mexico look ever more attractive. 

“The increased speed of commerce is pushing retailers toward closer suppliers and shorter supply chains,” says Handfield. “If you try to source something based on a social media trend from China, you’re going to get it two months later, probably after the trend is over. Then, you take a bath when you offload your merchandise to the overstock stores.” 

“Forward-thinking carriers have been building infrastructure and capacity along the southern border for years,” notes Greg Plemmons, Executive Vice President and Chief Operating Officer at Old Dominion Freight Line. “There’s an art to moving goods across the border. It takes more than just trucks and drivers. You’ve got to know the territory, know the regulations, and the language. But, it’s become an extremely attractive option for many of our customers over the past few years.”

“We’re seeing a more finely sliced-and-diced market, with more distribution centers of smaller size, with more, smaller shipments moving between them more frequently,” says Handfield. “Basically, the whole market becomes higher resolution. When that happens, your visibility increases. The trick is to do it without the details becoming overwhelming. What’s clear though is that AI and analytics are making companies want to move smaller shipments, from smaller distribution centers, on smaller vehicles, more often.”

One place this trend can be seen is in the advent of Micro-Fulfillment Centers (MFCs), smaller warehouses (typically 5,000-25,000 sq. ft.) typically located in urban or suburban areas. MFCs often use robotics to reach high levels of automation. They are also designed to scale, providing flexibility based on product demand. Estimates say that annual MFC installation will grow as much as 20 times by 2030. Much of this capacity is expected to be used by grocery omnichannel and ecommerce players. This model has been adopted from the leaders in ecommerce fulfillment, including Amazon, Walmart, and Kroger, who often deploy MFCs close to or even co-located with retail stores.

“Our stores are our most valuable asset,” says Gretchen McCarthy, chief of supply chain logistics at Target on a Wall Street Journal podcast. “We saw an opportunity to leverage them as mini fulfillment centers.” Target also continues to install new large-scale “flow centers,” along with smaller-scale “sortation centers,” which serve 30-40 stores within a region.

“Retailers’ shipment windows have gotten narrower and narrower, and the penalty fees for non-compliance have also grown,” says Norman Katz, author and consultant at Katzscan, Inc. “It makes it harder for small brands to operate. They end up having to hold more inventory in order to meet requirements.”

“Additional charges on freight can destroy a company’s profit margins,” says Plemmons. “Shippers need to be able to rely on the prices they are quoted, and the delivery time they are promised. And that means working with a carrier with enough capacity and redundancy to guarantee on-time, in-full deliveries.” 

“There is some upfront effort needed to amass good data,” says Handfield. “But once you have it, it can be combined with other data sources to provide amazing insights, market analysis, category strategy, or inventory policy.”

The exponential increase in data analytics, fueled by the AI boom, is finding its way into almost every aspect of business. This is a technological shift on the level of the introduction of television or smart phones. It will open up entirely new ways of doing business, while creating unprecedented efficiencies for suppliers, manufacturers and retailers alike. And the good news is, it’s in its infancy, meaning, for now at least, the playing field is level.