Supply chains: achieving successful production & distribution in a post-coronavirus world
It is no understatement to say that global supply lines have faced severed disruption in 2020. Two examples quickly make this point: Dover, Europe’s busiest ferry port, along with the Port of LA in the United States, have both seen activity slashed by a third. With Dover even having to furlough up to 25 per cent of its workforce.
With so much of the world’s trade coming from China, its shock lockdown earlier in the year immediately caused havoc — resulting in delays for months. And while much of the world has gotten over this initial trauma, the pandemic is still in full swing. There are bound to be second and third waves, like the kind of resurgence, at the time of writing, we are currently seeing. So while supply chains are gingerly coming back online, there’s no telling when they might be disrupted again.
Impacted exports: disruptions and insight
There are innumerable ways a pandemic can interrupt global trade. For example, even if the goods themselves aren’t disrupted, there might be an outbreak that requires the handlers to go into self-isolation. There may be local lockdowns as we have seen, that delay shipments at very specific points on the link.
The irony is that some of the worst-afflicted supply chains belong to high-tech and pharmaceutical companies. Many semiconductor companies have up to 200 days’ of stock just lying around waiting to be picked up — almost certainly because they are the ones who have pre-emptively poured money into expensive and strategic advanced manufacturing investments to deal with demand fluctuations.
It is also ironic that these industries are also the ones most likely to have high-tech implementations in place, such as Industry 4.0, digital twins, advanced robotics, and light-out manufacturing. All of which, of course, were made to keep factories running as smoothly as possible.
What we now know is there is a big investment gap between factory and supply-chain settings. As it turns out, many of these high-tech innovations never made it out of the factory gates. Aside from delivery trackers, not many key suppliers have benefited from innovation.
If this ‘innovation gap’ is a large part of why the coronavirus is causing so much disruption, then the good news is we can learn from the disruption and use it to guard against further resurgences in Covid-19 cases.
For starters, all companies should review their inventories and policies and then ask the same of their suppliers. A close relationship with suppliers from here on out is going to be very important — work to identify just how important their link in your chain is, and importantly, if you have other options in case of an emergency.
Another good starting off point is this checklist put together by McKinsey’s consultants. Read it. The most important point is the need for the utmost transparency at all levels on multi-tier supply chains. Again, so alternatives and even the raw materials of components can be traced back and accounted for. This is important because, currently, even some of the biggest organisations don’t have full accountability back to the raw materials of their products.
Other important points on McKinsey’s list worth reiterating here include using existing high-stock as a “bridge” to keep production and deliveries up and running; assessing the demands of customers more accurately, and running more stress tests to help with cash management and net working capital.
Reviewing and resourcing
It would also be shrewd for businesses to review contractual obligations with suppliers, as if they fail to supply on time they may attempt to declare force majeure to avoid liability. Businesses should also be aware that general pricing is also likely to come under pressure, and that pricing structures and market positions should be reconsidered too. It is especially important to give some thought to market positioning, because dawdling could place your business at the back of the queue.
Larger organisations with more money under their belt would be wise to lend a helping hand to some of their smaller suppliers with their delivery obligations. This is actually not that difficult to do. Little things like adjusting quantity sizes, payment terms, and lead terms could all help smaller suppliers.
The “New Normal” — After the pandemic
All pandemics fizzle out eventually, vaccine or not. When that time eventually comes and the supply chains are up to speed again, you will have a struggle for paramountcy on your hands. You will have to work closely with suppliers to get ahead of the competition. Closer and good relations like the ones described above will help your business to get ahead.
When the supplies are running again, they should be managed through sales and operations planning. This is key to avoid obstacles that come about as inventory levels fluctuate.
You can also expect to see a splurge on Industry 4.0 technology and other high-tech (5G data analytics, artificial intelligence and more) after the coronavirus, not least to guard against other future Black Swans. Expect this to be the shakeup that opens the factory gates and brings ‘smart supply chains’ into the mainstream.
Many industries have learnt a hard lesson with coronavirus. And with China’s often criticised and bungled approach to the coronavirus, the country has fallen out of favour in the eyes of many businesses and governments. Expect to see strategic relocations from companies looking to new horizons. Though where exactly these new horizons will be is far from clear.
Long story short: there will be choppy waters for some time. In order to survive, businesses will need to work closer and more intimately with their supply chains more than ever. If they are to flourish, and not fail, in the new normal.
Thomas Owens is a copywriter and researcher for GBS Clinic, a health centre in Ireland.
Photo: Shutterstock, royalty-free stock photo