Re-thinking supply chains: the impact of Covid-19
Beginning in January 2020, the Covid-19 pandemic inflicted massive disruption on the world’s supply chains. Few—if any—industries that relied on cross-border imports and exports of raw materials and finished goods were left unaffected.
Initially, materials and finished products sourced from the Chinese province of Hubei—the center of the coronavirus epidemic in China—were affected as factories went into lockdown.
Gradually, as the contagion spread within China, factories, ports, and airports elsewhere were affected. Next came constraints in global pharmaceutical and medical supplies supply chains—not through lockdown, but government dictates, as Chinese production was focused on China’s own needs.
And as lockdown spread from country to country, the story repeated itself—albeit with new twists. Pharmaceutical and medical supplies companies’ regional hubs, for instance, which were intended to supply multiple countries from a convenient central location, found themselves banned from exporting. International rows began, with prime ministers and presidents exchanging harsh words over cross-border shipments of vital medicines and safety supplies.
Another twist: ships on the high seas being ordered not to speed up, but to slow down. For with whole economies going into lockdown, the demand for many of the products that the vessels were carrying—oil, gas, iron ore, fast fashion, newly-manufactured automobiles—was evaporating, and ports were too congested to physically accommodate more vessels and more cargoes.
But if the pandemic was an instructive object lesson in supply disruption, it was also an instructive object lesson in resilience. Almost overnight, innovative thinking transformed supply chains, keeping freight flowing and warehouses stocked.
With belly-hold air freight capacity contracting massively as passenger volumes evaporated and jets were grounded, new air freight services sprung up, and ‘fast track’ sea freight services emerged. It became possible to ship goods from Chinese and other Asia ports to North America in just two weeks—achieved through fast-steaming and expedited port clearances.
Reckitt Benckiser, which manufacturers the disinfectant Dettol, has its second-largest manufacturing plant for the disinfectant in China, in Hubei province. Despite the lockdown, it managed to increase output from 40 tonnes a day to 400 tonnes a day. And around the world, ad hoc manufacturing lines were hastily assembled, producing ventilators, safety equipment, and cleaning and sanitizing products.
Retailers and grocery manufacturers, too, were forced to think ‘out of the box’. UK‑based supermarket retailer Tesco, for instance, which had a capacity of 590,000 home‑shopping deliveries a week at the start of the UK’s lockdown increased this to 1.2 million by mid‑May. Retailers’ product ranges were severely curtailed, focusing only on the most popular items, allowing manufacturing and distribution operations to maximize efficiencies.
Yet already, attention was turning to what would happen post-pandemic. Once the epidemic was firmly in the rear-view mirror, what would be different? What would the ‘new normal’, as many people called it, actually look like?
Having been badly burned by an over-reliance on seemingly virus-prone China, how would manufacturers—and governments—respond? How would supply chain risk management look, going forward? Change—and significant change, at that—seemed inevitable. Because with all the focus on risk management over the previous decade, informed by experiences such as the Japanese earthquake and ensuing tsunamic of 2011, it was patently clear that supply chains in the era of coronavirus had proved little more resilient than they had back then.
Equally clear was that near-shoring, re-shoring, and localized distributed manufacturing seemed inevitable, overturning at a stroke over 20 years’ growing reliance on off-shoring as a competitive supply chain strategy. And forget management practices such as Just in Time and lean manufacturing: suddenly, inventory-holding seemed eminently sensible. The ‘great unwinding’, was how the Economist Intelligence Unit described it.
So going forward, it seems likely that supply chain risk management will receive even more senior management attention, with greater inventory holding, more dual-sourcing, and a move away from maximizing economies of scale through centralized production to a more distributed—and therefore more resilient—business model.
Transportation will see longer-term impacts, too. If supply chains consciously source less from far-away Asia, and more from re-shored and near-shore suppliers, the impact on shipping and logistics infrastructure in Asia is obvious, as is the impact in North American and Europe. Stresses and strains clearly beckon: road and rail freight networks may become congested, while ships are idled and ports underused.
Air cargo, too, is likely to experience disruption for some years: pre-Covid-19, a significant proportion of the world’s air cargo flew as passenger jet belly-hold cargo—and if those passenger jets aren’t flying, there isn’t enough dedicated air freight capacity.
Working practices, too, will see changes—especially if it is some time before a vaccine is developed. Warehouses, for instance—especially in the FMCG, e-commerce retail, and parcel space—will need reconfiguring for social distancing. Crowded picking faces will be a thing of the past. Investment in digitization will sharply increase, as businesses work to cut down the number of pieces of paper that must be handled and exchanged. And the uptake of robotics and AGVs in warehouses will increase: Amazon, for instance, has already made significant investments in this area.
All of which poses an obvious question: if supply chain management in the future is going to be so radically different from the supply chain management of the past, where will the required skills come from? How will supply chain managers and front-line employees upskill for this ‘new normal’? And do so with appropriate speed?
Universities, it is true, are already thinking about how to adapt their courses. But what’s needed is upskilling now. In recent conversations with its leadership, I was delighted to learn that one organization is already making a start: The Supply Chain Academy, trusted by over 150 global businesses to deliver high-impact supply chain e-learning. Where they lead, others will eventually follow. But for actionable insight today—not tomorrow—it looks like they’re the folks to go to.