Prior to the novel coronavirus pandemic, supply chain professionals labored in near-anonymity. When the outbreak hit the world like a wrecking ball, supply chain operations became front page news. Professionals who once labored in obscurity suddenly received a lot of attention. The pandemic taught supply chain professionals a lot about the resiliency of their supply chains. Lee-Bath Nelson (@leebath), Co-Founder and Vice President for Business at LEO Lane, writes, “One hot topic that has arisen during the COVID-19 pandemic is the importance of rethinking current supply chains.”[1] Particular scrutiny has been given to global supply chains. Ken Heydon, a Visiting Fellow at the London School of Economics, explains, “Well before the COVID-19 pandemic, global value chains (GVCs) were losing their impetus as drivers of world growth.”[2] The pandemic shined a harsh light on this trend. Heydon explains, “COVID-19 has transformed and accelerated these trends, triggered by factory closures, transport restrictions and mounting national security concerns. The impact in some cases may be temporary, like the export restrictions impeding and distorting the supply chain for surgical facemasks. But elsewhere the effects will be far-reaching and persistent.” Nevertheless, writes journalist David Fickling (@davidfickling), “Trading networks have a remarkable ability to heal themselves and continue along their previous paths.”[3]
Lesson learned
According to Barbara Jorgensen, one of the most profound lessons learned during the pandemic is the importance of digitalization. She explains, “Supply chain services are getting more creative as the Covid-19 pandemic stresses global commerce and businesses prioritize the safety of their workforce. Online tools and services are becoming more popular with vendors offering free assistance and emphasizing their utility in times of crisis.”[4] She adds, “Paper-based processes have become unworkable overnight.” As a result, she writes, “The coronavirus outbreak may accelerate the supply chain’s efforts toward digital transformation.” Nelson agrees supply chain digitalization is important. He also believes additive manufacturing (AM) may have come into its own during the pandemic. He explains, “The pandemic has shown that the risks of supply chain disruption are higher when manufacturing is centralized and transportation is widespread and the emergency brought awareness of AM as a technology and as an enabler of digital supply chains.”
Because supply chains are unique for each company, lessons learned also vary by economic sector. Hakan Yildiz and Tingting Yan, associate professors of global supply chain management at Wayne State University’s Mike Ilitch School of Business, note, “Global supply chains have been hit hard in different ways. Industries that provide medical and household essentials have experienced unprecedented high demand and a subsequent shortage of supply. For other manufacturing sectors, such as the automotive industry, a very different pattern emerged.”[5] They continue, “Given that COVID-19 is unlikely to disappear soon and there may be multiple waves of the pandemic, firms need to plan for the long run while also trying to save the day.” Part of planning for the long run involves making decisions about what the world will look like after the pandemic ends. Heydon believes global value chains should be bolstered, not dismantled. He explains, “Addressing this risk, while preserving the potency of the GVC, will call for better harnessing of technology to supply chain management and greater international regulatory coherence in digital trade protocols. More broadly, what is needed is better domestic policies to deal with trade-related structural adjustment, as well as improved domestic advocacy of the gains from open trade.”
What will the “new normal” look like?
Like Yildiz and Yan, Deloitte Consulting LLP managing director Andrew Blau and futurist Peter Schwartz from Salesforce, believe companies must plan for the long term. They also believe scenario planning is the first step in that process. Collaborating with other long-range planners, they developed four potential scenarios for how the world might look following the pandemic.[6] They are:
1. The Passing Storm. In this scenario, “the virus is relatively contained, and the disease passes faster than people anticipate. Government action is fairly coordinated, reflecting a good amount of collaboration within and between countries. It’s still a storm, of course, and it leaves its impact, especially for smaller businesses and lower- and middle-income individuals, but inherent in this story is a sense of optimism that the peak is quickly approaching, a vaccine will come sooner rather than later, or a current drug is an effective treatment.” Based on the current situation, this scenario is already moot.
2. Good Company. This scenario “relates a longer trajectory for the disease and higher impacts, with governments struggling more over time. What stands out in this scenario is that companies are rewarded with renewed trust because of the role they play in helping communities and economies rebuild. Trust will likely flow differently in the wake of the crisis; in the out-years of this story — three to five years from now — trust shifts from governments and public institutions toward corporations.”
3. Sunrise in the East. This scenario “imagines a world in which the pandemic plays out for a longer period, and with very uneven recovery. China and some other East Asian countries manage the pandemic more effectively than other regions and come out of it more quickly. They lead in terms of collaboration in their health response and are better able to manage the disease. They demonstrate a highly effective level of coordination, which enables them to take the reins over time as a leading economic and political power. This scenario reflects some ‘pivot to Asia’ trends that have emerged over the past decade — growing economic might in China, increased global influence in East Asian countries — and accelerates these trends as one possible effect of the pandemic.”
4. Lone Wolves. This scenario “envisions the pandemic going on longer than any are prepared for, and even accelerating. Government collaboration is uncoordinated and ineffective; the disease feels out of control. Countries respond by putting up new borders and shortening their supply lines. Even traditional allies turn against one another to secure their own populations. Having lost faith in their governments, citizens are vulnerable to demagoguery. This is a worst-case scenario — a prolonged pandemic with ineffective government action and a world of all against all, just in the name of security and safety.”
Blau and Schwartz note, “The potential consequences of these scenarios for companies will vary widely depending on their industry, geographic presence, workforces, and more.”
The way ahead
Regardless of which scenario proves to be more accurate, Yildiz and Yan see three broad promising strategies for firms can adopt. They are:
1. Thinking out of the box: Yildiz and Yan write, “The value of innovations at a time of crisis could never be overestimated! To mitigate the impacts of COVID-19 on business operations, firms need to develop new processes and technology to shorten disruption detection time, forge new types of partnerships to overcome supply shortages, resort to new business models for revenue generation, develop better regional demand sensing, automate business and manufacturing processes to minimize human-to-human contact and to deal with potential labor shortages, etc.”
2. Mapping and re-designing supply chain networks: “Starting from raw material suppliers to the end product users,” Yildiz and Yan write, “such a map will allow a firm to track COVID-19 developments around the globe and take necessary precautions against potential supply or demand disruptions that may result from indirect, distant customers or suppliers. This mapping would also help identify potential bottlenecks, or weakest links in a supply chain, to support the design of more resilient networks. Moreover, especially for essential products, firms could consider ways to reduce supply interdependencies between geographies by sourcing locally and serving local markets.”
3. Building redundancy and flexibility into supply chains: “In the past few decades,” they write, “efficiency-driven supply chain strategies, such as lean management and supply base consolidation, have worked well for firms. These are great strategies until a major catastrophe comes, when firms desperately need buffer inventory, alternative suppliers and flexibility in manufacturing. … Thus, firms can consider adding strategic reserves, diversifying their supply base and introducing flexibility into their manufacturing.”
Supply chain professionals need to reassess how their supply chains have functioned during the pandemic, shore-up areas where vulnerabilities have emerged, and make long-term plans for the future. As Winston Churchill purportedly stated, “Don’t waste a good crisis.”
Footnotes
[1] Lee-Bath Nelson, “What COVID-19 Taught Us About the Supply Chain,” Supply Chain Digital, 28 June 2020.
[2] Ken Heydon, “COVID-19 doesn’t spell the end of supply chains,” East Asia Forum, 7 June 2020.
[3] David Fickling, “Coronavirus Will Stretch, Not Break, Global Supply Chains,” Bloomberg, 16 May 2020.
[4] Barbara Jorgensen, “How Covid-19 Could Accelerate the Digital Supply Chain,” EPS News, 13 May 2020.
[5] Hakan Yildiz and Tingting Yan, “Rethinking supply chains in the age of COVID-19,” Crain’s Detroit Business, 28 April 2020.
[6] Deloitte, “4 Scenarios Envision a World Remade by COVID-19,” The Wall Street Journal, 11 May 2020.
