Supply Chains And The “New Normal”: Production & Distribution In A World Of Covid-19

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To say that the global supply lines radically changed over the past six months would be an understatement. At London Heathrow, the UK’s busiest airport, cargo-only flights increased by 500 per cent as passenger flight numbers were literally decimated.

At the same time, Europe’s busiest ferry port, Dover, is so slow on business that a quarter of its staff have been furloughed or made redundant. Similar shocks have happened the world over, with the US Port of Los Angeles showing a 30 per cent drop in activity.

And while, a few months on, much of the world is cautiously edging back to pre-pandemic levels, the threat of a surge of infections remains. The coronavirus has presented a unique challenge to all, and with no imminent signs of it disappearing anytime soon, we must plan to live with it.

 

Disruptions and insight

There are numerous ways a pandemic can put the brakes on global trade. Even when shipments are good to go, there may be shortages in staff that stops them ever moving. Depending on local restrictions, they may even be under lockdown precautions.

There is an irony here for the pharmaceutical and some high-tech sectors. As medicinal and semiconductor companies often have up to 200 days’ worth of stock — very high inventories — just sitting around in the chain. The reason being almost certainly because they have made past investments in advanced manufacturing to deal with huge fluctuations in demand.

It’s also ironic that high-tech in particular is more likely to already have its tentacles in robotics, Industry 4.0, digital twins, and light-out manufacturing (to name a few) — all of which are designed to help factories run on with as few disruptions as possible.

What has now been exposed is how these advancements have not made it out the factory gates. There is a big gulf in the advancements of the factory settings, and in how supply chains are still running.

 

Explaining the gulf

Aside from delivery trackers, not a whole lot has advanced across the different key suppliers in the supply chain.

This is not to necessarily blame the logistics sector. It is not as easy for logistics to shed manpower, as their work settings are not as controlled. And they have invested a lot of money into new projects, such as autonomous trucks — but as of yet the technology is not ready to be deployed widely. Logistics have also invested heavily in new software too, but again, much of it just isn’t ready to be used in a meaningful way.

If anything, it is a lack of innovation from within the links on the chain itself that have failed to drive change.

 

Improving the supply chain infrastructure 

Can supply chain infrastructure be improved? The quick answer is: yes, and it certainly will be. But it will take time and massive change cannot happen overnight. And if, by some magic wave of the wand we could make it happen, the priority must go to pharmaceutical/medicinal chains over everything else.

The harsh reality is that the coronavirus pandemic is the ultimate Black Swan event. Service leaders may well be familiar with maintaining business continuity and disaster recovery, but pandemic-planning is much more difficult because there are new and more complex levels of uncertainty. The dynamic impact and the global reach of the coronavirus means we must plan for longer recovery times and scenarios that are bound to be surprising.

That being said, McKinsey’s consultants have already made clear what they see as necessary to ensure survival:

  1. Multi-tier supply chains must be transparent, with a list of critical components clearly established. The origin of these components, and alternative “backup” sources must also be made clear.
  2. All available inventory must be accounted for — including spare parts and aftersales — to keep production running with some degree of normality in times of uncertainty, and to enable supply to customers.
  3. Keep in mind estimates of final-customer demand, with a plan to respond to (or contain) panic-buyers.
  4. Restructure production and distribution channels in a way that ensures paramountcy employee safety, such as investing in PPE and developing an awareness of infection-risk. This will enable leaders to understand current and projected levels of capacity.
  5. Identity logistics capacity, and be extra flexible on transportation mode (when required).
  6. Utilise stress tests to help with cash management and net working capital. As this will help to determine where supply-chain issues might begin, and the financial trouble they might have.

To most, this might seem like common sense. But meeting all these points won’t be easy, and especially for companies who don’t meet any of the points and will have to completely start over.

 

Making progress and planning ahead

Supply chains can be notoriously complex. An oft-cited example is that of a Japanese semiconductor company, of which, recovering from the 2011 tsunami, took a whole year to map out its entire chain. But that was a decade ago and things have improved.

For example, there are plenty of start-ups today that specialise in helping with the mapping process, or that have developed software to make it easier (Elementum and Llamasoft, to name a few). And right down to the sourcing of raw materials. Elementum even boasts it can set up a “war room” for such a challenge within one hour.

But again, there has been little incentive to use supply-chain mapping companies or tools prior to the coronavirus. So uptake has been very slow. But help is there.

For the longer term, companies seem to be looking away from China for their supply chain foundations. At the height of its outbreak, cargo shipments from the country were delayed for months. And China with its notorious wet markets, has historically been the source of emergent diseases. But where could companies relocate to? One alternative is India, though not everyone is convinced.

In short, the future remains uncertain. But one thing is clear: companies will need to be on top of their supply chain management more than ever — if they are to resist the Darwinian cull.

 

This is a guest post by Eliza Serna-Cochrane, Operations Manager at Dpack