The Coronavirus (COVID-19) upended the global supply chain logistics, leaving supply chain managers to pick up the scattered pieces of their logistics operation. A year later the dust of the pandemic has settled, but many organizations are still struggling to absorb the shock of last year’s disruption.
This guide to supply chain management in the post COVID-19 world explains how supply chains have evolved over the last year, and how to maintain a resilient and agile supply chain in the years ahead.
Supply Chain Management Shifts Due to COVID-19
Though the Covid-19 pandemic is far from over, it has subsided in certain parts of the globe, enabling supply chain managers to evaluate how the global supply chain has evolved over the last year. Here’s what we know:
- The supply shock started in China in February, 2020. The demand shock that followed as the global economy shut down exposed vulnerabilities in the production strategies and supply chains of organizations around the globe.
- The pandemic crisis deepens in March. Nations institute lockdowns, and supply chains experience systemic demand shocks, leading consumers to stock up on staple items to comply with restrictions on movements, in some cases buying months’ worth of goods in a single day.
- Temporary trade restrictions and shortages of critical products begin in April. Manufacturers worldwide face greater political and competitive pressures to increase their domestic production, reduce or even eliminate their dependence on sources that are perceived as risky, and rethink their use of lean manufacturing strategies.
- The supply issue shifts to personal protective equipment in May. This exposes the effect of a sudden change of demand in supply chains. Companies began to repurpose their production to produce protection equipment and hand sanitizer.
- By June 2020, the increasingly uncertain political environment in the US. This prompts concerns about robustness, resilience, and the very structure of the global supply chain.
- In the months that follow it becomes nearly impossible to track the origin of production, or receive information related to the quality controls of production facilities. These fluctuations in quality, vendor search, and price cause general chaos, making it difficult for supply chain managers to grasp an overview of the entire market.
This chaos flooded the market with bad products, fakes and counterfeit items, leading supply chain managers to understand that the global supply chain system could not cope with this type of disruption.
How Supply Chains Reckon With Physical Distribution and Prepare for Supply Shocks
It’s been more than a year after the Coronavirus pandemic began, and supply chains are finally getting back to normal. We know now that companies have far less control over their supply chains as was previously thought.
The challenge for supply chain managers in 2021 will be how to make their supply chains more resilient without weakening their competitiveness. To meet that challenge, managers need to first understand their vulnerabilities. Then consider the following steps, some of which should have been taken long before the pandemic.
Identify Vulnerabilities and Address Hidden Risks
In the modern age it is increasingly difficult for a single firm to possess the breadth of capabilities necessary to produce everything by itself. Even if an item is assembled in North America, odds are it incorporates critical components or sophisticated materials that require specialized technological skills to make.
To bridge this gap manufacturers in most industries have turned to suppliers and subcontractors who narrowly focus on just one area. Those specialists, in turn, rely on many other subcontractors spread across the globe.
This arrangement offers flexibility, but often leaves your supply chain vulnerable to a single supplier buried deep in your network. If that supplier produces a critical item in only one plant or one country, your disruption risks are even higher.
Map Your Entire Supply Chain
Understanding where those risks lie in your supply chain network will enable your company to protect itself in the case of another pandemic-like disruption. It may take a lot of digging, but mapping out your entire supply chain will help you identify the risks in your network, and provide the data you need to address those risks by either diversifying your sources, or stockpiling key items.
Diversify Your Supplier Network
Once you’ve identified the risks to your supply chain logistics, and mapped your supplier network, you should have the information you need to limit your company’s dependence on one medium- or high-risk source. The obvious way to do this is to add more sources in locations not vulnerable to the same risks, but here is where you need to be careful.
The U.S.-China trade war has motivated many firms to shift to a “China plus one” strategy, wherein production is spread between China and another Southeast Asian country like Vietnam, Indonesia, or Thailand.
That said, regionwide problems like the 1997 Asian financial crisis, or the 2004 tsunami provide a strong case for broader geographic diversification. Managers should consider a regional strategy of producing and storing a substantial proportion of key goods within the region where they are consumed.
With a presence in every market in the country and the latest technologies at our disposal, Flowspace is uniquely situated to help our clients navigate uncertainties and strengthen their supply chains. Contact us today for help navigating your business through the COVID-19 pandemic and insulate your business from the next global crisis.