Risks, reactions and early lessons for the supply chain from the COVID-19 outbreak
How is the pandemic pushing supply chains and what can we do to make ourselves more resilient?
The following is a summary of the Stand Up & Sound Off Supply Chain Now Webinar featuring ASCM, Resilience360 and Vector Global Logistics.
The spread of COVID-19 across the world has created the biggest short-term disruption and shock to global supply chains in living memory. At every step there has been an effect, from factory shutdowns, to out of sync trade patterns, to demand mismatches. This presents a huge challenge to logistics and transportation professionals everywhere. This is the time for up-to-date information that you can action right now.
Current disruptions and what you need to watch
COVID-19 has been like an out-of-control freight train for supply chain planners. It has thrown much of the expected transport movements, workforce capacity and consumption patterns out of sync across the world.
For Dave Shillingford, Chairman of DHL Resilience360, “It comes down to what are you making? Where are you making it? And how are you getting it to market? Understanding those broad factors, helps us understand why some companies are feeling the pain more than others and also to understand that we are experiencing this on the supply side and the demand side.”
This latter point is critical, as this current crisis is different from many of the major issues that have impacted supply chains in recent years. “Normally when we see major supply chain disruptions, such as the Fukushima incident or the floods in Thailand that we saw in the same year, it tends to be more on the supply side,” says Shillingford. “What we’re seeing here is a much, if not more, demand shocks in different ways around the world.”
Enrique Alvarez, Managing Director for Vector Global Logistics backed up this point with their ongoing research into how logistics professionals are seeing the crisis unfold through an industry survey run in conjunction with Techpublic. In their research they asked how professionals expect their volumes to change in the next six months and the answer was stark, as 40% expect volumes to fall by 20% or more.
However, this is not an across-the-board change with major spikes in some areas, such as “Consumer essentials, where the shelves are empty and there has been a huge demand spike from that,” notes Shilingford. “We expect to see a reaction to that ripple down the supply chain. Factories will crank into action sooner or later and those products will wash back down the supply chain. No doubt there will be over-supply in some areas, what we think of as the bull-whip effect.”
Above that “At the top of the stack is emergency medical supplies that are in huge demand,” he says, but this is also an area of significant challenges as they “are not in the right place at the right time – even the stockpiles.”
We are starting to see the risk of ports being closed when port workers are infected
He points out that ocean transportation is a key area to watch in this regard. “The ports are generally open at the moment but … the crews have been on boats for some time. Crew changeovers are coming up. That is going to be a challenge of crew members themselves get ill. Certain countries have started to put quarantine measures up for any boat that is less than 14 days out of port of origin. We are starting to see the risk of ports being closed when port workers are infected. It happened briefly in Houston. In Europe, we have issues with equipment – containers being in the wrong place.”
Alvarez echoes this sentiment, with their research finding the biggest areas for concern in the supply chain are ports and distribution centres. This is likely to become a bigger issue in coming weeks, as “Quarantining vessels and sick port employees are going to make this part more challenging.”
“Finally,” there is “air transportation,” says Shillingford. “A massive backlog in China. Rates are very high and with the amounts of cancellations of passenger flights and the amount that gets carried in their cargoes, that is having a very significant downward effect on air capacity.”
What we missed
When it comes to how many across the space are feeling, “Uncertainty is the first thing that comes to everyone’s mind,” says Alvarez. “People out there are still not sure what we are facing.”
The rapidity of the spread of COVID-19 and the official response has left many reeling. “Business owners, suppliers, and clients are trying to grasp the velocity of everything that is going on. It is too many changes happening too quickly,” Alvarez says.
Business owners, suppliers, and clients are trying to grasp the velocity of everything that is going on. It is too many changes happening too quickly
Their numbers reflect how many have been caught on the backfoot. When they asked “how many months of supply do you have in your supply chain? 18% said that is was less than a month, 9% said around one month,” reflecting the way supply chains largely now work on a just-in-time basis but also how problematic it has been to replenish stocks and keep inventory up. “The supply chains are pretty stressed already. Capacity is very tight and that will compound the effect that is happening,” warns Alvarez.
Although the size and ramifications of the virus’ spread and diminishment of supply chains were hard to foresee, there could have been more done to prepare ourselves and it will be important to learn the lessons going forward with better foresight and planning for major events.
“The truth is the way forecasting works typically, e.g. historical methods of forecasting, don’t equip themselves very well to do that because regardless of the advancement of the technique, the incredible math or algorithm used, they are really an extrapolation of the past to tell us what is going to happen in the future,” points out Supply Chain Now’s Greg White. “That has long burdened the supply chain and particularly burdens it in the instance of a disruption like this.”
Peter Bolstorff, Executive Vice President for Corporate Development for the Association for Supply Chain Management notes that there are a number of areas where there have been failings to properly prepare the supply chains necessary to respond to the current crisis. For example, critical care products, such as masks and ventilators, have been underprepared, as well as the laboratory supply chain, where “test kits would be one example but also basic supplies around that laboratory supply chain, like swabs that work appropriately.”
He says that companies should approach the challenge in a structured way and outlined a set of steps to identify the shifts being created by the pandemic, which are as follows:
· Profiling the number of COVID-19 supply chains that need to be set up and managed
· Defining the type of ‘products and services’ required for each supply chain to effectively support COVID-19 preparedness, response and recovery
· Defining the ultimate ‘customer’ segments of the population each supply chain serves by volume and criticality
· Framing the risk mitigation actions and priorities for each supply chain in each phase: Preparedness, response and recovery
However, he also conceded that “There is no way that any one entity could have responded to it. It takes public policy. It takes private enterprise prioritising production capacity. It takes the consumer.”
It is increasingly difficult for transport companies to know where they can and can’t go
Jump starting economies and supply chains once they leave stringent measures and try to return to normality will also be challenging due to the way shutdowns have left assets in the wrong places and the way in which different economies are in different phases. “In China, even when we saw factories coming back online, the ground transportation was not able to synchronise with that because of the lockdowns in various different provinces,” points out Shillingford. “We are starting to see similar things in the US … it is increasingly difficult for transport companies to know where they can and can’t go.”
How will the pandemic shift supply chain planning and systems?
This level of challenge and disruption will mean permanent change to market forces and technological underpinnings as companies are threatened with existential fights and turn to innovation and new business models to survive.
One of these is undoubtedly the continuing rise of e-commerce. “We are starting to see huge, necessary shifts from bricks-and-mortar to e-commerce and we will be watching that carefully to see what extent that becomes a permanent shift,” says Shillingford. “We have seen a combination of Amazon and Walmart hire 500,000 to meet that type of demand, meanwhile companies in the retail and hospitality space are closing their doors.”
This will feed into a drive for “towards automation. Both in terms of physical automation – robotics – but also decision-making,” points out Shillingford. This not only encompasses physical robots but robotic process automation in planning and forecasting phases. “We think that risk will ultimately become part of every decision is made in supply chain planning and execution and that can only happen in an automated sense once that is integrated into existing planning and automation systems.”
Technology has no emotion, it doesn’t miss work, it doesn’t get COVID-19 ... so technology becomes a critical mechanism to survive and thrive
White echoes this sentiment. “We don’t want to predict items, we want to predict consumers’ actions…. In order to be able to forecast better, forecast the influences on the customer and to respond rapidly, you need to undertake a technology transformation and do so soon.
“Technology has no emotion, it doesn’t miss work, it doesn’t get COVID-19, it never forgets that input that caused it to have that learning, there is no memory loss in a technology, so technology becomes a critical mechanism to survive and thrive.”
“From a strategic standpoint, I always think technology follows need,” believes Bolstorff. “I think one of the lessons we need to figure out from a strategy standpoint, is where did we miss from a strategic point of view as it relates to this pandemic and future ones? How do we better integrate risk into our plan, source, make deliver, return processes? And then thirdly, it’s how do we start to think about more effective public-private collaborations, especially around these what I’ll call ’360 events’, where it takes the whole village to work through it, including the consumer.”