The coronavirus continues to disrupt businesses and supply chains worldwide. Fresh lockdowns and border closures imposed recently amid threats of mutant strains of Covid-19 continue to hinder economic activity. Add to that massive disruptions in the transport and logistics industry, and a major shift to digital in the way we work and buy. All of this means that global supply chains are being tested like never before.
Analysts and industry insiders are of the view that the current crisis presents both a challenge and an opportunity for businesses, especially those involved in the import and export of goods and services. An opportunity to build a more robust supply chain in preparation for other disruptive events. In this piece, we take a look at:
- How Covid-19 has impacted supply chains
- What are the steps – short-term and long-term – that you can take to adapt and manage your supply chain?
- The role of digitisation in addressing supply chain vulnerabilities
What is a Supply Chain, and why is it Important?
But first, what do we mean by supply chain? A supply chain is made up of all the activities and processes involved in the manufacture and trade of goods (or services) – from the procurement of raw material and manufacture of the goods to their sale, transport and distribution. In terms of physical structures, a supply chain includes factories, warehouses, transportation hubs (ports, terminals, etc) and order fulfilment centres, among others. A robust and integrated supply chain is at the heart of successful trade. With supply chains now increasingly global and interdependent in nature, any major disruption can have a domino effect on the entire process.
How has Covid-19 impacted supply chains?
The pandemic has presented the toughest challenge yet to global supply chains. Here are some ways in which they have been impacted:
- Shifting demand: Demand has dropped drastically in some sectors (fuel, airlines, etc) and surged in others (medical equipment, healthcare and personal care products).
- Reduced productivity: Factories and workplaces shut down in early 2020 and gradually opened months later. Many of them are still operating at reduced capacity and with reduced manpower, resulting in lower productivity.
- Supply shortages: With factories producing less, supply is low. For example, the world faced an acute shortage of car parts when market leader China shut down in the first half of 2020 (though the country has since made a remarkable recovery to post record exports for that year).
- Inventory challenges: With factories yet to reach full production levels, businesses must make do with existing inventory. But while stocks are limited, demand is soaring in some regions – such as the US and Europe, driven largely by the Christmas-New Year holiday season.
- Logistics crises: The pandemic has wreaked havoc across the logistics industry (read our blog on the subject here). In India, a manpower crunch in early 2020 saw customs clearance processes function at just 5% of their usual capacity, gravely affecting businesses with a supply base there. With the country still in a gradual phase of unlocking, the labour crunch continues to hobble port, rail and truck operations. Furthermore, the record demand in and import volumes to the US and Europe have impacted logistics services worldwide, resulting in massive container shortages in Asia, a chassis (trailer) crunch in the US, port congestion in large parts of the world, disruptions to shipping schedules and galloping freight charges. Bunker fuel prices have also been rising in recent months, leading to fears of a hike in the bunker adjustment factor (BAF). These challenging conditions are expected to persist till February and, maybe, even beyond.
What can you do to adapt and manage your supply chain?
There are some immediate steps you can take to secure your supply chains:
- Keep up with demand: Manufacture products that are in demand (but only if you can fulfil that demand). You can also create demand by offering discounts on your existing inventory. If your product is currently seeing a drop in demand, preserve your cash for when demand picks up. Keep a close eye on demand forecasts and updates at all times.
- Manage your inventory: Shift your existing stock away from areas with high infection rates to prepare for possible closures. Move them closer to ports and terminals so you can ship them out in a hurry, if the opportunity presents itself. If you need to buy inventory that is in short supply, buy in advance.
- Manage your workforce: Adapt to the new ways of working that have emerged, such as work-from-home, telework, flexible hours and shifts. Take care of your workers’ health and wellbeing to keep them productive. Set up dedicated teams to come up with ways to respond to the new challenges and come up with production, distribution and inventory strategy.
- Consider other sourcing options: Don’t bank on a single supplier for your product, especially if it needs a unique component. However, remember that while you might be able to procure this component from several suppliers, the component in question might be made up of another part that is sourced from a single source. So, you might still face a shortage. The only way to counter such an emergency is through complete supply chain visibility.
- Ensure end-to-end visibility: Set up a mechanism to enable end-to-end visibility into demand, supply, inventory, capacity and finances. One way of doing this is to form a core team with members from all sections of the supply chain. Use digital tools, such as applications that track shipments in real time, to improve visibility.
- Communicate regularly: Speak regularly with your workers, suppliers, customers, logistics service providers and other supply chain partners. The pandemic has prompted many businesses to switch to daily or weekly calls. Inform your customers about potential delays. While they might not welcome such an update, they will appreciate your honesty.
- Review your insurance policy: Take a good look at your insurance policy and see if it provides adequate coverage in an emergency, including a pandemic such as Covid-19.
Long-term solutions: Redefining supply chain strategies
Short-term measures aside, Covid-19 has put the spotlight on the need for businesses to think long-term. Consider these solutions, even if they require a heavy investment of time, effort and money:
- Rethinking supply chains: When Covid-19 forced China into a lockdown, companies dependent on it for raw material and manufactured goods were hit hard. This set off a rethink to reduce dependence on China and look for suppliers elsewhere, including in India. With China being the “world’s factory” due to its infrastructure and workforce advantages, there is little likelihood of it being unseated as a major supplier. The lesson here is that it doesn’t hurt to reduce dependence on a single supplier/region and to diversify your supply base.
- Risk monitoring: The challenges of Covid-19 underscore the need for risk management, which requires a comprehensive study of the supply chain, its stakeholders and their interrelatedness, the identification of hidden vulnerabilities and blind spots and ways to mitigate these risks. In the early days of the pandemic, a hidden risk companies involved in the production of “essential goods” faced was that their products were made up of “non-essential” components that were in short supply. This led to production and distribution delays. Had these companies invested in an in-depth risk assessment exercise early on, they might have been saved from being blind-sided.
- Build resilience: Don’t wait for the pandemic to blow over and economic recovery to resume. You can plan now for a resilient supply chain network. And you can do this in a million ways – by securing your supply base as mentioned above, by rethinking your product design so that it gives you more sourcing options or does away with unique components, by building trust with your supply chain partners through transparency, or by adopting digital solutions.
The Future is Digital
Companies that actively invest in digital operations can expect a 25% growth in revenue by 2023 compared to a 9% growth rate for companies with limited investment, according to this 2018 PricewaterhouseCoopers report. While this report predates the pandemic, its findings hold true in the current climate. Analysts agree that the use of digital platforms can help you respond to disruptions faster and more effectively.
Here are some simple digital tools you can use to strengthen your supply chain:
- Join the e-commerce boom: Take your products online as consumers increasingly opt for online shopping over in-store purchases.
- Track in real time: Cargo-tracking, automated warehouses, GPS (global positioning system) and RFID (radio frequency identification) are technologies that allow you to track personnel, equipment and inventory, collate data and improve visibility and transparency.
- Get past logistics hurdles: Logistics problems cause delays. Many logistics providers now use artificial intelligence (AI) to analyse and pick the fastest and cheapest shipping routes. Then there are technologies such as the automated pallet handling system that are designed to reduce shipment processing time. In this system, the processes of storing pallets, transporting loaded pallets and integrating them with warehouse and production processes are completely automated. It can be used at a transportation hub but also in factories, warehouses and distribution centres.
- Digital Supply Network: You can transform your traditional supply chain network into a more open and accessible digital supply network (DNS) powered by AI, analytics, robotics, sensors and algorithms. A DNS works by collecting data from the physical world, creating a digital record of it, and allowing its exchange, enrichment and eventual translation into action that can be taken in the real world. It improves connectivity between stakeholders, enables rapid responses, aids in asset efficiency, lowers cost and increases revenue.
Go big on data: A digitised ecosystem is also capable of processing more information. And information is power, in times of crisis or otherwise.