Covid 19: The Mother of All Disruptions

Written by Anna Hill, Public Relations Officer at alvys

Written by Anna Hill, Public Relations Officer at alvys

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Disruptions in the supply chain isn’t a new phenomenon.

 

It has been experienced one way or the other for most companies. From your little mom and pop shop around the corner to huge multinational companies.

 

With a heavy dependence on international suppliers, and not fully considering the 360 impact of such dependence, some would say it was almost inevitable. Others would say inevitable but manageable. Even if the disruption costed the company a few bucks, sourcing very low-cost goods and services was far more important than the possibility of disruption.

 

In some way the old saying “don’t put all your eggs in one basket” comes to mind.

 

PlayStation 2 experienced supply chain disruption back in 2004 when an oil tanker became stuck in the Suez Canal, blocking ships from China carrying their consignment of consoles. PlayStation 2 sales plummeted by 90% and parent company Sony resorted to chartering Russian cargo planes to fly in the PS2s.

 

Simply put, supply chains are like dominoes. They stand apart, each working independent of but in line with the other. Have one domino fall and, well, that’s where the term “domino effect” comes in.

 

In a supply chain, if one link is weak or one domino falls, it gives birth to disruption.

“Supply chain & transport providers need to manage multiple risks along the sourcing, transport and distribution chain. In our interconnected world, safety, reliability and efficiency can only be secured through collaboration between industries and government.”

-Dr Frank Appel, Chief Executive Officer, Deutsche Post DHL

So, what exactly are supply chain disruptions and how can you identify them?

Disruptions are categorized according to four risk categories:

  • Environmental
  • Geopolitical
  • Economic
  • Technological

 The first three categories ranked highest.

Throughout history, there have been a number of well know pandemics such as SARS (2002 – 2004) and the H3N2 in 1968.

However, COVID-19 has changed the supply chain game completely. Its impact is far more extensive than anything ever experienced before.

Here are some reasons why:

Geography: As devastating as natural disasters and extreme weather conditions can be, their impact is usually limited to one region of the United States or just one country. COVID-19 has had and continues to have an effect on countries and organizations around the world.

Industry: Typically, when there is a supply chain disruption, its impact is not only on a specific region, but on specific industries. The petroleum industry was devasted by Hurricane Harvey in 2017 in the Gulf Coast. However, refineries in other parts of the country were not affected and were able to fill in for any shortages. 

Demand Shame: COVID-19 is having an impact on high-end buyers, and many suppliers are now stuck with costly merchandise that is just not selling. While the virus still plays out, many consumers do not believe this is the right time to purchase an expensive car or couture clothing.

Duration: Most disruptions tend to be short-term. Most were addressed and eventually people were able to move on within a few months. With COVID-19, we have had spikes and lolls around the world, but it is still with us. Most experts predict that this virus will continue to play out in the next 3 to 5 years, some experts go as far as 10 years. 

Supply Chain Challenges and How To Respond

“The goal is not to predict what or when – but instead be prepared and able to respond in an informed and planned manner to minimize the impact of a disruption.”

-Steven Culp Global Managing

An in-depth study done by the U.S. National Library of Medicine – National Institutes of Health considers three main aspects:

  • The main causes of the disruptions
  • The challenges associated with the pandemic
  • The trend of the crises

Three main interrelated factors led to the disruption of the supply chain operations caused by COVID 19: change in supply, fluctuation in demand, and the reaction of governments and countries to confront the pandemic.

The main trends of this effect include the following:

(1) Prices fluctuated, as the extraordinary increase in prices during the pandemic negatively affect the relationship between suppliers, retailers, and customers.

(2) A long lead time due to delays in receiving items from the source and delays in distribution.

(3) Delays in shipments, moving cargo, loading, shipping, and unloading, as well as extra delays at the borders and ports.

(4) Reduction in return, profits, and income, thus hurting retailers’ abilities regarding their quality control.

(5) Decrease in production capacity and manufacturing capability which affects the sources of production.

(6) Lack of disruptions plans associated with small inventory levels, single supplier, or minor diversification underestimate the possibility of severe disruptions; the focus on short‐term and costs minimizations lead to a lack of risk information and contingency plan.

(7) Difficulty in getting information and data from partners, lack of end‐to‐end visibility, lack of integrations and coordination, and variations in technology utilization throughout the supply chain. The figure below illustrates the impact of the pandemic on supply chains.

 

Companies need to respond quickly and confidently to execute a strategic plan that will mitigate the risks to human health and protect the functioning of global supply chains.

The speed of the COVID 19s escalation requires continuous end-to-end assessment, optimization and monitoring.

Strong data analytics capabilities are crucial in understanding complexity, anticipating potential disruption and quickly developing a response.

We have identified a few supply chain challenges based on the pandemic trends:

Global Resilience: Supply chains lack global resilience and are breaking down in the face of multi-country disruptions.

Sustainability: The significant impacts that supply chains and operations have on the planet and society are not meeting stakeholders’ expectations for sustainability.

Costly Tech: IT systems continue to be expensive to run, inflexible and often over-reliant on legacy technologies.

Talent: Talent gaps across the supply chain and operations continue to create high dependency on the human workforce.

Inflexibility: A lack of flexibility inhibits the ability to address customer demands for personalization and customization.

High Operational Costs: Supply chain and operations are becoming more costly (eg less global and ecommerce fulfillment costs) – and can often represent a company’s highest costs.

So, what now and what’s next?

Discussions and research into the total real and measurable effects of COVID 19 on the supply chain are ongoing and although there is no one-size-fits-all solution, there a few things to consider.

What ultimately works for you is based on your operational set up but here’s some great responses to get you started:

Invest in Human Capital: Put your people first. People are the backbone of your business and their performance or lack of will adversely affect your operation. Whether it’s with planning, logistics or procurement, developing a refreshed digitally driven model will help you to find new ways of working with internal customers, the supplier ecosystem and external partners.

Improve Visibility through Data: Data is your friend. It’s gives you accurate readings on what’s happening on all levels of your operation. End-to-end, data driven tools maximizes visibility and gives you real-time information on any aspect of your operation.

Effective Communication: Establish communication workflows within and between all departments. This is especially important when communicating with external partners, remote workers, suppliers, carriers and customers.

Software Investment: Invest in a good software or TMS to manage and streamline your operation. Technology exists to make your life easier, start putting it to good use. Whether you’re focused on inventory management, warehouse management, logistics, analytics or sourcing and supplier management, there is a software that does it all. In assessing all your options, try to find a platform that fulfills at lease 80% of your needs instead of working with multiple programs.

Risk Awareness and Assessment: The supply chain of each business is different. This usually depends on the industry and the size of the operation. All supply chains however tend to follow a certain pattern. Become aware of all the links in your supply chain – both locally and internationally. Assess and devise a disruption plan of action to mitigate total and complete dependence on a single supplier or carrier.

Although COVID 19 caught the entire world off guard and brought with it several unforeseen issues, it also presents an opportunity to re-examine the way we do business and improve our workflows. In a supply chain, there is inevitable dependency, but there is also room to explore and implement disruption preparedness plans to protect our employees, stakeholders and partners.

Yes, we were caught with our pants down but together we will lead the transformation of one of the most important systems in the world – the supply chain.

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