How Pandemic Disruptions Have Changed Supply Chain Strategies

Not surprisingly, many of the efficiencies of the just-in-time model are being rethought, especially the ostensible advantage of global sourcing and tighter inventory levels. 

But there are other, subtler factors as well, such as the need to reduce process complexity, investing in remote work capability and upskilling of the logistics workforce. In short, the current system is having to be rethought and reorganized. JL 

Alan McKinnon reports in World Economic Forum:

Business continuity plans that companies thought were robust have proved seriously deficient. The impact of the pandemic on supply chains has been global, prolonged, and comprised a series of major shocks to companies’ logistical systems exacerbating the silo structure that prevails in many businesses, inhibiting the flow of information and obstructing a co-ordinated response to disruptions. Reducing the vulnerability of supply chains and increasing their resilience are more localized sourcing, diversification of the supply base, rationalizing product ranges, reducing process complexity and increased inventory at critical locations.

The COVID-19 pandemic has tested the effectiveness of 20 years of research, debate and planning on supply chain resilience.

Business continuity plans that companies thought were robust have proved seriously deficient. As a defence, it must be acknowledged that a global pandemic is an extreme example of a ‘HILP’, a high-impact low-probability event, that is understandably beyond the reach of many companies’ risk radar and resilience planning.

Most supply chain disruptions, after all, have limited geographical extent and conform to the standard single-trough, limited-duration profile outlined by Sheffi and Rice back in 2005. In sharp contrast, the impact of the pandemic on supply chains has been global, prolonged, and comprised a series of major shocks to companies’ logistical systems.

Few of the early commentators on COVID-19 disruptions anticipated the magnitude of the latest shock, which has seen eight-fold increases in average container shipping rates, global transit times lengthen by 25% or more and widespread product shortages at every level in the value chain.

How is the experience of these pandemic-related disruptions reshaping managerial thinking on supply chain resilience? This is something that we explored with a group of 60 supply chain leaders as part of the New Generation Industry Leaders community, in a session convened by the World Economic Forum.

Most of them were on the front-line, dealing with the sequence of supply chain challenges that began in early 2020 and are continuing today. In group discussions they explained what they felt could have been done differently, what longer term lessons had been learned and what new skills managers will need to be better prepared for the next disruption of this magnitude.

Supply chains: The benefit of hindsight

There was a consensus that some things could have been done better given the circumstances at the time. A common admission was that response times had been too long. Companies based in the West had advanced warning of what to expect both in terms of the direct industrial impact of COVID-19 and the global flow of product from the regions initially affected.

Some could have used this time more effectively to adapt contingency plans and prepare systems for the imminent transition from business-as-usual to crisis management. For example, this could have involved getting IT systems and workforces ready for remote working. The pandemic was seen as a test of the agility with which firms managed their supply chains, a test in which some of them performed poorly.

Internal and external communications could have been improved. The pandemic exacerbated the silo structure that still prevails in many businesses, inhibiting the flow of information and obstructing a co-ordinated response to supply chain disruptions. Experience has now shown that managing supply chains during a pandemic requires a cross-functional effort. It also needs more open and regular communication with supply chain partners.

Supply chain disruptions make a comeback

Image: Statista

Some managers felt that suppliers, customers and logistics providers could have been kept better informed of their own companies’ situation and forward planning. Multinational businesses, particularly those with operations in the Far East, could have exchanged more information about COVID-19 impacts and best practices for dealing with them.

Another issue, seldom mentioned in the supply chain resilience literature but highlighted in our discussions, was the mental well-being of managers and employees. This is often taken for granted but in a pandemic takes on a special significance when people worry about their health, normal working relationships break down and lockdowns cause social isolation. One manager referred to the greater need for ‘emotional resilience’ in the way that supply chains are managed.

Lessons for the future for supply chain resilience

According to the literature, the standard methods of reducing the vulnerability of supply chains and increasing their resilience are more localized sourcing, diversification of the supply base and increased inventory at critical locations.

Curiously, there was little explicit mention of these initiatives, though they would no doubt feature in the general recalibration of contingency planning and new business models that some managers recommended. Also included under these headings were rationalizing product ranges, reducing process complexity and relying more heavily on circular supply chains which tend to be more localized and dependable.

Many of the longer-term lessons will relate to the logistics workforce. The pandemic will accelerate the automation of logistics activities, reducing their exposure to future epidemiological risks. Logistics buildings and equipment will also have to become more pandemic-compliant to ensure greater social distancing and sanitizing.

The switch from on-site to remote working should be much quicker in the next pandemic, partly because hybrid working is now widespread and the balance between office and home working easily tilted at short notice. These changes should take full account of the welfare of workers both physically and psychologically. To give this high-level oversight, several managers stressed the need for their businesses to appoint a Chief Medical Officer (CMO).

The pandemic is also likely to accelerate the uptake of new technologies such as augmented reality in warehousing operations and 3D printing. The latter has found many new applications over the past two years increasing its influence on supply chains, particularly in the medical equipment sector.

Managers argued that their companies required ‘deeper knowledge’ of their upstream supply chains to assess their vulnerability to future global threats. Visibility of tier-one and tier-two suppliers was no longer enough given the complexity and geographical extent of modern value chains.

According to the Business Continuity Institute, 40% of Covid-related disruptions occurred at tier 2 or above in companies’ supply chains, levels often beyond the reach of their due diligence assessments. This made it difficult to determine the COVID-19 exposure and related credit-worthiness of upper-tier suppliers. Some managers argued that visibility alone was not enough. They saw the pandemic possibly heralding a new era of supply chain collaboration that would not only allow companies to manage risk more effectively but also yield wider sustainability benefits.

Upskilling the supply chain workforce

To effect all these post-pandemic changes, managers felt that they would need to expand their skill sets in several ways.

First, they would need to ‘think out of the box’ to minimize the risk of their companies being ill-prepared for another event with such devastating supply chain consequences. Ideation and scenario-building skills would help them to anticipate the wider ramification of supply chain disruptions such as those caused by COVID-19. The ability to model changing risk profiles during the course of a crisis would also be an asset, particularly where, as with a pandemic, it can last for many months or years.

Second, many of the delegates had found it difficult to manage virtual teams during the pandemic and would welcome training in how to do this effectively, drawing on the wide experience that has been gained over the past two years. As hybrid working is now the norm for many people in supply chain and logistics roles, the capability to manage virtual and mixed teams is becoming a core competence. In many cases this will involve increasing managers’ digital literacy with online networking tools. So there are both leadership and technical dimensions to their upskilling for the post-pandemic work environment.

At a more fundamental level, the pandemic has demonstrated the need for supply chain managers to factor risk management and resilience into all aspects and levels of their decision-making. This may prove to be its legacy to the supply chain management profession, preparing it not just for future health crises but for a broad range of other high-impact low-probability events.