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How COVID changed the supply chain


The year of 2020 brought drastic changes in the lives of many. Lockdowns, shelter-in-place orders, travel restrictions etc, contributed to the disruption in every part of the economy. Consumer behavior experienced a major change. Businesses struggled to keep their head above water; they came up with significant strategies that would ensure the smooth operation of their supply chains. The prime concern during that time was intent to make the supply chains more flexible, agile and resilient.


There is no doubt that COVID disrupted the supply chains. In a standard supply chain format, raw materials are sent to the factories to convert them into manufactured goods. The finished goods are then shipped to the warehouses for storage; from there the goods are sent to retailers or the consumers. However, during the pandemic, companies faced warehouse shortages, labour shortage, tight capacity, exponentially high freight rates and import delays. The condition worsened as consumers were panicking due to businesses closing down. Therefore, in this article we are going to talk about the steps which various businesses took over the past year, to maintain their supply chains. We will also discuss about the strategic plans which they came up with, their implementation, and how they intend to evolve their supply chains in the coming months and years.


A survey conducted by McKinsey & Company in 2020 concluded that supply chain executives intended to improve resilience through physical changes to their supply-chain footprint. But there was a significant change in their strategies through which this goal was achieved. While in the last year, many companies planned to improve their supply chain resilience by increasing their inventory of critical products, components, and materials with efforts to diversify supply bases while localizing or regionalizing supply and production networks.


1.Sector-wise, the approach towards achieving a resilient supply chain differed. Of the total respondents in the survey, the healthcare sector stood out the most. With a broad range of measures, 60% of healthcare respondents said they had regionalized their supply chains, and 33% even reported that they had moved the production closer to end markets. In comparison to healthcare, only 22% of automotive, aerospace and defense players had regionalised production. The players from the chemical and commodity sector made the small changes to their supply chain footprints during the past year.


The reason for these differences could be attributed to the different structural characteristics of the industries. For instance, consider the chemical industry. It is an example of an asset-intensive industry. An "asset intensive" industry is an industry which requires above-average levels of capital in order to operate. Due to large and expensive production sites, it creates a barrier for other players to enter in this sector.

Despite such challenges or barriers, it can be concluded that regionalization is a top priority for most companies, irrespective of the sector they lie in.


2.The transition to remote working was one of the most immediate effects which the pandemic caused. The survey of 2020 by McKinsey & Company reported that many organisations found it easy to transit towards remote working, with 58% reporting good supply-chain planning performance over the past year. On the other hand, about 42% reported that working remotely was a main cause for delays in supply-chain decision making.


The success of an organization depends deeply on their working methods, the employees and also on the modern digital tools they use. Use of advanced analytics improves the performance area, hence creating a more resilient and flexible supply chain. Below are some of the performance areas which can be improved.


  • End-to-end visibility of supply chain performance across multiple functions and disciplines reveals previously unseen trends and drives better decisions. Advanced Analytics dashboards and scorecards provide this insight, elevating supply chain priority to C-level decision-makers.

  • Effective sales, operational, and inventory planning involves collaboration within the organisation and outside it. Advanced Analytics allows sharing of complex data and collaborate with critical stakeholders who as a result improve forecast accuracy, better respond to consumer demand, reduce inventory, improve production, and grow profits.

  • Advanced Analytics presents the entire scenario, ranging from the shop floor to the back-office data so that the company can plan and schedule its production, improve quality, control costs, reduce waste, manage assets, and increase efficiency.

  • Advanced Analytics provides visibility across the entire supply and demand cycle, hence allowing the firm to optimize its storage and movement.

  • Advanced Analytics provide visibility into sales, inventory, customer, and supply chain processes for a true Omni-channel view of the business and an efficient supply chain.

  • IT must serve the supply chain by managing assets, monitoring SLAs, rationalizing licenses, and managing project portfolios, often on a global scale. Advanced Analytics let you analyze data across all supply chain systems such as forecasting, MES, WMS, TMS, and external big data to manage and improve service cost and performance.

3.Investment in digital technologies has become more important today than it was ever before. Firm’s interest in advanced analytics is a driving force towards investing in digital supply chain technologies. AI innovations can provide businesses not only with operational efficiencies but also with significant cost savings. AI-powered solutions like management platforms give businesses greater oversight across the supply chain, helping to identify potential transport and logistical bottlenecks.


4.The COVID-19 pandemic has exposed vulnerabilities in global supply chains. Consider the below scenarios.


  • Case 1- The halt of production in China reduced the output of many essential components for global supply chains. One such product is active pharmaceutical ingredients, 80% of which come from China. In 2018, the U.S. imported 95% of its ibuprofen, 91% of its hydrocortisone, and 70% of its acetaminophen from China. As a result of factory shutdowns, the U.S. Food and Drug Administration warned of potential drug shortages due to supply chain disruptions.


  • Case 2- Retail grocery stores typically carry 20-30 days of inventory, but they faced inventory shortages as demand for some food and consumer goods has surged by 500%. Grocery chains have reduced hours to provide time for re-stocking, while food processors are extending hours and only producing limited product lines to increase capacity and efficiency.


Such times call for SCRM. SCRM or Supply chain risk management can be defined as the implementation of strategies to manage both everyday and exceptional risks along the supply chain based on continuous risk assessment with the objective of reducing vulnerability and ensuring continuity. Many companies opted for a formal SCRM in the pandemic. Companies which had little or no risk-management experience invested in new software tools, while higher-maturity organizations mainly focused on the implementation of new practices. The pandemic has changed the supply chain risk management.


  • Even today, many companies still depend on manual processes for on boarding, verifying product quality, producing bills of lading and more. Nevertheless, following COVID-19, re-prioritization of digital solutions expected to increase. Along with digitization, issues of data privacy and security will be more important than ever, as they increase the possibility of fraud and cyber-attacks. Here, block chain may offer a solution as it provides a digital ledger that can provide a secure method of verifying and validating data.


  • The extent of supply chain disruption that has occurred, and will likely continue for some time, has highlighted the importance of being able to identify suppliers, shift production to alternative locations, and onboard new suppliers as necessary. It will be great to see how global supply chain will shift away from their reliance on China and move to other manufacturing hubs.


  • The ability of companies to navigate through these challenging times depends highly on their management, and the effectiveness of their business continuity, including their risk management strategies and workforce management protocols. The global pandemic has also questioned companies on their management of health and safety for the employees, their labour practices and standards, and their ability to operate despite restrictions and limitations that affect their workforce.


COVID-19 has definitely made the global supply chain vulnerable. Over the past year, it has caused supply-chain leaders to take decisive actions in response to the challenges posed by the pandemic. Adapting new working methods, boosting inventories, and ramping up the risk management plans have been the significant strategies, yet it seems we still have a long way to go before resilience is achieved.

 

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