The COVID-19 pandemic has had a profound impact on both the demand and supply side of most businesses, disrupting operations, and even bringing some to complete halt. As the reopening of economies across the globe picks up steam, retailers and manufacturers face a whirlwind of decisions on how to turn inventory, maintain cash flows, and seed growth for the ongoing recovery. This unprecedented crisis has left a significant impact on the global supply chain network.
This crisis has revealed the fragility of modern supply chains. Eventually, when public health is restored, businesses will have to be ready to serve the demand that will follow. Diverse sourcing and digitization will be important elements to build stronger and smarter supply chains to ensure lasting recovery. Here we explore how the post-pandemic supply chain network will look like.
Post COVID-19 Outlook
The supply chains have been facing unexpected stress due to the coronavirus outbreak and are drawing an increased level of scrutiny. Even before this crisis, trade tensions between the USA and China had mounted due to the escalated tariff war. The upsurge of protectionism, along with new financial barriers and concrete costs, fueled more significant concerns and challenges for the logistics network operating at the global level.
The modern supply chain network has been optimized to identify a minimum lead time at the lowest possible cost. However, rapid political changes and now this pandemic has revealed the weakness at the core of this model. Single-source dependencies and poor flexibility in adapting to real-time incidents have been laid unadorned. As a result, the change that had already started towards multi-level sourcing, and more flexibility will fast-track tremendously. Over the next couple of years, there could be a broad overhaul of the supply chain network.
Moving From Globalization To Regionalization
To reduce single-source dependencies and build an adaptable and flexible supply chain, sub-system suppliers, component suppliers, and product integrators will source, assemble, and deliver at the regional level.
This change had already started some years ago due to increasing labor costs in China. A large chunk of electronic equipment suppliers sources almost 40% of their parts from China. With each part having a different lead-time and given the number of parts required, a move to regional supply chains will not be that easy. However, this challenge in the post-pandemic world might be worth taking.
React, Respond, And Reimagine
The businesses will require faster responses in the short term to overcome the current supply chain challenges. The companies will have to review the extended supply chain network and focus on the risk that can affect the cash flow or fulfillment. Understanding and activating an alternate source of supply needs will have to be done by fast-tracking qualifications. There would be a need to redeploy strategic inventory to prevent stock-outs in case of any disruptions. Also, considering and evaluating alternative shipping modes with trade-offs on cost, availability, flexibility, and time will be required.
The companies in order to prepare for the rebound will have to prepare for channel shifts. With a significant shift to e-commerce channels, companies will have to ramp up their e-commerce capacity and will have to re-examine their channel inventory policies. Digitization will play an important role in re-modeling supply chains. It will help in improving the speed, accuracy, and flexibility of demand and supply responses. Furthermore, businesses will have to look at optimizing inventory strategies by using segmentation and identifying which products are required to be built ahead of the rebound. Digital procurement technology could be adapted to benefit from supplier social networks.
Lastly, businesses will have to reimagine themselves by closely examining the lessons learned from this crisis and seeing how they can be seized to transform the enterprise’s effectiveness. They will have to invest in both micro and macro supply chain flexibility. The companies will have to assess the products’ components’ availability and substitutability when designing new products. More collaborative and agile planning would be required.
COVID-19 Is Reshaping The Future Of Supply Chain Network
This pandemic has exposed the vulnerabilities of the complex global supply chains that have been built on lean manufacturing principles. The post-pandemic supply chain will see a decentralization of manufacturing capacities, with a focus on regional production. With automation and small-batch productions, it has become so cheap that many countries have already started moving parts of their supply chains back home.
The present crisis is the opportunity to reset the system. Making nimble and smart supply chains will be the key to build an investment network and global trade that will be capable of weathering any such storm in the future.