HomeInternational TradeTowards a Resilient Supply Chain- Lessons from COVID 19

Towards a Resilient Supply Chain- Lessons from COVID 19

Resilient supply chain

Uncertainty is the most certain thing in the world and forgotten the most. The lessons learned from COVID 19 are many. And the important part is to reshape the supply chains to minimize the disruptions due to unforeseen events with the lessons learned from COVID 19.

The developments of the world were enormous. The new concepts like blockchain, digital twin, and big data analytics are narrowing down the complex process of Logistics and Supply Chain. With the COVID 19 outbreak, the whole world stopped and slow down for a while.

It’s been two and half years and most parts of the world are still functioning under strict health regulations. The Global economy had collapsed to a considerable low level due to the prevailing long-term lockdowns. The breakdown of the global supply chain can be introduced as a major reason behind this global economic crisis as a consequence of COVID 19.

The supply chain can be explained as the process that contains the activities from acquiring raw materials to offering the final product to the customer. For example, think about a product available at your doorstep which you have ordered from Walmart.

To make the product available at your doorstep, a complex supply chain is behind.

A supply chain connects different parties like raw material suppliers, manufacturers, vendors, distributors, wholesalers, and retailers. The functions like sourcing, procuring, production, product development, distributing, warehousing, and customer service are included in a supply chain. Same goes for the fuel or the vehicle you purchase and the burger you enjoy for the breakfast from Burger King.

Towards-a-Resilient-supply-chain-lessons-from-covid-19- Daily Logistics

The supply chain plays a major role in the global economy as different industries in different countries are dependent on some other countries. A country like China exports various kinds of raw materials like aluminium, coal and iron to different parts of the world in addition to the finished products. This continuous flow was disrupted due to the prevailed lockdowns and isolations. This led consumers to panic buying and hoarding.

Who could ever think a small semiconductor could disrupt the supply chains of automotive, healthcare and military activities. Even though the vehicle production had done, OEMs were unable to deliver them to their buyers due to the shortage of semiconductors for vehicle key manufacturing.

Thus the market analyst says, well-planned OEMs’ sales dropped by 5% due to the semiconductors shortage while the OEMs with no firm planning lost sales by 35%. The word “Well-Planned” is to be looked after in future as a lesson learned by all the upstream partners of a supply chain.

What Went Wrong with COVID 19?

Towards a Resilient supply chain- lessons from covid 19_Daily Logistics

COVID19 has locked down the people at home and created unusual demand for unexpected products. For example, the work from home concept changed consumer demand drastically. More demand has aroused for IT equipment like laptops, internet connections, and office tables. At the same time demand for physical shopping dropped and online shopping has drastically increased. The popularity of E-Commerce has grown in a blink of an eye.

Most of the companies were not expecting such a change. The changes in demand patterns stopped usual orders from downstream partners. At the beginning of the pandemic, consumers did not create new demands which may be due to the confusion with the lockdown. Factories were closed down during the peak COVID due to lack/no demand for production and due to employees getting infected.

As we all are well aware, push strategies are no longer valid with consumers and companies have to run with pull strategies. Following that, the demand aroused by consumers was not met. Upper stream partners took some time, in order to adjust their productions to the new normal creating a supply deficit.

More than 90% of international trade is routed via sea. The decision made by shipping lines to lay down vessels for cost minimization during COVID 19 further increased the supply chain crisis. Some ports were opted out and these blank sailings put the consumers in some countries in a difficult situation.

The freight rates were skyrocketing with the shipping crisis and were not affordable to small scale sellers and buyers. This has kept products linked to such suppliers unavailable in the market.

Ignorance of some countries to control the pandemic within their territory was another cause of the logistical crisis.

Thus, the quick recovery of economies creating demand for production and shipping could not be catered by both shipping lines and the upstream partners. This has been further confirmed by the market studies done by UNCTAD.

Recovering from COVID 19 and the Way Forward– A Resilient supply chain

We all went through the pandemic as a world. And experienced the difficulties with disrupted supply chains. What is next?

The bottlenecks that occur in global supply chains could not be fully eliminated due to pandemics. Thus, there are certain measures we could abide by to minimize the impact in the future.

The online shopping trend increased with the COVID will be continued if the consumers find their needs and wants online. This is another plus point for upstream partners to have direct contact with the buyer and identify demand trends. Further, eliminating intermediary parties, and virtual business markets could reduce the production cost as well.

Maintaining suppliers from the same geographical region at every possibility will be another solution going forward. Having foreign suppliers may be cost-effective, but they might not be able to supply during a crisis period like COVID 19. Thus, having a local supplier will help to continue the production process continuously.

As a well-planned company, you should do vendor analysis and have backup vendors at every possible time. Of course, you can challenge this. Companies go for offshoring to achieve competitive advantages. At the same time, having a strong domestic survival plan is a must for resilience.

Having a close relationship with suppliers could help in identifying the capability of the suppliers. Further, proper coordination and communication among each supply chain tier will help mitigate the impact of sudden demand changes.

Controlling the supply chain becomes worse during a crisis when there are few tiers between the raw material supplier and the consumer. Hence, a closer relationship is useful in identifying how strong the supplier is to cater during a crisis. A better collaboration could help both buyer and seller to improve their sales limiting stockouts.

Even having backup suppliers are useless if all suppliers procure materials from the same supplier. Hence, it is important to do a little homework and make sure if one supplier fails to supply materials there is another one/few available.

Maintaining a considerable safety stock could be another tip in shaping the future supply chain. This will help an organization to continue its supply chain process until the raw materials are re-filled. This is viable not only for the production but also for every tier of the supply chain.

For example, if a retailer maintains a safety stock, the retailer can continue supplying products in a shortage. Therefore, maintaining proper stock will be a good solution. Thus, excess safety stocks are not viable as they will cause inventory holding issues.

It is obvious, that a demand forecast will not be 100% accurate. Thus, companies can use market intelligence and tools to predict the demand closer to the actual. Demand fluctuations are another feature highlighted during the pandemic.

The demand for essential items has increased while the demand for non-essentials has decreased. If this could have been identified well in advance priority could have been given to essential item manufacturing and transportation.

We should not forget the automation and development of IT infrastructure. The impact of IT (Information Technology) will shape the supply chain industry with real-time information, advanced data handling techniques, artificial intelligence and advanced optimizing techniques.

The technology will help find a solution in critical situations like a pandemic. Further, speeding up of automation involved in logistics activities not only limit the production delays due to labour shortages but also improve productivity and efficiency.

Every company should have a crisis plan which should be activated during a crisis. The plan or the strategy should consist of the backup sourcing, delivery, and logistics arrangements. This is much more applicable to cross border trading than domestic trade.

Knowing a supplier’s business continuity plan is important same as having a business continuity plan for the own organization.

We have given you a few tips on being resilient. And hope you all become proactive with your logistics and supply chain arrangements in future to fight against the disruptions in future supply chains.

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