Effects of COVID-19 – Supply Chain Fallout
I’ve been watching and learning from global reaction to the spread of the COVID-19 pandemic. There’s no doubt that some countries have handled it better than others. The time for “blame games” and recriminations will come later; let’s first learn from the different types of “fallout” we’ve seen. Last week, I wrote about “Social Fallout”; this time I’ll look at “Supply Chain Fallout”.
One thing that has become clear is that, as governments order social distancing and lockdowns, the supply of goods and services slows down and, in some cases, comes to a complete halt. Even if one plant is working, it may not be able to obtain supplies of raw materials from its overseas supplier who will still be in lockdown. I see countless banners on the homepages of companies that do huge amounts of e-business, stating that fulfilment of orders will be slower due to COVID-19 restrictions on social distancing. When it comes to certain “non-essential items”, that may be acceptable.
To start with, medical supplies - particularly Personal Protective Equipment (PPE) - are in short supply. Most Crisis or Business Continuity Plans rely on diversification of supply sources to ensure that, if one source of supply isn’t available, others can pick up the slack. The US, for example, relies on three manufacturers for extraction reagents; all of them failed in the face of unprecedented global demand arising from COVID-19.
Medical services in most countries are overwhelmed. Again, taking the US, its health-care system assumes that unaffected states can help beleaguered ones in an emergency. That works in cases where disasters (e.g. hurricanes, wildfires) are located in one area only but not for a pandemic that now covers the whole of the US. Similar situations exist in other countries.
Companies and countries have “offshored” various processes and services (the UK’s use of a third party agent to collect documents for those applying for a visa to come to work or study in the UK is an example) but these same third parties will also be unable to work “as usual” as their own workers fall ill or are required to observe lockdowns or care for infected family members. Another example are the “seasonal” workers (usually from Eastern Europe) who come every year to harvest at the UK’s farms. Vital medical supplies (manufactured for the most part in China) have been unavailable until recently due to factory lockdowns. Alternative suppliers have also been impacted.
As a result, companies and countries may look at “re-onshoring” jobs and processes (especially where these are outsourced to just one overseas supplier) and to diversifying their supply base – even at the cost of reduced “efficiency”. These organisations will have to be prepared to bear higher supplier prices (and the reduced profits resulting therefrom) unless buyers are happy (or have no choice but) to pay higher prices.
Some will benefit from this “re-onshoring” in terms of jobs returning to their country. The Boston Consulting Group has commented that robotics and other new approaches to manufacturing make the case for moving factories closer to home more appealing because they reduce the cost difference (source: The Economist 09/04/20). This may, however, be at the expense of workers in low labour cost countries who may see jobs disappear.
The range of changes IT makes possible will is likely to increase - that is the essence of the second current of post-COVID-19 acceleration. Many workers are able to work from home instead of an office thanks to digital connections with and between hundreds of millions, or billions, of people. “Big Data” has proven valuable in tracking infection cases and may well become more pervasive (at the expense of individual privacy, perhaps?).
Businesses that are already onshore and that rely on personal contact will benefit from IT changes. They are having to find new ways to deal with clients. Teleconferencing, remote learning and online ordering and delivery services will grow as, after prolonged periods of enforced lockdown, people realise that they don’t need to go to a physical office or store. Expect high streets to become emptier…
How can we “virus proof” our supply chains for the future?
I’ve spent more than half my life delivering change in different world markets from the most developed to “emerging” economies. With more than 20 years in international financial services around the world running different operations and lending businesses, I started my own Consultancy to provide solutions for improving performance, productivity and risk management. I work with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email. My website provides a full picture of my portfolio of services. For strategic questions that you should be asking yourself, follow me at @wkm610.
Labels: Crisis Management, Customer Care, Financial, Leadership, Strategy
posted by William Martin @ 12:27
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