The impact of the COVID-19 pandemic on the global supply chain continues to reach well beyond urgent struggles on behalf of consumers to obtain finished products or manufacturers to get vital raw materials. As the world emerges from the past 18 months of what should have been a brief interruption in the way we do business, reports from experts reveal that the damage to the supply chain could be long-lasting.
Even though what the world is currently experiencing is painful, many see it as necessary. Over the past three decades or so, limited attention was paid to the location of suppliers in favor of lower costs as goods flowed freely around the globe. Now that ships are stuck off of U.S. ports, trains are backed up outside of cities, and the trucking industry is facing an unprecedented shortage, the situation calls into question the global economic model that has dominated for so long.
Here are a few key things you need to know about how post-COVID supply chains might look in the coming months and years.
It Will Get Worse Before It Gets Better
For goods to move efficiently from overseas providers to U.S. warehouses and households, cargo ships, U.S. ports, trains, truckers, and warehouses all must work together. If there are any bottlenecks in this process, the delays create a ripple effect.
Unfortunately, U.S. ports are decades behind their foreign partners in getting access to streamlined data from terminals, shippers, and carriers due to fragmented approaches and data privacy concerns, resulting in an inefficient system. For example, in Rotterdam, Europe’s largest port, every party tied to the supply chain has access to its “PortXchange” software to drive efficiency.
Transparency and information sharing aren’t priorities for the U.S. supply chain (yet), making it challenging to move millions of containers in and out of a single port in a year without bottlenecks. Even if ships are docked, there may not be workers available to offload them or trucks on hand to take goods to the next destination.
Expected More Localized Supply Chains
You’ve likely heard it before - successful businesses are built on strong relationships. To be sure, the supply chain managers who have had the most success over the past 18 months are those with the strongest network of relationships. And many of those relationships are closer to home as opposed to those on the other side of the globe.
In the future, businesses will see a growing need for more localized supply chains. If there is the possibility of getting raw materials locally, this is a better option. Supplies of some raw materials, such as lithium and cobalt, can only come from specific regions. But there can be more on-shoring and near-shoring to create multiple supply sources in the same region.
Digitizing the Supply Chain
As businesses begin ramping up production during peak season and beyond, it will be vital to increase the visibility of your supply chain. First, you’ll want to identify and find ways to integrate with your tier 1 suppliers so that you track inventory, shipping, and even production. It will also be critical to get visibility further down the supply chain to tier 2 and 3 suppliers because their performance will impact your ability to achieve your goals. Through digitization, integration, and cooperation, you’ll be able to map, track, and improve even the most complex supply chain.
Increasing Use of Automation
Some companies have put off automation because of perceived costs. When COVID-19 arrived, many decided to pursue automation solutions as a response to labor shortages and supply chain troubles. For example, Tyson Foods implemented robotics and automation to increase efficiencies when outbreaks of COVID were impacting its factories.
Automation can play a vital role in just about every part of the supply chain, from streamlining the pick and packing process to tracking inventories in the warehouse to serving as a solution for last-mile delivery. Automation coupled with warehouse management systems can give companies the edge they need when future supply chain issues arise.
Re-Evaluating “Make vs. Buy” Decisions
Over the past several years, many organizations have outsourced parts of the production and manufacturing capabilities in an effort to “focus on the core business.” While an excellent strategy for a time, using this approach also created vulnerabilities in the business that became glaringly clear in recent months.
Because of current supply chain issues and the threat of similar problems in the future, management must re-assess these decisions by taking another look at the benefits and drawbacks of making vs. buying parts or finished products.
If a business simply goes back to what is comfortable, i.e., outsourcing, it’s a good idea to use a new level of caution. Specifically, ask suppliers for references, get multiple quotes, and spread the risk by contracting with more than one source for your materials.
Treating Logistics Providers as Partners
Another valuable takeaway from the continuing supply chain crisis is the need to evaluate your existing supply chain partners. A reduction in air and sea freight capacity coupled with substantial price increases has led to more disruptions for domestic manufacturers and retailers.
When a supplier is just a business you have a contract with, things can get intense. Suppliers that you don’t have a strong relationship with will think nothing of continuous price increases or delays that will significantly impact your business. On the other hand, companies that treat their logistics suppliers as partners to evaluate different routes and secure additional capacity when needed have the opportunity to handle challenges and outshine the competition.
The global outbreak of COVID-19 took many businesses by surprise. With suppliers and logistics providers in Asia shutting down first, supply chain executives and companies that rely on these materials and products were immediately confronted with a crisis. As just about every business is now aware of the weaknesses in the existing supply chain, they can begin creating a new structure that will better weather future disruptions.