Many thought that the pandemic was going to be a small dot on the timeline of history. But now, nearly three years later, we see that everything has been touched by the pandemic, and we will never return to “normal.”
Supply chain bottlenecks aren’t uncommon. Earthquakes, fires, and ships getting stuck in major canals are events that happen, causing temporary setbacks. But there has never been a disruption as widespread, severe, and unpredictable from a supply chain standpoint as the COVID-19 pandemic. Nearly overnight, factories were shuttered, ports closed, and inventory was cut off.
Here are some of the hard supply chain lessons learned from the pandemic and how businesses are adapting to create more resilient systems moving forward.
1. Focusing on the Supply Chain from the C-Suite
The supply chain is no longer an afterthought for most companies. It’s now been given priority status and a place in the C-suite. According to one McKinsey survey of corporate CEOs, supply chain issues account for the biggest threat to growth for companies and major economies, greater than labor shortages, domestic conflicts, and the pandemic.
This time last year, Bank of America noted the mentions of “supply chain” in earnings calls by Fortune 500 companies had gone up a staggering 412% from the prior year. Now that boardrooms are focusing on these issues, drastic changes are more likely to occur.
2. Seeing the Full Supply Chain
Early in the pandemic, sellers desperate to stock their shelves and manufacturers anxious to secure raw materials quickly realized how little visibility there was in the supply chain. From making and warehousing goods to shipping and delivering them to customers, supply chains can be made up of dozens or more businesses. When there is no visibility from start to finish, this leads to uncertainty and inefficiency.
The problem is necessarily that your delivery driver is late, or your warehouse is short-staffed. Instead, it might be that their delivery driver is late or the raw material supplier is facing labor issues. In traditional systems, companies have no way of knowing this. By injecting visibility in the supply chain using technology, it becomes easier to react to problems and even forecast using available data.
3. Re-Evaluating the Traditional inventory Models
The just-in-time inventory model introduced by the auto industry in the 1970s is probably on its last legs. The model worked well to help businesses adapt to fluctuating market demands and maximize bottom-line results as long as suppliers were able to accommodate them. But the severity of materials and product shortages has challenged whether the benefits of this model are worth the potential business disruptions.
The reality for most businesses is that there is too much risk in relying on a shaky supply chain to deliver products “just in time.” Many industries, including automakers, are now taking a different approach. They are either moving more toward vertical integration, where they make more components in-house or choosing to stockpile high-demand items to avoid stockouts.
4. Exploring Options for Multi-Sourcing
Having a single source of products and supplies no longer appears to be the best strategy. According to a Jabil survey of more than 700 supply chain decision-makers, 90% of respondents report that sourcing issues have had a direct impact on their business. In many cases, the effect was enough to put a significant squeeze on profit margins.
Companies have become more sensitive to being tied to a single source for their products or supplies. Having multiple suppliers makes more sense for a more successful and resilient supply chain.
5. Expanding Geographical Diversity
China has established its role as the world leader in affordable or cheap manufacturing. At the start of the COVID-19 pandemic, over 200 of the Fortune 500 Global companies had a presence directly in Wuhan, the region considered to be the location of the initial outbreak.
Businesses have long understood the value of diversification, but many have failed to do anything about it because the economics didn’t favor taking action. Recent events have prompted companies to start looking for ways to expand geographic diversity. Some U.S. companies, like Intel and General Motors, are bringing more manufacturing home. Others are looking at different areas like Mexico and Vietnam for diversification.
6. Investing in New Supply Chain Technology
Supply chain success relies on a variety of factors, one of them being technology. While all supply chain partners have likely invested in some type of technology in the past, it wasn’t enough to head off the devastating impact of the COVID-19 pandemic. When supply chain partners found they weren’t connected or able to make up for labor shortfalls, things tended to fall apart.
According to a Gartner survey of supply chain leaders, over 60% of respondents said technology innovation was a source of competitive advantage. Another survey found that 77% of organizations planned to invest at least $100k in supply chain technology in the coming year. And those that invested in digital innovation experienced significant additional revenue.
Some of the supply chain technology that businesses are adopting include:
- Digitization — This refers to the conversion of information into a digital format, which can streamline resiliency and mobility across the entire supply chain.
- Internet of Things (IoT) — IoT devices can have a significant impact on logistics. For example, data gathered by a sensor in the warehouse can provide information across the entire supply chain, allowing for better tracking and forecasting.
- Automation — Automation is being increasingly employed throughout the supply chain. Warehouses can use robots and voice-enabled systems to improve efficiency and reduce the need for manual, repetitive tasks.
Although industries experienced supply chain issues before the pandemic, what has happened over the past several years in terms of shortages and disruption is unprecedented. Fortunately, most businesses are transforming these hard lessons into fuel that drives new initiatives to build a more resilient supply chain that relies on better visibility and stronger partnerships.