What supply chain managers can learn from the Covid crisis

Before Covid-19, most of us paid lit­tle atten­tion to sup­ply chains. Con­sumers in devel­oped economies took well-stocked shelves for grant­ed. Those in the devel­op­ing world endured poor avail­abil­i­ty for many prod­ucts, but that was due to many fac­tors beyond sup­ply chain issues. 

That all changed with the pan­dem­ic. When gov­ern­ment-man­dat­ed move­ment restric­tions were put in place to curb the spread of the virus, sup­ply chains made head­lines. Con­sumers soon noticed short­ages with bricks-and-mor­tar and ecom­merce retail­ers, while man­u­fac­tur­ers report­ed sup­ply chain dis­rup­tions for com­po­nents and dis­tri­b­u­tion to cus­tomers. 

Sup­ply chains have not ful­ly recov­ered from the “glob­al rip­ple effect” caused by the pan­dem­ic, accord­ing to Dr Shereen Nas­sar, glob­al direc­tor of logis­tics stud­ies at Heri­ot-Watt Uni­ver­si­ty Dubai. Cou­pled with oth­er world­wide dis­rup­tions, sup­ply chains remain under pres­sure, she says.

“In the short term, experts pre­dict that con­tin­ued dis­rup­tions with press­ing oper­a­tions include sup­ply and demand mis­match, labour short­ages, car­go ships and ocean freight bot­tle­necks,” Nas­sar explains.

Nas­sar describes the con­flict between Rus­sia and Ukraine as a “man­made cri­sis” that has cre­at­ed seri­ous prob­lems for sup­ply chains, espe­cial­ly across Europe. She says the war forced pro­duc­tion to shut down in the affect­ed regions, cre­at­ed ener­gy price ris­es that chal­lenge many indus­tries – espe­cial­ly in areas that rely on Russ­ian gas – and divert­ed ships and air­craft that trans­port goods in and out of Ukraine.

Planning for emergencies

Against a back­drop of geopo­lit­i­cal and trade ten­sions, includ­ing head­winds in Chi­na-US rela­tions and ris­ing infla­tion on a glob­al lev­el, many busi­ness­es are strug­gling to keep up with ris­ing con­sumer demand while con­trol­ling their oper­at­ing costs, says Nas­sar.

She points to the 2021 Retail Sup­ply Chain & Logis­tics Plan­ning Report from Delmia and Reuters Events, which shows that reduc­ing logis­tics costs is the top busi­ness goal for most retail­ers. 

“The pan­dem­ic has high­light­ed the need to have a logis­tics plan in case of glob­al emer­gen­cies,” Nas­sar says. “While retail­ers are pri­ori­tis­ing this, most have men­tioned ser­vice require­ments, auto­mat­ed ware­hous­es, and infra­struc­ture prob­lems as the main con­cerns for logis­tics plan­ning.”

For indi­vid­ual coun­tries, sup­ply chain pres­sures are exac­er­bat­ed by domes­tic fac­tors, along with the impact of extreme weath­er events, such as the heat­waves in west­ern parts of the US and Cana­da and flood­ing in West­ern Europe. “These events added more pres­sure on logis­tics net­works and ports that are already stressed by high demand.” 

It is chal­leng­ing to sep­a­rate ongo­ing and fore­see­able chal­lenges “as they are close­ly inter­linked and are an exten­sion of one anoth­er,” says Nas­sar. “How­ev­er, if we con­sid­er this from a long-term and strate­gic angle, focus­ing on the known and con­trol­lable sources of risks, we can iden­ti­fy a num­ber of poten­tial pres­sures if risk mit­i­ga­tion plans are not in place.”

Headwinds on the horizon

It is impor­tant to ensure sup­ply chain sus­tain­abil­i­ty, which is manda­to­ry in many mar­kets across the world. But mak­ing these changes increas­es pres­sure on busi­ness­es, espe­cial­ly those strug­gling to rebuild after the pan­dem­ic. 

With cus­tomers, investors and reg­u­la­tors expect­ing sus­tain­abil­i­ty improve­ments along entire val­ue chains, Nas­sar says many busi­ness­es are lag­ging. “Although many busi­ness­es have sus­tain­abil­i­ty as part of their mis­sion state­ment and as one of their busi­ness goals, there is a gap in the actu­al imple­men­ta­tion.” 

This was con­firmed by an Oxford Eco­nom­ics sur­vey, she notes, which showed that 88% of glob­al sup­ply chain deci­sion-mak­ers have either cre­at­ed a clear mis­sion state­ment around sus­tain­abil­i­ty or are in the process of writ­ing one. How­ev­er, only 52% of these indus­try lead­ers have devel­oped action plans to reduce their envi­ron­men­tal impact.

In addi­tion, Nas­sar cites research by Celo­nis and IBM that revealed that more than half of chief sup­ply chain offi­cers would be will­ing to sac­ri­fice up to 5% of prof­it to become more sus­tain­able. 

“If this is put into action, it would mean that freight trans­porta­tion and sup­ply chain process­es will con­tin­ue to change as more envi­ron­men­tal­ly sus­tain­able prac­tices are adopt­ed,” says Nas­sar. “Anoth­er poten­tial relat­ed pres­sure is about intro­duc­ing new glob­al laws and reg­u­la­tions to gov­ern logis­tics and sup­ply chain sus­tain­able prac­tices that incur high non-com­pli­ance penal­ties.”

Dig­i­tal trans­for­ma­tion is more than a buzz­word for sup­ply chain man­agers. Tech­nol­o­gy is increas­ing­ly impor­tant for such func­tions as trans­paren­cy, track­ing goods and mon­i­tor­ing car­bon emis­sions, but this increas­es the risk of cyber­crime, Nas­sar cau­tions.

Final­ly, Nas­sar says world­wide water insta­bil­i­ty, an out­come of cli­mate change, is a poten­tial threat to smooth sup­ply chains, with five of 11 glob­al regions deemed by the Unit­ed Nations to be “water-stressed”, mean­ing 25% or more of renew­able fresh­wa­ter resources have been with­drawn.

“Water is a main com­po­nent of most pro­duc­tion indus­tries. This threat is grow­ing due to accel­er­at­ed urban and indus­tri­al expan­sion, pop­u­la­tion growth and the rise in extreme weath­er events, includ­ing floods and droughts,” Nas­sar explains. “Major water­ways, such as the Rhine in Europe and the Cha­gres Riv­er in the Pana­ma Canal, expe­ri­enced sig­nif­i­cant low water lev­els that affect the trans­porta­tion of goods and mate­ri­als, can cause price surges, and threat­en pro­duc­tion.” 

Government action 

“The first response to a major cri­sis always comes from gov­ern­ments,” Nas­sar states. “The rapid change and con­tin­ued dis­rup­tions [to sup­ply chains] require gov­ern­ments to fur­ther enhance their pre­pared­ness and response, not only dur­ing the cri­sis but in the recov­ery process.”

Col­lab­o­ra­tion between gov­ern­ments and all stake­hold­ers, includ­ing busi­ness­es, is vital for smooth­ing out the bumps that have affect­ed sup­ply chains glob­al­ly. The pan­dem­ic holds sev­er­al lessons. 

“The pan­dem­ic has high­light­ed the impor­tance of col­lab­o­ra­tion between busi­ness and gov­ern­ments – this is espe­cial­ly evi­dent con­sid­er­ing the devel­op­ment and dis­tri­b­u­tion of Covid-19 vac­cines in a speedy man­ner,” says Nas­sar.  “Con­tin­u­ous dia­logue between gov­ern­ments, busi­ness­es and oth­er stake­hold­ers allows bet­ter under­stand­ing of the busi­ness chal­lenges and the sup­port need­ed to address them.”

Accord­ing to Nas­sar, gov­ern­ment pri­or­i­ties should include work­ing with oth­er coun­tries to improve effi­cien­cies in cross-bor­der sup­ply chains, as well as deal­ing with labour short­ages.

“Com­bined with eco­nom­ic shocks, cost increas­es and logis­ti­cal chal­lenges, labour short­ages have been a chal­lenge and [labour force num­bers] have not recov­ered to pre-pan­dem­ic lev­els,” she says. 

While it is impor­tant to man­age the cyber­se­cu­ri­ty risks asso­ci­at­ed with dig­i­tal trans­for­ma­tion of sup­ply chains, Nas­sar says that digi­tis­ing infor­ma­tion exchange and “ensur­ing a seam­less flow of infor­ma­tion between busi­ness­es and gov­ern­ments will make cross-bor­der trade sim­ple and safer for busi­ness­es.” 

Anoth­er advan­tage of dig­i­tal trans­for­ma­tion is the accel­er­a­tion of process­es along sup­ply chains, which Nas­sar says is very impor­tant in com­pet­i­tive mar­kets. Part of this process is to lever­age data to “improve vis­i­bil­i­ty of inven­to­ry capac­i­ty, sup­ply and finances”, result­ing in more organ­ised work­flows, greater agili­ty, bet­ter sup­ply-and-demand bal­ance for stock lev­els, and faster respons­es to avoid crises. 

Building resilience

For com­pa­nies, the “inevitable tran­si­tion” from just-in-time to just-in-case man­u­fac­tur­ing busi­ness mod­els requires a foun­da­tion of resilience.

“To nav­i­gate the cur­rent chal­lenges, it’s impor­tant for sup­ply chain lead­ers to focus on what they can con­trol and sim­u­late future sce­nar­ios for uncon­trol­lable and unknown ele­ments,” she explains. “With labour short­ages being a major chal­lenge, keep­ing the cur­rent work­force healthy and pro­duc­tive and pri­ori­tis­ing agile ways of work­ing can great­ly counter this chal­lenge.”

It is impor­tant for com­pa­nies to run sim­u­la­tions and sce­nario plan­ning mod­els to pre­dict excess­es and short­ages that might occur, lever­ag­ing tech­nol­o­gy “to get action­able insights and opti­mise per­for­mance,” says Nas­sar. 

Nas­sar thinks there are rea­sons to be opti­mistic about the future of sup­ply chains. Dur­ing the pan­dem­ic, the impor­tance of sup­ply chains and logis­tics gained glob­al atten­tion, serv­ing as a wake-up call for rethink­ing sup­ply chain man­age­ment and strength­en­ing vul­ner­a­bil­i­ties, she says.

Reskilling and upskilling pro­grammes to improve the qual­i­ty of sup­ply chain work­forces should help address tal­ent gaps and labour short­ages, while freight capac­i­ty for sea and air has reduced delays.

“Over­all, with tech­nol­o­gy improve­ments, upskilling, back-up plans, and lessons learnt from sup­ply chain dis­rup­tion, I believe sup­ply chain lead­ers and com­pa­nies are more resilient and bet­ter pre­pared to tack­le future chal­lenges.”

---