As the COVID-19 pandemic continues to disrupt business around the world, many contemplate how it will affect the future of supply chains — and how to survive during uncertainty and build new capabilities to deliver continued value to customers, partners and shareholders.
The most significant impact on supply-chain management has been a return to the best practices and disciplines — disciplines that good supply-chain managers have been pushing for decades. Responsible managers have multiple vendors — at least a primary and a secondary vendor. To chase profits, many suppliers had their entire stock of a product coming from a single source, putting them at high risk when there was a shock to the supply chain.
Spring's toilet paper fiasco is an excellent example of that principle. Why did the toilet paper depart from all the shelves? Consumers bought rolls at an unusual rate, leaving suppliers scrambling without a Plan B. Retailers relied on two or three suppliers that were actually brokers, not manufacturers, and those three suppliers were all buying from the same manufacturer.
My partner often says: “People don't believe something that didn't happen in their lifetime.” He means that a life lesson is much sharper if it happens to you personally, instead of just reading about it in a textbook. Going forward, we will see upward trends in on-shoring, near-sourcing, safety stock and bringing suppliers back to the U.S.
When selecting a secondary supplier, companies will look beyond suppliers who are merely brokers and choose a supplier who also manufactures. Going the manufacturing route is expensive without a doubt, but retailers now see that cost as insurance for future emergencies. Now, retailers will pay the extra 10% for the same item, knowing that in the event of a shutdown of their primary supplier, they're still in business. They may even inject capital into their vendor to stay in business. Recent events are ample evidence to justify the expense to CFOs. This shift calls for an increase in U.S. manufacturing.
For many, the right decision is the expansion of e-commerce — even for businesses that have previously resisted it. Companies that have never considered themselves e-tailers are moving online as a secondary protection against complete collapse. My children are taking their piano lessons via video conferencing during the pandemic. This is e-commerce and supply-chain agility in its purest form! Whether you are mountain climbing or running a business, you have to have a backup plan — Plan B for when Plan A fails. My children’s piano teacher can work through quarantine because she identified an alternate path to get her product to consumers.
Retailers and restaurants have used digital platforms like ride-sharing and food delivery apps to stay in business with curbside pickups and at-home deliveries. Perhaps the current climate of social-distancing and the stay-at-home order will slowly propel these businesses on the path to profitability.
Having supply-chain agility is crucial to protecting the business — pivoting quickly and making informed decisions. Using a transportation management system (TMS) or KPI reporting dashboard with real-time data for visibility, concurrency and collaboration also are essential.
Going forward, companies will be more risk-averse. At Visible, we track both short- and long-term trends in supply-chain management and we believe actively managing risk will be increasingly important as we move through the impacts of the pandemic.
In the last 15 years, to reduce supply-chain costs, American and European businesses have outsourced manufacturing primarily to China — and consumers benefited from lower prices. The pandemic has led hundreds of U.S. manufacturers to re-shore operations back to the US. According to a survey of over 1,000 of the continent's manufacturing and industrial suppliers by Thomas, nearly two-thirds of North American manufacturers say they are likely to bring production and sourcing back to this continent.
To appease consumer expectations of quick and free shipping, we believe there will be a shift toward domestic, intermodal freight as manufacturing expands within the U.S. This will have a positive impact on freight brokers and put pressure on large sea carriers. Currently distressed, large sea carriers won’t be able to rebound due to the movement toward regional, local and country-level supply chains.
Multibillion-dollar supply-chain companies, venture capitalist and private equity firms don’t need a pandemic to validate investments in supply-chain technology. For decades, investors have poured billions of dollars into logistics technology such as automation and AI. I don’t see that slowing down.
With fewer commuters making their everyday coffee runs, we saw a massive surge in Nespresso and Illy beverage products. Sustained over ten weeks, they reached double and triple average volume — a 200-300 percent increase.
In other markets where Visible is active, B2C vitamins, health and wellness products and luxury clothing have also done exceptionally well during the pandemic and subsequent lockdown.
A Silver Lining
Several of our clients have been running at peak, or higher than peak volume for the last ten weeks — nearly Black Friday volumes.
There is also a silver lining for small parcel carriers. UPS, FedEx, DHL and the U.S. Postal Service only have the capacity to manage the two weeks on either side of Black Friday successfully in a B2C environment. Extended longer, the demand strains their systems. Smaller and regional carriers have the opportunity to pick up the slack as big players turn away volume. This gives secondary players in small parcel the chance to increase their infrastructure. This also benefits e-commerce shoppers — with more competition comes cheaper or free shipping.
I had an insightful conversation with the Utah Manufacturers Association when the pandemic first hit. We agreed that supply-chain chaos breeds opportunity, and the ultimate silver lining is the ingenuity that follows disruption. For businesses experiencing degradation, this is a chance to pivot into a more secure and long-term business model, and for qualifying businesses, receiving financial assistance from the government to achieve that.
Casey Adams is president of Visible Supply Chain Management.
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