Supply chains and COVID-19: New challenges and new solutions
The COVID-19 crisis has impacted supply chain systems around the world. The consequences haven’t abated yet, and many companies still have to limit their inventories, reports the New York Times. In this connection, major players in the sector had to rethink core business processes and make vital management decisions. Let’s see how the pandemic affected supply chains in key industries, what problems it entailed, and how companies coped with the difficulties.
A recent study by Bain & Company reflected ineffectiveness of the basic principles of supply chain management. These principles have been applied over the past several decades, and are based on minimal costs and inventories. The authors believe that building flexible and adaptive supply chains is a prerequisite for the successful functioning in the current realities.
The economic crisis during the pandemic proved this thesis in practice. The disease resulted in a dramatic worldwide reduction in actual supplies – a vital element for most businesses. Free and open movement of goods and services is a great principle, but a risky one. The more the supply chain depends on people, the greater the risks, and the crisis development timeline has consistently exposed old problems and created new ones.
First, COVID-19 hit factories in China, the world’s largest producer. Empty cargo containers began to accumulate in Chinese ports, while other parts of the world, on the contrary, saw a shortage. Whoever could, temporarily refused to work with the country, but this couldn’t be a permanent solution: the crisis revealed the need for a new logistic approach.
Before the pandemic, logistics was perceived as a pricey enterprise. Companies sought to optimize costs by delegating functions of storage, transportation, delivery and warehouse management to counterparties offering the lowest rates on the service market. However, at the beginning of the crisis, it turned out that the approach did not allow coping with new challenges: additional links in the chain increased the response time and led to delays in deliveries, empty warehouses or, in some situations, oversupply of goods.
In this situation, the winners were those investing in long-term relationships with counterparties based on the basic principle of responsible cooperation. To cite an example, the German cables, wires and cable accessories manufacturer Helukabel optimized its supply chain by introducing customer-specific control: “We have set up an integrated supply chain that reflects the motto “think global, act local”, says Michael Hamsa, Helukabel’s Head of Supply Chain Management. Based on its own IT and communication infrastructure, the company has built an operational communication network with customers and was able to maintain close proximity even at a time when ‘distance’ became one of the most popular words. This approach has shown its viability in practice: Helukabel and its customers have not experienced any production or delivery delays related to the COVID-19 situation.
In addition to closer interactions with customers, companies have also had to learn how to work with reduced headcounts in the face of heightened safety restrictions. This has significantly impacted the core supply chain processes and has even pushed some companies to the brink of extinction.
So, India’s e-commerce delivery companies lost thousands of employees at the beginning of the pandemic; 80% of employees altogether left BigBasket food delivery company. Employees in these types of companies are a key element of the supply chain, and any disruption in this area may become a close call. Realizing the danger, BigBasket mobilized its forces, introduced bonuses, insurance and increased security measures for employees, as well as optimized the operational process of deliveries: “We started telling customers we will not deliver on the same day, we will deliver everything on a milk route in two or three days. We started doing only bulk orders and prioritized delivering just essential items,” explains Vipul Parekh, Co-Founder and CMO of Big Basket. This approach paid off: a year later, the company sees a rise in business even while the disease keeps raging in the country.
Dependence on importers and transportation blocks were the next tripping stone. Border closures, export bans and increased customs clearance periods dealt a blow on those whose supply chains were dependent on their partners’ products.
Some companies have avoided these problems by working with local suppliers and using their own streamlined and fully controlled process of making and selling goods. Thus, a wide functionality that allows not only collecting and storing data on the production chain, but also optimizing logistics and automating document flow at own facilities, allowed French banknote printer Oberthur Fiduciaire successfully thread its way through the crisis waves. Both of the company’s main European facilities strictly observe unified procedures and requirements and are permutable; at that, VHP Security Paper supplier, owned by Oberthur, ensures there is no or very limited problem with stock. Due to its specific activities, the company must ensure full control over its production chain, and this careful approach resulted in solid performance, says Oberthur’s CEO Thomas Savare: “The systems we put in place in the ‘good times’ have stood up to the pressure and I am pleased to say that we have a record order book – a reflection, I think, of the confidence customers have in our processes and procedures.”
In any changing environment, there are winners and losers. Traditional supply chains are designed for lean efficiency, low risk, and high predictability. The new reality, however, dictates the need for agility, speed and study of new opportunities, and in the current situation, those who have shown maximum adaptability during the onset of the crisis and prepared the ground in advance in case of problems, have won.
