Supply chain networks around the world have been severely challenged by the COVID-19 crisis. A global panic reaction, lockdowns and closed borders have put supply and demand under pressure. Supply chain managers in almost all industries are moving heaven and earth to get an overview of their goods flows during the biggest logistics crisis ever. One capital trend has already emerged: COVID-19 is leading to the accelerated construction of Supply Chain Control Towers.
Unseen chain reaction is disrupting the supply side
Many countries have gone into lockdown and have closed their borders to contain the corona pandemic as much as possible. These measures serve public health, but also have a major impact on the logistics chain. At the end of 2019, when key regions in South-East Asia were gripped by the COVID-19 pandemic, the supply of basic raw materials and semi-finishedgoods had already come under severe pressure in certain sectors. This soon had an impact on the manufacturing and assembly sectors in other parts of the world all the way to end customer deliveries. Today, this unprecedented chain reaction is disrupting goods flows on a global scale, from raw materials to finished products, from basic producers to consumers.
Shock waves on the demand side
Not only the supply side, but also the delivery side is under pressure. Since the beginning of January, the mainstream media have been steadily increasing their coverage of the coronavirus. As a result, mainly manufacturers and wholesalers in Europe and the United States started to create additional buffers. In other words, the first shock wave was on the demand side. When in mid-February it became clear that Europe would not be spared by the virus, consumers started to worry as well. One month later, governments started to take immediate lockdown measures. The impact on demand was huge: consumers panicked and started hoarding basic goods and demand for many non-basic products collapsed. This meant a second shock wave on the demand side.
Changes in demand typically move upstream through the supply chain (the so-called bullwhip effect). This means that the successive, rapid evolutions in global demand because of the coronavirus are posing an unprecedented logistical challenge.
Short-term: gain insight into the end-to-end value chain
The immediate challenge for supply chain professionals today is to understand the situation. Every day they have to perform the same exercise of figuring out where the supplies are. What about deliveries of semi-finished products? How is demand evolving?
In the short term, it is important to collect data and respond very quickly to the constantly changing supply and demand. In practice, this means that logistics planners and supply chain coordinators are keeping companies afloat more than ever. Short-term action is of paramount importance, but it is already clear that this logistical coordination must reach well beyond the boundaries of your own company. It is much more effective to collaborate with your most important customers and suppliers to get an end-to-end overview, rather than trying to independently interpret information from your own factory or warehouses. More than ever, the importance of exchanging information is clear, particularly in globalised and complex supply chains.
Better data flow = better goods flow
Companies that had already achieved extensive integration with their suppliers before the crisis are reaping the benefits today. Those who have (real-time) insight into the stock levels of their suppliers and have access to data of third-party logistics and transport companies can better estimate the supplies to their own factories and warehouses. Those who know what is happening downstream – what is being sold to distributors and end customers – are also at an advantage. If you receive regular updates about what is leaving your distribution network and what is being sold at retailer level, you can use that information to make quick decisions on what you need to manufacture. It also tells you immediately what orders you need to place with your suppliers. The better the information flow, the better you can organise the flow of goods. If there is one important lesson to be learned from the coronavirus crisis, it is this: companies that in recent years have achieved strong integrations with their suppliers’ and customers’ logistics systems and processes are more likely to get through this crisis in one piece.
Supply Chain Control Towers are becoming common practice
Winston Churchill once said: "Never waste a good crisis." It is true that a crisis forces us to search for out-of-the-box solutions. Although in the past two decades Supply Chain Management was far from being the undervalued field it once was, it was still an area where achieving innovative improvements and securing the necessary budget proved difficult.
Even though steps have been taken to further digitalise the supply chains, many companies were hesitant about technologies such as Internet of Things, Blockchain and advanced Business Analytics. The coronavirus will undoubtedly result in a quantum leap in that regard. The coronavirus gives Supply Chain Managers the voice and momentum they need for huge investments in these new technologies after the first crisis. Being satisfied with the status quo is no longer an option. Companies will have a strong focus on building Supply Chain Control Towers: reports that offer a holistic overview of the supply and demand throughout the value chain, both at a high and low, detailed level. The Internet of Things will provide real-time updates for these reports. Every sale worldwide is recorded: every bill of lading, every container movement anywhere in the world... Nothing escapes the all-seeing eye of the Supply Chain Control Tower. At first this evolution will focus on mere reporting and information. In a second phase, the Control Tower will take over more and more logistics decisions and AI and Machine Learning will be able to figure out the optimal supply chain solution.
Once the dust of the coronavirus crisis has settled, supply chain professionals will wake up in a completely different digital world. This will be a challenge, but above all it is a wonderful opportunity to optimise and strengthen supply chains in a world that is increasingly less predictable.
Article by: Joël Wijns - Partner MOORE Consulting
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