< Back to blog listing

In a COVID-19 world - How to manage your supply chain

Since January 2020, the novel coronavirus or COVID-19, which first appeared in Wuhan, a 11 million business and industrial metropole in Central China, has rapidly spread around the world. On January 30, 2020, the virus was officially declared a global health emergency by the World Health Organization (WHO). Due to date, there are over 2.4 million registered cases in 210 countries and territories around the globe, according to Worldmeter, and the amount of infections keeps rising every day.
In an attempt to contain the spread of the virus, governments worldwide have enforced closures of offices, factories and stores and have restricted social life by shutting down public places and requesting people to stay at home and practice social distancing. Alongside the challenging effects on human life, the COVID-19 outbreak is having massive impact on employment, the economy, and supply chain management, with increasing implications for global business operations and supply chains.

This article looks at the impact of COVID-19 on global supply chains and asks if devastating disruptions of this kind could be better cushioned in the future by changing the traditional way of how supply chain management is practiced.

China as origin of COVID-19
Impact of COVID-19 on global supply chains

Global supply chains are highly complex involving numerous stakeholders including Tier 1, Tier 2 and Tier 3 suppliers, often located in other countries and even continents, making the chains extremely fragile to disruption. Let’s take Wuhan, where the coronavirus originated, and the city’s lockdown to exemplify the weakness of supply chains. According to a report from Dun & Badstreet 51,000 companies around the world have one or more Tier 1 suppliers and a minimum of five million companies have one or more Tier 2 suppliers in Wuhan. Hence, those enterprises depend on those vendors to keep their supply chains running. Moreover, at least 163 companies within the former and 938 within the latter group are Fortune 1000 companies and therefore important drivers of the global economy. The dependency on one specific area brings great risks. When Wuhan’s industry came to a standstill, most of those companies’ supply chains were logically impacted as goods could not get out of Wuhan anymore leading to a drastic drop in trade. In only one week in February, domestic trade movements heavily decreased by 60% and international trade exchange between Chinese and international companies by 50% simultaneously, according to Tradeshift. Considering that this immense drop resulted from the shut-down and isolation of only one city, it can easily be imagined what is currently happening to supply chain flows around the world with the virus having reached 210 countries.

Even though there have been several disastrous events with global impact in the past such as the eruption of the volcano in Iceland in 2010, the earthquake and tsunami in Japan in 2011 and diverse hurricanes in the US, most companies were hit by COVID-19 totally unprepared. As a survey conducted by Resilinc shortly after the COVID-19 outbreak in China revealed, 70% of 300 participants were still evaluating the situation, identifying which of their suppliers had facilities in the shut-down regions. This clearly indicates the widespread lack of supply chain visibility.

While there is no doubt that the gravity of the COVID-19 crisis cannot be compared with any of the previous disasters in terms of scale, severity and impact as production has partly come to a complete stop, the question we have to ask ourselves is how businesses can learn from the current situation in order to get disaster-fit for any similar disruptive event in the future.

In order to answer this question, let’s first look at the reasons why supply chains are so sensitive to disruption. Here are five major practices contributing to the fragility of today’s supply chains.

Just-in-time manufacturing: As a common goal of supply chain managers is to constantly keep costs down, just-in-time manufacturing is perfect to maintain supply chains lean leading to cost reduction. However, once a supply chain suffers shortages of any kind, the chain’s seamlessness is immediately at risk.

Limited supplier network: Many companies collaborate with the same pool of suppliers without strategically expanding their portfolio of partners ensuring they are spread across different geographical locations. This practice especially becomes challenging when a disruption occurs to one major supplier or in a region where crucial suppliers are situated because it makes spontaneously switching to an alternative vendor impossible.

Manual supply chain management: Supply chains unfortunately lack behind in terms of digitalization, even though it is the year 2020. Most processes such as supplier management are still run manually which kills any flexibility when it is needed.

No supply chain visibility: As the Risilinc survey shows, companies are hardly mapping their supplier networks. Lacking comprehensive information about suppliers hinders risk anticipation and a quick vendor change when needed.

Production centers: The establishment of geographical zones that specialize in manufacturing industry specific or product related parts might be practical and cost-efficient. However, where do companies alternatively source those unavailable products if those zones or regions are troubled in any way affecting the supply of goods?

So, what can be done to strengthen supply chains and make them disaster-proof for the future? In the following, we will look at two possible areas for supply chain improvement in terms of reducing the impact of major disruptions, one being global supplier acquisition and management and the other one digitization of supply chains.

Digitalization of supply chain
Supplier acquisition and management

First, doing a comprehensive assessment of your suppliers prior to onboard them is highly recommended to minimize the risk of being negatively impacted by either your direct suppliers or their suppliers in the future.

Then, even though it is resource and cost intense, proper supplier mapping seems indispensable for adequate supply chain protection. It provides companies full visibility on their partners’ network including Tier 1 and Tier 2 suppliers. By revealing just-in-time information such as which suppliers, facilities, goods, and items could be at risk, enables a company to take appropriate decisions whenever necessary. It is always crucial to closely monitor possible challenges associated with suppliers to keep a complete overview of the supply chain.

In addition, several alternative vendors in different geographical regions of the world should be identified and onboarded to avoid dependency on a few suppliers only. By expanding the suppliers’ pipeline, companies ensure to always have a supplier to turn to in case of emergency. Enterprises should also consider implementing dual sourcing for crucial parts to further mitigate the danger of disruption.

Digitization of supply chains

Digitization is widely innovating industries by automating and accelerating internal and external processes and utilizing data to provide visibility and reduce inaccuracies. Without digitization it will be nearly impossible to establish an end-to-end robust supply chain enabling comprehensive efficiency enhancement within the industry. The good news is that new supply chain technologies are already being developed using existing tools including Blockchain, Internet of Things (IoT), artificial intelligence, automation and robotics, as well digital supply networks (DSNs).

While all of these are highly relevant and expected to make profound impact on transport and logistics management, we want to underline how DSNs can contribute to disaster-proof supply chains. A DSN connects virtually all parties involved in a supply chain ecosystem via a handy online platform. By sharing, analyzing and viewing fundamental information and data, real transparency and effective communication flows along supply chains are enabled. This way cooperation between sellers, buyers, suppliers, freight forwarders, transportation hubs such as ports and airports, can be massively improved and appropriate decisions such as changing suppliers, shifting volumes or changing transport routes can be taken based on facts and in real time, critical in times of stress and shortages like during the COVID-19 outbreak.

The shift from a traditional supply chain to a digital supply network

Digital supply networkSource: Deloitte analysis

But even though the benefits of proper supplier management and supply chain digitization seem obvious, still very few companies are practicing them in their organizations or are using other existing or emerging technologies. In fact, the logistics and transportation industry lacks significantly behind other sectors in terms of digitization, as below visual shows. Considering that the graphic is from a few years back, it might not fully represent the situation today as the logistics industry has indeed caught up in recent years. However, digitization in the transportation and logistics sector is still not as developed as in other industries.

Digital disruption in the logistics industrySource: BCG analysis

A survey among nearly 200 supply chain professionals from various industries based in the US found that 58% of participant are still evaluating the benefit of digital transformation. And Forbes Insights revealed that 20% of logistics and supply chain management companies partner with IoT providers to accelerate their digital transformation journey. And only 10% of logistics companies would describe their data processing and analytics capabilities as advanced.

However, with the current COVID-19 crisis and devastating consequences for global supply chains, companies involved in the logistics and supply chain sector must urgently rethink their digital strategies and push them forward. The real impact of the coronavirus outbreak yet needs to be revealed once the disease will be successfully contained. But it is already clear that the consequences for global business operations and the overall economy will be disastrous. While it is impossible to avoid similar events in the future, companies can still prepare for them in order to limit the negative impact on their businesses. Having said that, COVID-19 should be a wake-up call for supply chain operating companies. Instead of going back to business as usual once this crisis is over, they should eventually initiate integrated supplier management and the digitization of their supply chains. It will significantly help them to become more resilient and resistant to challenges enabling them to deal with the unexpected much better than today.

At RSA Global, we aim at becoming 100% digital by 2021 and have recognized the urgent need for a globally connected supply chain network for our customers around the world supporting them in their digital journey. Ambitiously, we are developing our inhouse DNS enabling our customers to manage their supply chains digitally in one place. By obtaining quotes on demand, comparing them with market rates, connecting with freight forwarders around the world, communicating instantly with stakeholders, tracking shipments and staying up to date on industry news, their supply chain visibility and flexibility will immensely be enhanced and existing challenges minimized. And that is what we are here for, to solve challenges for a better tomorrow!

Stay tuned for more information on our digital supply chain network which will be launched this year.
x WhatsApp us about your business inquiry