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Key Trends Transforming Supply Chain During Pandemic

SCAND
Custom software development company headquartered in Minsk, Belarus.
・12 min read

The Coronavirus outbreak has hit most of the global industries and drastically changed the B2B and B2C marketing strategies. It started with a supply chain shock in China in December 2019 when one of the top global economies experienced a pervasive production halting in industries. This resulted in the limited availability of goods supplied by China. And continued with a global demand shock. Nations had to adapt to unprecedented restrictions on travel and had to buy goods for several weeks ahead to survive during the lockdown. All these issues have revealed vulnerabilities in production strategies and supply chain work around the globe.

The Covid-19 crisis isn’t over yet. Countries are trying to restart their economies and many businesses around the world are experiencing much pressure due to supply shortages and trade restrictions. To adapt to the new conditions and stay competitive in the market they need to review their supply chain strategies and seek ways to make them more resilient and flexible. In this article, we look into the state of the pandemic supply chain network and the future of supply chain management.

How the COVID-19 Pandemic Disrupted Global Value Chains

Nowadays, products are rarely manufactured from local raw materials or intermediate goods only. Most of the time businesses import them from other countries and locations. The world became deeply interdependent and it heavily relies on the established global value chains (GVCs). China is a substantive economy that forms the basis for GVCs. It provides world economies with high-value products and components and at the same time is one of the major consumer marketplaces.

The Coronavirus outbreak in 2019 has shown how fragile the GVCs are, causing an immense production drop around the world.

The decline started in China in December 2019, industrial production fell by 13.5% in comparison to 2018, imports decreased by 4%, and export reduced to 17%. As a result, many countries around the world couldn’t import vital production parts. Their electronics, textile, and computing manufacturing sectors slowly started lacking materials.

Along with the global economic drop, the Coronavirus disease was spreading. From country to country lockdowns led to massive factories and markets closure and drops in consumer demand, resulting in the ‘second shock’ wave. It spilled over investments and resulted in a global 30-40% reduction of foreign direct investments (FDI), capital outflows from the emerging markets amounted to $83 billion, and over 80 countries requesting emergency financing.

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In these pandemic conditions, nations have to unite and work out a coordinated response to the emerging heavy global economic crisis. For this, countries have to rethink their economic models and supply chain strategies.

For example, in pre-pandemic times the main outsourcing aims were operations optimization and cost minimization. However, in Covid-19 and post-recovery times businesses have to focus more on possible risk assessments, suppliers’ diversification, supply chain digitization, and other tactical moves.

Looking Beyond Recovery

The pandemic crisis, changes in consumer behavior, and disruptions of supply chains easily bring disbalance to companies. It has become clear that they need to opt for agile working strategies and transform their supply networks. The world-known analytical companies develop strategies on how companies around the globe should behave to overcome the crisis, including occurred supply chain issues.

For example, Deloitte has produced its report on supply chains in its Respond, Recover, Thrive series on pandemic recovery. In this report, the company examines how various businesses can review their supply chain strategies and get back to the norm.

Having analyzed the lessons learned with the pandemic the Deloitte company has defined the following supply chain development trends:

  • ability to recognize timely shifts in customer demands, business * operations and tech, inner processes, and workforce;
  • making your business thrive while performing these shifts;
  • positioning your business to thrive by taking the tactical steps and preparing your organization to prosper.

While all the consequences of the Covid-19 pandemic are still uncertain, the shifts in customers’ values, buying behavior, and how businesses should operate to meet their requirements have become more defined.

Shift of customer behavior and values

To provide seamless and on-demand services businesses will have to build stronger collaboration networks. This will involve extensive customer data exchange and building complex data exchange channels. They should eventually substitute isolated channel strategies.

This tendency will spread over B2B clients as well. They will expect specially tailored for their companies services, seamless order processing, billing, shipment tracking, and others.

Another point to consider is the improvements businesses should perform in serving connected customers. The post-pandemic world will expect the same and higher level of e-commerce services preferring them to brick and mortar commerce. For this, companies will have to build a strong IT infrastructure to stay competitive and enable self-service, order placement, and goods tracking.

Establishing trustworthy and coherent supply networks

It’s been for some time that supply chains are slowly embedding digital technologies in their structure. Now, to establish highly-connected and trusted supply chains businesses need something more than just random digital transformations of parts in their value chains.

With Digital Supply Network (DSN) model supply chains will become entirely digitalized structures. They will ensure end-to-end supply visibility, agility, responsiveness, collaboration, and optimization. This will help to mitigate possible negative impacts on the supply chain ecosystems, making these connections more resilient in the future.

To build DSN supply chains, companies will have to interconnect the existing digital tools and their infrastructures, and data streams. It’s possible to do this by combining the most advanced digital technologies, including the Internet of Things (IoT), cloud computing, 5G, Artificial Intelligence (AI), Machine Learning (ML), and robotics.

IoT, cloud computing, and 5G connection will form the base for data storing and exchange, whereas AI and ML will accurately process, visualize and control data streams. All these will result in better logistics, precise goods tracking, improved efficiency and safety at all the nodes of the supply chain, and a significant reduction in expenditures.

Building resilient, cost-efficient supply chains

While businesses and commerce are striving to expand globally, supply chains have always had a tendency to get more regional to satisfy the local demand. After the pandemic, the trend has become even more customer-oriented and near-shoring. In these conditions businesses still have to expand their supply sources outside one country or a region and get a better understanding of their ecosystems.

For this, businesses can implement the latest technologies to better analyze and optimize their supply chains, becoming closer to their remote customers, building stronger infrastructure, better estimating disruption risks, adapting their policies to the local laws and regulations, and others. Although this analysis may seem overwhelming, it can help businesses strengthen their supply chains. As a result, they will depend less on the weather conditions and suffer less from poor services or high costs.

Adapting supply chains to new working conditions

The Covid-19 pandemic has proved that a wide range of employees can do their work remotely in various spheres. The experts forecast that workforce and workplaces will continue to shift to a remote working style. This will result in faster adoption of digital tools.

For example, Deloitte states that in Transport and Logistics 24% of workers could move to remote format.

This trend spreads beyond the traditional office work borders. Even manufacturers involved in heavy industries can perform their data management remotely, therefore, increasing their operational efficiency. Shifting to remote work results in an extensive implementation of tailored enterprise applications that include AI, ML, robotics, autonomous driving, computer vision and natural language processing, and other solutions. And the change is already evident, Statista says that IT spending on enterprise software worldwide has doubled from $456 billion in 2019 to $95.4 billion in 2021.

How Should Companies Address The Challenge?

The pandemic has brought plenty of challenges and increased competition. Now, it’s clear that those companies that want to thrive, from now on need to reconsider their supply network chains and strategies and empower them with digital solutions.

Before taking any action, managers need to realize the vulnerabilities of their businesses and then formulate a clear plan on how to tackle each problem. Here are some practical steps they could take.

Identify vulnerabilities

To understand the possible risks, businesses need to track their supply chains, including distribution facilities and transportation nodes. Though the process is lengthy and time-consuming, this can help to avoid sudden chain disruptions.

During the tracking process and mapping all the suppliers, businesses can divide them into various risk categories, from low to high. It should also involve other metrics. For example, the impact on production and revenues in case a particular source is lost, the time needed to recover the supply chain disruption, availability of alternatives.

The answers to these questions are defined by businesses’ manufacturing capacity, flexibility, the difficulty of the performed operations, and others.

Expand supply base

Once a business knows its sources it has to identify the level of dependency on them. They can be divided into categories from high-risk sources to low-risk. For example, the recent trade war between the US and China forced US businesses to search for alternative suppliers. This way, they involved other Asian countries such as Vietnam, Indonesia, and Thailand into their supply chains.

Besides that, companies should also consider the region and proportion of the goods they consume. For example, Instead of solely relying on China, some US businesses could consider Central America and Mexico as a viable alternative. Chinese companies are already looking to Egypt, Ethiopia, Sri Lanka, and other labor-intensive countries to protect their shares on global markets.

However, it’s hard to substitute Chinese markets 100% in the US, there are still some alternatives where goods are even easier to obtain than in China. For example, electrical machinery and parts can be imported from Brazil, Vietnam, and India, furniture and parts from Mexico, apparel and clothing from India and Bangladesh, and many others.

While shifting production from China to other countries can ensure supply chain safety, businesses can face some new challenges. For example, the new production spots can have hard-to-reach locations or insufficiently developed transport infrastructure, like transport lacks or absence of high-capacity ports that can handle large containers. Therefore, businesses won’t be able to completely cut-off China from their supply chains.

Establish safety stocks

Another step businesses should take is to analyze how they manage their stocks. It may happen that alternative suppliers won’t be able to make timely delivery of goods. Therefore, companies should calculate if they can hold any extra stocks – how long they can hold these stocks and in what form. Besides that, they need to consider the risk of their obsolescence.

The immediate unavailability of goods supplies resulted in an alternative to just-in-time shipment practice. The advantages of implementing this alternative practice should be weighed against the sudden spendings caused by supply chain disruptions and revenue loss.

Empower supply chains with digital tools

The Covid-19 crisis has revealed that supply chain digitization is no longer optional. Those companies that used digital solutions in their business strategies were more prepared for it. They managed to remain in contact with their clients and quickly reorganize their selling strategies by switching to goods delivery to customers’ doors. Moreover, those companies could easier estimate their stocks and better prepare for possible commodity shortages.

The entire digital transformation of supply chains is still at its early stages. Businesses apply software and apps only partly to their supply chains. Total digitization of supply chains includes deep interconnection between various fragmented systems such as Application programming interfaces (APIs), Electronic data interchange (EDI) technologies, logistics, order management, inventory management, supplier management, and other software.

Fortunately, IT companies are ready to respond to the challenges brought by the pandemic. They help businesses to empower their supply chains with the most effective software that involves AI, automation, blockchain protection, and data analysis.

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The IT supply management services allow companies to:

  • use predictive analytics for forecasting and planning their demand/ supply volume and distribution probability by analyzing the variability that influence the demand, e.g. social network trends, workload of delivery routes, and others;

  • implement procurement management systems for logistics and sales management, suppliers and customers tracking, advanced data analytics, and others;

  • use supply chain enterprise applications for greater visibility into operations and tracking their performance. These apps can monitor and identify the deep-rooted causes of downtime and low-performance and automatically fix them, e.g. activate an order reshipment or change settings to improve the delivery speed;

  • manage orders with apps that can re-plan orders in real-time, automate order placement, provide improved feedback on the state of the order, reduce supply costs by providing no-touch order processing;

  • track and manage inventory with inventory management systems, e.g. using RFID or barcodes allows keeping all the inventory in one place, timely restock, track product expiration dates, and much more.

Positioning the Organization to Thrive

Major breakthroughs in vaccine developments have brought some optimistic views on the recovery of the global economy and supply chains. However, it’s hard to predict how long the pandemic will last and if it’ll bring more economic disruption. One way or another businesses will still have to strengthen supply chains, ensuring their resilience against any future global crisis.

Manufacturers and retailers have to realize that reestablishment of disrupted supply chains isn’t a one-time action. From now on traditional business approaches don’t work anymore. Companies have to carefully develop their new strategies and aim at long-term investments into reforms of their supply chains and adaptation of their businesses to the post-pandemic world.

Deloitte company suggests businesses a three-step strategy that will help them to prosper in after-Covid times. These steps involve:

  • making the supply chain an integral part of the corporate strategy;
  • implementing digital solutions to empower the corporate strategy;
  • identifying the means a business needs to translate chain transition into action.

Making the supply chain an integral part of the corporate strategy

Businesses that have access to global markets have to quickly predict and adapt to the emerging changes. These changes are not restricted to only possible pandemic crises but also involve unexpected market changes and emerging disruptive supply chain technologies.

In the context of increasing complexity and quickly rising customer expectations, companies have to quickly respond to these challenges. For this, they need to unite their business and chain supply management strategies and develop them in a tight link to meet their business’s commercial needs. This way, they will manage to improve their customer services, reduce delivery expenses, and build stable and flexible supply chains.

Implementation of digital solutions to empower corporate strategies

Several years ago it was enough for a business to have standard planning transportation, resource, and inventory tools to satisfy the needs of the market. However, fast-emerging technologies have significantly changed supply management approaches.

Now, technologies are used not only to automate delivery stages but to analyze business data and provide business owners with new insights. For example, the implementation of AI and Big Data could indicate how to upgrade and improve business and supply chain strategies while cloud-based solutions can help to store the accumulated data and quickly share it among stakeholders.

Identifying the means a business needs to translate chain transition into action

When introducing reforms to their businesses, companies won’t be able to switch to new strategies at once. They will still have to roll back to the pre-pandemic working style. While implementing digital solutions, business owners will still have to strongly rely on their employees. Therefore, they have to carefully consider which skills their workers should possess to perform current operations and which skills they will need to obtain to transit to a new system.

Predictions for Supply Chain Technology

While some companies are only beginning to pay attention to their supply chains, others are already actively taking their steps in supply chain renovations, including their digitization. Statistics on implementation of digital solutions to supply chain upgrading backs up the necessity for reforms.

Gartner states that in 2023 the demand for robotic goods-to-person systems will increase four times to maintain social distancing in warehouses. And by 2024, 50% of work in factories will be performed remotely with the help of Augmented and Virtual reality (AR/VR) and robotics. Besides that, about 50% of supply chain organizations are expected to invest in AI and advanced analytics to produce extensive amounts of data.

Apart from the expected innovations, some technologies are already widely used for supply chain management. For example, in 2019, 59% of supply chain professionals notified Statista that they have adopted cloud computing and storage in their industry.
And even more companies are expected to adopt the technology. PWC states that in the Covid-19 crisis, spendings on cloud solutions rose by 37% during the first quarter of 2020. And Gartner predicted the rise of cloud services from $257,549 million to $362,263 million in 2022.

Starting from 2020, more and more companies have been investing in the development of customized apps. They provide business owners with advanced analytics and automation, improving visibility, flexibility, and sustainability of their supply chains and businesses.

Conclusion

In 2019 global economies faced an unprecedented crisis caused by the Coronavirus disease. It started in China and quickly spread around the world causing global market declines and disruption of supply chains. In 2021, businesses continue to suffer from the pandemic consequences, however, they started to find ways to overcome the crisis.

It has become clear that in the future, successful businesses will have to invest not only in their product innovation but also in the development of their supply chains. Traditional supply chain and business management won’t work in the post-pandemic world anymore. Companies need to make them more flexible and resilient to potential disruptions.

For this, businesses need to perform a deep step-by-step analysis of their supply chain technologies and systems, diversify their product suppliers, and implement digital solutions to all the parts of their supply chains. All these methods are rather time-consuming and require much preparation and screening. Therefore, companies should be ready for far-reaching reforms and long-term investments.

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