Supply Chain Disruptions Are New Opportunities – LogiSYM October/November 2020
Unlike SARS in 2003, the Covid-19 pandemic has spawned an unprecedented Global health pandemic. No country has been spared – with over 35 million infected people and deaths exceeding 1.0 million. The enforcements of draconian lockdowns, various economies have experienced severe shocks, adversely affecting global trade, global tourism & travel, International Aviation and Airports as well as International Shipping and Ports.
As a result, Global Supply Chains have experienced severe “Supply side Shocks” with massive disruptions impinging on all sectors. SMEs have been hit hard with mounting job losses and financial haemorrhaging.
The ensuing Financial Liquidity and Credit earthquakes were timely mitigated by swift financial rescue operations mounted by Central Banks, with massive Government Fiscal bailouts. In the initial few months Global demand inevitably crashed affecting virtually every industry save for Essential Services.
Supermarkets, food suppliers, pharmaceutical and medical industries were the main beneficiaries. It even took authorities some time to recognise the vital importance of warehouse logistics, supply chain continuity, truck drivers and other transport operators.
SUPPLY CHAIN DISRUPTION—Respond, Recover and Regrow
With governments in crisis management mode, policy priorities pivoted on Saving Lives and Livelihoods. Concurrently Government bailouts prudently extended to all Businesses, to keep enterprises afloat. Many countries even experienced trade restrictions initially as governments were more inclined for temporary protectionism and domestic self-preservation, particularly marshalling food, medicines and medical devices.
Supply chains were ravaged given the almost total failure in the conventional 4 flows in linear supply chains: Information, Physical Goods & Services, Financial and People flows. The demand and supply shocks were humongous, forcing enterprises to institute crash Business Continuity Plans (BCPs) and Crisis Management plans (CMPs).
IMPACT HIGHLIGHTED BY THE CRISIS
Crisis Response – At the outset of the crisis, it’s easier to visualise a horizontal and linear supply chain with the 4 flows disrupted and adversely affecting the Core Supply Chain Functions, of Planning, Sourcing, Production, Distribution, last mile Deliveries and returns management or reverse logistics.
Even vertically integrated Businesses are not spared and such disruptions also magnified inherent challenges associated with the usual highly “silod” supply chains and operations. Saddled with legacy IT systems and minimal digitalisation of SME businesses including LSPs, inordinate supply chain security and operation problems have been experienced during the COVID-19 disruptions.
As governments and businesses emerge from the lockdown, and transition from the Crisis Response into the Recovery and Stabilisation Phase, deep thought has to be given to think about the strategic impact on the Regrowth phase. Vulnerabilities and weaknesses highlighted in the Core Supply Chain Functions must be quickly fixed. Lessons learned must be implemented. Without delay.
This risk of a major second pandemic wave is still a possible reality. Businesses need to be far better prepared in their BCP and Crisis Management planning and execution. Supplier and Customer relationships, must be reviewed and improved to ensure integrity, security, reliability and resilience of the supply chain.
SUPPLY CHAIN OPPORTUNITIES AND CHALLENGES
The opportunities are out there for the taking. The smart operators need to embrace the crucial IT tools, methodologies and Collaboration systems like FTAs.
Arising from the pandemic is risk diversification i.e. reducing sourcing risks from China. In a highly globalised and integrated world economy, China plays a pre-eminent role as a manufacturing heavyweight – the factory of the world representing 17%-20% of world GDP. But the recent pandemic exposed the massive over dependence on China in all sectors of the supply chain.
Several European, American, Japanese, Korean, Taiwanese & Indian business, in many industry sectors, like automotive, aerospace, electronics, pharmal and medical, have experienced supply chain earthquakes. Many are now actively pursuing opportunities to diversify sourcing and reduce the China risk factor. In ASEAN, Vietnam, Thailand, Indonesia, Myanmar and Singapore are reportedly experiencing strong inbound FDIs and capital investments in new production and logistics facilities.
FTAs and Trade Flows
The Trans-Pacific Partnership (TPP) Agreement remains in the limbo. Apart from proactively forging bilateral trade agreements, ASEAN has continued broadening and deepening its Regional Comprehensive Economic Partnership (RCEP) Agreements. Other FTA partners include Australia, New Zealand, Japan, Korea (ROK) and China. Ensuing diversified and dynamic trade shifts will invariably mean shifting regional supply chain opportunities benefiting intra-Asia and intra-Asean economies and businesses. Businesses need to digest and leverage on the various favourable trading terms in these FTAs including the envisaged strong e-commerce growth opportunities.
Supply Chain Technology
Businesses with legacy IT systems and organisational silos, will have experienced major operational, commercial and supply chain disruptions, with unhappy Supplier/ Customer relationships. There is a great opportunity for a strategic re-think in the fundamentals of business models in the light of rapid digitalisation.
Post-COVID planning offers many fresh opportunities for managing IT. Specifically to review and reconfigure the entire end-to-end supply chain from Demand to Delivery processes. Businesses that harness the new and advanced Supply Chain Digital technologies and deploy them in national, regional and global geographies, will perform far better in orchestrating complex supply chain operations.
This can be achieved despite having multiple-tier Suppliers, Partners and Customers responding to unpredictable, real-time, and dynamic demand shifts. Several proven “Control Tower”, Supply Chain Technologies (leveraging on Robotic Process Automation(RPA),Cloud solutions, Internet-of-Things (IOT), Artificial Intelligence, Machine Learning ) have since emerged in the market.
These advanced supply chain technologies have enabled great strides to be made in strengthening the Core Supply Chain functions, adding cost optimisation, efficiencies, agility and most importantly resilience to the list.
There are clearly still major technology gaps in many SMEs and LSPs. Outdated work processes and legacy IT systems need to be jettisoned. Major opportunities exist to transform business models as well as transform supply chains
Human Capital Challenges – While the opportunities for growth and transforming businesses and supply chains are there for the taking, there lies a Herculean challenge. Change management leadership and up-skilling/re-skilling efforts cannot be underestimated.
Organisational learning and motivating staff to retrain and improve supply chain competency levels take an inordinate amount of energy, time and patience. These challenges can be overcome through diligent planning, stakeholder engagement, transparent communications and visionary leadership. Any short cuts to such a change management program are doomed for failure.
The COVID health pandemic triggered unprecedented Global Economic, Trade and Financial crisis with massive global supply chain disruptions. This has aggravated geopolitical and trade tensions between leading economic powers, which are likely to get worse before they get better.
The risk of de-globalisation and re-shoring of supply chains, could adversely affect free trade, will have a significant impact. A pro-active and analytical approach to solve these issues, like SWOT, VUCA and supply chain model simulations, are crucial to the Post-COVID world.
Adapting to the new realities is not an option. Governments and Businesses need to have clear strategies to overcome uncertainties and prevail in the new realities as these unfold in the future.
Conventional 4 flows in linear supply chains: Information, Physical Goods & Services, Financial and People flows.
Information – Information Flows, as in all disruptions and crisis, are always a critical constraint for any organisation whether government or private enterprises. COVID-19 Health Advisory and Policy communication between WHO and Governments on correct health, life saving protocols took several months to stabilise and trickle down to individuals as well as businesses. Businesses had to quickly adapt to fast evolving social distancing practices recommended by governments for workers whether in warehouses, production factories, distribution centres, supermarkets wet markets or F & B outlets for home deliveries. Rapidly changing demand behaviours, including panic buying of toilet paper and toiletries, created havoc as supermarkets in several countries were confronted with empty shelves, inventory stock-outs and uncertain replenishment cycles to meet unpredictable demand. Reliable and accurate demand forecasting was almost impossible. The classical “Bull Whip” effect impinging on intermediate inventory stocking meant havoc all the way upstream to production and supply sourcing until the new buying behaviours stabilised.
b. Physical Goods & Services
Physical Flows of goods and services in the value chain suffered with adverse deliveries and sub-standard services experienced by most customers. This is the consequence of ambiguous, limited, inaccurate and capricious information.
Financial Flows likewise suffered with a sharp fall in Demand, in most industry. Invariably with sales revenues plunging, various business partners and suppliers were not paid on time. This triggered serious cash flow difficulties, bad debts and even business insolvencies. Businesses had to resort to desperate cost cutting and staff retrenchments.
d. People Flows
With severe lockdowns and stay home orders, in the initial Crisis Response phase, forced companies to restructure work shifts, adjusting work process to meet changing demand. Internal team work, resource planning, collaboration, co-ordination and communication, required quick adaptation of BCP and Crisis management responses to minimise supply chain disruptions and meeting customers’ needs.