How the Pandemic has Changed Supply Chains

The COVID-19 pandemic has changed just about everything in terms of business. From transit to transport, the aftermath of the Coronavirus has left many businesses struggling to keep up.

The supply chain has experienced similar shifts in structure and organization as well.

A supply shock started in China in February 2020 and carried over to the rest of the world. The massive production of materials coming from the country was halted after the outbreak in Wuhan, stagnating the global trade circuit.

Suddenly, companies that had been running goods nonstop for decades were brought to a grinding halt. Among the supplies that the virus slowed were pharmaceuticals and vital medical supplies. Governments put temporary trade restrictions to prevent the spread of the pandemic, further slowing international commerce.

So, just how different is the supply chain? How will this new pandemic supply chain affect global business? This article will describe those changes in detail. We’ll also advise companies on how to adapt to the new world post-pandemic.

What is a Supply Chain?

Regardless of what business you run, you need a supply chain to operate. It involves the exchange of goods and services between people and companies to create a product. The chains can be global or local.

Typically, they involve importing raw materials into a business to refine into their specific good or service. For example, if you run a massage parlor, the Chinese company you buy your massage oil from would be a part of your supply chain.

However, supply chains don’t just involve shipping materials or goods from one place to another. They also require the transport and exchange of information and activities. Certain businesses will need up-to-date intel on their product or the market to function properly. In this case, that information would also be a part of their supply chain.

A supply chain ends with the customer. Your ability to create the product or service they are consuming and how fast you can deliver it is also a part of the supply chain. If your goods are recyclable or reusable, then that is also a stage of the chain.

Companies Need to Make Their Supply Chains More Resilient

The pandemic showed us that there’s no such thing as a supply chain that is too resilient. Natural disasters can and will occur, and taking preventive measures is only going to become more commonplace.

Companies need to consider supply chains that give them the ability to produce their products locally. In most cases, this is more expensive than using a manufacturing country like China. Companies will be faced with a decision of cheaper production costs or preparation for inevitable disaster.

However, localizing everything is impossible. In today’s world of complex products and markets, it’s rare to find a company that can handle every production stage on its own.

For example, suppose you own a talking toy company. You might assemble the products and make the plastic molds, but it’s unlikely that you can process the microchips which allow the toy to talk.

When faced with this situation, companies will turn to manufacturers that are reliable over competitive ones. You’d be more likely to do business with a microchip producer in Japan that is stable than a factory prone to strikes in Taiwan.

Companies will also diversify their suppliers to mitigate this risk. Instead of having one business partner supplier, they will have several who they can contact for orders at a moment’s notice.

You’ll also have to consider the diversity of suppliers individually. Putting preference on suppliers that operate in multiple countries in multiple factories is safer than one country and one factory in case that region begins to run into disasters.

Governments and People Will Insist on More Domestic Production

The trade war between China and America has given birth to a new era of economic nationalism. Economic nationalism involves governments and people putting preferential treatment on domestic business to grow their economies and achieve a better society.

The most radical part of this ideology is that it favors state intervention over traditional market forces. While economists of the past may have raved about the powers of the invisible hand, now they’re much more concerned about things like outsourcing, which makes markets uncompetitive. We saw major waves of this happening in the United States when two of the country’s wealthiest companies, Apple and Microsoft, switched most of their manufacturing processes to Asian countries.

It’s becoming much more popular to hold companies accountable for this switch and insist on producing in their home country. Especially since most of their products are purchased in the U.S. Residents of these countries want to know why their job market is being passed up in favor of China.

The pandemic increased these tensions even more as job loss spiked domestically. 20.6 million jobs were lost during the Coronavirus in the U.S.A., and this led to more negative opinions about outsourcing. Not to mention that the virus started in China, which left many (while their conclusions aren’t very scientific) blaming China for the recession.

Companies will at the very least have to handle this situation on a public relations level. They need to clarify that they still offer careers domestically and that outsourcing production keeps costs lower.

If governments begin to implement new laws, it will be exceptionally costly for everyone involved. Means of production will have to be recreated domestically at a much higher cost for both labor and construction.

Companies Will Need to Be More Aware of Their Vulnerabilities Than Ever Before

What was thought to be an impenetrable fortress has proven to be quite penetrable. Global trade has many flaws, and companies will begin to look for these mishaps and over-reliance as a means of protecting themselves from unforeseen disasters.

The first thing people will do is map their whole supply chain. From grass seed to McDonald’s hamburgers, companies will know every step it takes to make their product so they can adequately defend those steps. They will identify distribution facilities, transportation hubs, and much more.

This process can get very costly, so some may only focus on direct suppliers. Others may keep tabs on the market as a whole, tracking for things like disease, strikes, droughts, and famines. After they map their supply chains, they will categorize different steps on the chain based on their level of risk.

To properly assess risk, companies will need to evaluate the money they’d lose if a problem occurs, how long it would take to fix this link on the chain, and how many alternatives are available. If possible, high-risk links on a pandemic supply chain should have a solid plan B if everything goes wrong.

That’s why post-pandemic supply chains need to be incredibly flexible. Companies will remove the rigidity from their inventory and business contracts so they can adjust on the fly when necessary.

Switching the Way You See Inventory

The biggest risk of a supply chain is that one link will break and stall production. Companies will need to upgrade their inventory capacity (either finished products or raw materials) to accommodate these shifts. By upgrading inventory space, you can keep your company afloat even if the supply chain is interrupted.

This type of extra inventory is called safety stock. Many companies do it. It means that you will hold additional items from high-risk links on the supply chain so you can keep production moving if the chain is interrupted.

Before the pandemic, safety stock wasn’t as common because of the free flow of commerce. Companies counted on their regular sales and supply chains and only produced as much as their sales numbers projected would leave the shelves.

Companies had to be careful about holding excess stock because it could freeze cash flow. If you invested in producing a larger amount of products than you’d be likely to sell, you’d have less liquid finances to shift around.

This shouldn’t be a problem for massive companies, but smaller businesses can get crushed by holding too much inventory. In the past, companies relied on quick restocking and lean inventory to maintain as much cash flow as possible. Now, they will have to weigh the risk of a supply chain crash versus holding too much stock.

This is just one of many resilient inventory processes. If you’re going to keep a very large inventory, you need an accurate system for cataloging the items in your warehouse. Lost items will only result in lost money and will be counterproductive to keeping a large inventory.

One way to avoid long inventory counting processes is through cycle counting. Instead of logging each item individually, you’ll use a sample section of the warehouse. The totals you find from that section will help develop an image of the entire warehouse’s inventory.

New Innovations for Supply Chains

There are several innovations you can utilize for modernizing your supply chain. If you’re moving locations, you can ask your suppliers to move with you. Otherwise, you can shift some production to in-house facilities.

When creating these new processes, you can reanalyze your supply chain in favor of new technologies. Automation is growing everywhere. There may be certain aspects of your business that you can automate.

These technologies are even more relevant now that we know how a pandemic can devastate a workforce. What was once just an innovative way to save money can now keep your factory functional even when you have to send all your employees home to flatten the curve. Beyond automation, you can also try new processing technologies like 3D printing and continuous-flow manufacturing to further your business’s development.

Conclusion

As the world changes after the COVID-19 pandemic, the world of supply chains will change as well. Companies should treat the Coronavirus as a wake-up call. Disasters can happen. Is your company’s supply chain prepared for them?