As governments continue to contain the global health crisis, living in a post-pandemic world will be the new norm. How will thriving businesses ensure supply chains continue to reach their customers?
It’s a world where global and localized pandemics have been growing in frequency and severity as countries become more urbanized, agricultural practices become less sustainable, and globalization increases exposure to pathogens. Can Global Supply Chains adapt and overcome?
Modern society is very much driven by our ability to get what we want when we want it. We work hard for our money so we can buy goods and services that take care of our ever-changing needs. But what happens when something comes between us and that thing we need? What if we can’t afford it? What if it isn’t available in the stores?
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How Pandemic Threats Change Supply Chains
The first impact is to severely limit supply, especially in countries where the pandemic has struck hardest. As more people fall ill, fewer are available to work at factories, transport goods to storage or retail locations, or otherwise make their presence known in public spaces where interactions between customers and suppliers occur.
These places slowly start getting noticed by consumers until it becomes clear that they aren’t carrying any of the same products they were last month – if they’re open at all anymore.
Soon afterwards, all businesses having anything to do with shipping or storing perishables go offline completely.
Impacts Up the Chain
How a business reacts to crucial shortages is important. A big business may have the capital and power but they tend to be bureaucratic with slow response time to fast moving changes. Small business tend to have less capital but are more flexible, they can adjust faster because of smaller operations of scale, however they are much susceptible to chain supply disruptions.
Smaller manufacturers who rely on retailers to keep their products visible in stores. As more and more of the shelves go empty, businesses will eventually begin simply ending contracts with these manufacturers and replacing them with larger suppliers that can provide greater quantities at lower prices.
This would accelerate a trend towards consolidation where smaller firms with little or no working capital become unable to compete and are forced out of the market. No one is sure what effect this will have on the rest of the economy but many believe it’s unlikely to be good as more people join the ranks of unemployed or underemployed workers.
The Concept of Global Supply Chains
The idea behind global supply chains is to create value or competitive advantage through partnerships. The hope is that by increasing efficiency, sales will go up while costs stay down; if either supply or demand goes down (be it due to a pandemic or other change), there are enough links connecting both sides that the system can adapt and stay functional.
When many think of supply chains, they envision a simple process: X company makes product Y while Z company distributes it to consumers. In this final step, the product has been sent from one warehouse to another until it reaches a store where someone can purchase it.
This is called a push model because one entity pushes the whole chain through their hands; there is no feedback loop and if anything goes wrong the only thing that can be done is to stop pushing until everything recovers.
The problem with such an approach is that when bad things happen (lines get long or employees fall sick) inventory piles up at multiple steps in the chain and nothing moves until everyone gets better or orders are cancelled.
No matter how effective a supply chain is, there is no way to absolutely guarantee that prices will stay low or that the product will always be delivered on time due to external factors that the chain supply can not manage eg. the Ever Given container ship blocking of the Suez canal in March 2021
An effective chain supply partnership will help mitigate some of those effects and reduce the impact of changes in demand or availability by creating an interconnected network between producers and consumers designed to keep everyone supplied.
Spotting the Weakest Link
What is needed, the theory goes, is a better model where problems are noticed quickly and dealt with before they become crises. A feedback loop must be created so that inventory levels can be constantly monitored at each step in the process so there are no surprises.
Each link should not have to depend 100% on the next one because if something fails then it might take several others down with it too. Instead, there needs to be enough redundancy built into the system that even when everything else fails, some links keep supplying value until consumers can find replacement goods or inventories are replenished.
Just a few decades ago, such a reactive system might have been impossible to implement in short time scales spanning multiple times zones and geographic locations. A small number of producers and distributors could not be linked directly to homes of millions of consumers without slowing down the process too much for it to be practical.
The development of inventory and logistics database technology has changed that, however; rather than having physical inventories in every location they work with, companies are now using cloud-based virtual warehouses which allow them to see what is available throughout their network at any given time.
Rather than managing thousands of distinct products, each company only has to keep track of the product components they are responsible for making or importing into the country where they are located. This reduces unnecessary efforts by overworked logistics employees while increasing transparency for customers.
Building Chains
Whilst large companies may have the internal infrastructure and capital to build and manages these technologies, they are not the only ones who stand to benefit from them. Small or medium-sized manufacturers and sellers have access to virtually the same technology by working with globally experienced one-stop providers of designing, assembling and packaging and final delivery to the major distribution centers – which is increasingly becoming a requirement in order to get their products onto shelves in big-box stores or into online warehouses like Amazon’s.
Companies of all shapes and sizes benefit from global supply chains because they allow them to access new markets and opportunities for expansion or contraction as necessary. They also allow smaller companies to more easily work with larger ones, and allow a global economy of trade that leads to increased prosperity for everyone on the planet. They are becoming more prevalent as the threats of pandemics increase, and will continue to be a necessity for the future.
Related Article: How to diversify your supply chain while minimizing costs and maximizing product quality
Conclusion
Global supply chains are now a necessity rather than an option for companies, especially those who want to compete on a global scale. They offer people access to goods they might otherwise not have, and contribute to the prosperity of the global economy.
However, they are not without their problems being complex and unwieldy to ensure that they are able to continue into the future. It is up to leaders in industry to develop more sustainable and responsible practices by working with partners in supply chain development and management
Related Article: Pandemic inflation & its effects on hand & power tool industry