Addressing the supply chain challenge is the biggest problem associated with Covid

Robin Nicholson
Director: Corporate-911

The Covid-19 Pandemic has presented South African retail businesses with two distinct challenges: managing the Government imposed lockdown (and different iterations of it that have been implemented, and then lifted since March 24, 2020), and the global supply chain challenges.

A lot has been written about the different strategies that retailers can adopt to address the lockdown challenge, these include digitising business models and transforming physical retail spaces into distribution centres. Omnichannel business models is definitely the future of retail.

But what happens if you don’t have a product to sell? There are reports of massive backlogs at South African ports of hundreds of containers that are not being processed efficiently enough. There are also reports of long delivery lead times as containers have to come from China via Singapore, via the Gulf of Aden, via Mozambique before they even reach South Africa.

I recently read reports by DSV, a global leader in logistics, and EY that details the global supply chain challenge and how to address it.

Why supply chains are important
The DSV report points out that, as the backbone of modern businesses, supply chains are an integral part of globalisation. How companies’ source, manufacture, deliver, and return goods has evolved greatly over time.

Enabled by a plethora of technological developments, global supply chains have never been more complex. However, at the same time, they have never been more efficient. As the complexity and challenges of extended global networks rise, some shifts in supply chain design have already been witnessed. The Covid-19 Pandemic has highlighted the urgency of evaluating the implications of supply chain designs and has forced companies to accelerate decision making on future supply chain design and execution.

The report adds that there have always been disasters, and mankind has always had to deal with them. In recent decades, companies have learnt to confront shocks triggered by manmade disruptions and natural disasters. The concept of 3R (resilient, robust, and responsive) Supply Chains is already well established, but Covid-19 has put this concept to the test. The evidence is that many supply chains have not passed the test.

Port congestion is becoming a major issue
Photo By: ELEVATE via Pexels

The challenge
The report points out that since Covid-19 emerged, the world has witnessed stringent government measures including lockdowns and travel restrictions, to slow down the spread of the virus. As a result, and due to the Covid-19-induced economic shocks, the world’s GDP has declined dramatically. An early report by Accenture in March 2020 suggests that 94% of Fortune 1000 companies had already experienced disruptions triggered by Covid-19, with 75% of them having been negatively affected.

Covid-19 has revealed the fragility and weakness of global supply chains – how vulnerable established networks can be to unforeseen disaster-induced shocks. Unlike other disasters though, what we currently experience is geographically unconstrained and deeply hurts all aspects of sustainability. Indeed, some authors argue that when combined with existing political and environmental headwinds, Covid-19 may deal a fatal blow to global supply chains.

The report adds that the current situation might be an excellent opportunity for companies to review their set-up and strategies to build better supply chains. Valuable lessons emerge from this exercise to prepare companies for the post-coronavirus economy.

Negative impacts
The supply chain challenge has had a significant impact on all industries.

A report by EY points out that some sectors were hit particularly hard. Respondents to a recent EY survey points out that all automotive and nearly all (97%) industrial product companies said the pandemic has had a negative effect on them.

In addition, 47% of all companies reported the pandemic disrupted their workforce. While many employees were asked to work from home, others — especially in factory settings — had to adapt to new requirements for physical spacing, contact-tracing and more personal protective equipment (PPE). Industrial products and high-tech manufacturing companies are investing overwhelmingly in technology to reduce employee exposure to Covid-19 in more labour-intensive industries. These are just a few examples of changes affecting supply chains across various sectors.

The global shortage of container ships seems to be lifting
Photo By: Martin Damboldt via Pexels

The future of supply chains is digital and autonomous
The EY report points out that the pandemic has indeed accelerated many pre-existing trends, and supply chain is no exception.

Sixty-four percent of surveyed supply chain executives say digital transformation will accelerate due to the pandemic. The race is on for digital enablement and automation: 52% of executives say that the autonomous supply chain (robots in warehouses and stores, driverless forklifts and trucks, delivery drones and fully automated planning) is either here or will be by 2025.

However, simply utilizing digital technologies does not equate to creating a digitized, autonomous supply chain — it also needs connected supply chain technologies across planning, procurement, manufacturing and logistics that work beyond the organization’s four walls. It’s the difference between doing digital and being digital.

The EY report adds that, with 61% of respondents to the EY survey saying they will retrain and reskill their workforce in the next year, there will be efforts to help workers use digital technologies, adapt to changing company strategies and ways of working like increased virtual collaboration, and assist people in operating equipment with health and safety in mind. Top workforce measures identified in the survey include increased automation (63%) and investments in artificial intelligence and machine learning, with 37% of respondents already deploying these technologies and another 36% planning to use them soon.

It may be safe to assume that because of COVID-19, companies put their sustainability goals on hold in order to manage through the pandemic. The survey found just the opposite — 85% are more focused on environmental and sustainability goals (ESG). With investors seeking information on a company’s ESG performance, employees wanting to work for companies with sustainability built into their mission statements, increased customer expectations for sustainability and increasing regulation from various countries, sustainable supply chain practices no doubt are here to stay.

What comes next?
The EY report points out that, from the research, we see that 60% of executives say the pandemic has increased their supply chain’s strategic importance. Accordingly, enterprises urgently need to design a supply chain organization that will fit the new digital and autonomous-focused era.

The supply chain of the future will need to be agile, flexible, efficient, resilient and digitally networked for improved visibility. Organizations, therefore, should focus on five priorities for recovery and beyond.

It is my suggestion that BRPs should tailor their advice to focus on the following:

  • Reimagine the strategic architecture of your supply chain

Rapidly redefine your supply chain strategy and alter global trade flows, considering new trade agreements, country incentives and omnichannel acceleration.

Reimagine your supply chain operating model — what work should get done locally, regionally and globally, including warehouses and manufacturing sites. There are considerable tax implications here, and a new model can also help you prepare for future disruption.

  • Build transparency and resiliency

Improve disruption response with real-time visibility and monitoring of your end-to-end supply chain, as well as performing scenario planning and simulations.

Review your supply chain footprint. Do you have alternate sources of supply established? Are you ensuring you do not have vendor or geographic concentration?

  • Extract cash and cost from your supply chain

Drive a step change in your supply chain cost structure and working capital profile by focusing on SKU rationalization, procurement spend reduction, logistics and warehouse optimization, and manufacturing productivity.

Reduce working capital via supply chain segmentation, refreshed inventory planning parameters and changes in payment terms.

  • Create a competitive advantage with sustainability

The future is a circular economy where there is no waste in your products or manufacturing.

Explore ways to redesign and engineer new products to achieve this circular economy and monitor third-party risk with supplier sustainability assessments across tiers 1-3.

  • Drive agility and opportunities for growth through a digital supply chain

Work towards implementing the digital and end-to-end supply chain across planning, procurement, manufacturing and logistics. This can drive efficiencies and also open new revenue streams.

Realize that companies are using supply chains as an engine for growth and a key differentiator versus competitors.

A long road ahead
Experts are expecting that South Africa will only recover from the economic challenges that are associated with the Covid-19 Pandemic in 2024. During this time, South African companies will be under pressure to manage both supply chain challenges and whatever challenges Government causes with the management of the National Lockdown that we are still in.

This may mean that the number of companies that become financially distressed may increase significantly. It is then up to BRPs to put our best feet forward to play a role in managing this crisis.