COVID-19: How to adapt your supply chain for a post-pandemic world

January 18, 2022

Since COVID-19 first emerged in late 2019, there has been constant talk about how the so-called "new normal" will look.

While some speak about this in the context of the COVID-19 crisis coming to an end, the reality is that the "new normal" will be one of continued evolution in our supply chains. Even as COVID-19 transitions - at least as authorities hope it will - into an endemic virus, supply chain disruptions and shocks to the global economy are likely here to stay.

As we saw between November 2021 and January 2022, the emergence of new coronavirus variants can disrupt global supply chains almost overnight. Most recently, the Omicron and IHU variants have proven the most disruptive. Although these variants potentially represent a weakening of the virus and the start of a post-pandemic world, governments may continue to use restrictions and lockdowns to control their spread. This is especially true in countries that remain committed to a "Zero Covid" strategy.

With all this in mind, what adaptations may your business need to make to its supply chain management strategies to minimise future disruption?

How has the pandemic already reshaped supply chains?

Of course, many businesses have already taken significant steps to adapt their supply chain strategies and processes. What's interesting to analyse is the steps already taken, compared to what companies had planned. It's also worth considering how these priorities will need to evolve as we move into a post-COVID - or at least a post-pandemic - world.

A June 2021 study from McKinsey shed significant light on what businesses had planned to do in May 2020 versus what they did in the subsequent 12 months. 

  • 53% of businesses planned to start dual sourcing raw materials; 55% did so
  • 47% planned to increase inventory of critical products to avoid shortages; 61% did so
  • 27% intended to increase inventory more generally; 42% did so

While we can consider the dual sourcing of raw materials a worthwhile long-term strategy, increasing inventory is typically a short-term solution. Of course, the world continued to change between May 2020 and June 2021, with the emergence of the first coronavirus variants of concern bringing shocks to the global economy. As such, it is perhaps no surprise that businesses most commonly looked to enhance their supply chain resilience with short-term solutions.

What’s notable, and perhaps worrying, was the discrepancy in the number of businesses that planned to implement changes but were unable to do so. While coronavirus would have undoubtedly played a part in this, these businesses likely brought themselves under further pressure by not following through with their plans.

Another potential cause for alarm is that a minority of businesses had an eye on longer-term planning, with even fewer of them putting plans into place:

  • 40% of companies planned to embrace nearshoring of suppliers and increase their supplier base; only 15% did so
  • 38% planned to regionalise their supply chain; only 25% did so
  • 30% intended to reduce their product portfolio; only 15% did so
  • 27% planned to expand backup production sites; only 23% did so
  • 15% planned to nearshore production; only 11% did so

With so many businesses, CEOs, and other stakeholders not taking the actions they need to reduce lead times and minimise disruptions and bottlenecks across their supply chains, the post-pandemic world is potentially lucrative for those that do.

How to build and optimise your post-pandemic supply chain

Unsurprisingly, many of the actions you should take to develop your supply chain of the future - one resilient to the emergence of new variants, local lockdown orders, or the need for social distancing on production lines - are linked to those explored in McKinsey's study.

But what do these actions look like in practical terms, and what else should you be looking at to optimise your post-pandemic supply chain?

1. Revisit your risk management strategies

The coronavirus pandemic may have seen you change your approach to procurement and other supply chain processes depending on the goods you sell and how you sell them. For example, if you're an e-commerce retailer, you might have moved to a direct shipping model to help meet consumer demand. Likewise, if you had to make redundancies or redeploy people within your business during the height of the pandemic, you may have ended up outsourcing some processes to cut costs.

On the other hand, if the pandemic opened up new business opportunities for you, you might have brought new suppliers onstream.

Whichever camp you fall into, you must revisit your risk management strategies for the post-pandemic world. 

There are several reasons why you need to introduce robust processes to help you assess and continually monitor risk:

  • If you're using specialist contractors, they will have a very narrow focus, which may mean they're reliant on a small number of upstream suppliers themselves.
  • If you're reliant on a sole supplier for specific components, your risk of experiencing disruption and shortages is even more significant.
  • Suppose you're working with new suppliers and continually adapting in a post-pandemic world. In that case, you need to be aware of factors relating to supply chain sustainability to ensure continuity of supply while avoiding public relations headaches.

2. Identify new vulnerabilities

While identifying new vulnerabilities in your evolving supply chain has similarities to assessing risks, this step will take your analysis deeper and help you decide what actions you need to take. For example, there's little point in sourcing local warehousing hubs to build up a holding of safety stock if the actual problems in your supply chain are elsewhere.

Digging deeper into risk and supply chain vulnerabilities can be time-consuming and financially costly. That's why we see outcomes like those from McKinsey's study. Stockpiling inventory can be relatively easy and allows businesses to justify actions to stakeholders by saying they did everything they could. But, in reality, the longer-term effects of disruption caused by risks that could have been foreseen and mitigated could be far more financially costly and damaging to the entire business.

Many businesses make the most significant mistake in only focusing on direct suppliers or those they spend the most cash on. However, for the sake of your business, you must cast your analysis across your entire supply chain.

Check out our complete step-by-step guide to assessing supplier risk to ensure your analysis is as detailed as it needs to be to identify all new vulnerabilities and make yourself aware of potentially hidden risks.

3. Diversify your product sources

The simplest way to mitigate supply and production risks is to diversify your product sources. This means finding suppliers and producers not exposed to the same risks as those identified in your risk analysis.

For example, since 2018, the US-China trade war has led to many companies embracing a "China plus one" strategy for their supply chains. This means they still use their usual supplier in China but spread some production to another country, often in Southeast Asia.

This is smart but also brings additional potential risks. For example, what if an event like a financial crisis or a natural disaster impacts the wider Southeast Asia region?

Instead, it would be best to look at whether a regional supply chain local to where consumers will buy and use products is viable. So, for example, a company in Western Europe reliant on goods from China could also set up a supply chain in Eastern Europe or North Africa. Of course, this could prove tricky, or even impossible, if you need to find suppliers with specific, specialised machinery or expertise, but that doesn't mean you shouldn't try!

This point of action isn't about cutting specific regions or countries out of your supply chain altogether but about having other options already working that can increase capacity if needed. As with detailed risk assessments, putting this in place can be time-consuming and expensive, but it's a step that will pay for itself in the long run.

4. Do the same with your logistics partners and providers.

Most businesses have experienced first-hand the challenges forced upon the logistics industry by the pandemic. Those who could react most effectively weren't overly reliant on a single logistics partner or delivery provider. 

Even as COVID-19 becomes endemic, government authorities may still control new variants with lockdowns and other measures. For example, China is still pursuing a "Zero Covid" approach as it looks to contain the spread of the Omicron variant in the country.

We already know that lockdowns mean delivery demand soars. If you're reliant on Chinese production and delivery partners, you could be feeling the pinch even as you read this.

Diversifying your production and supply sources is a smart thing to do. Take the same approach to your logistics providers to ensure your business can react if one of them ends up with delivery bottlenecks and other difficulties.

5. Use consumer demand forecasting to hold short-term safety stock.

Why was this among the most popular steps businesses took during the height of the pandemic? Most likely because they had no other choice due to a lack of diversity in their supply or production sources.

This scenario is the only time you need to ensure stockpile safety stock.

If you only have a single supplier or producer for a specific product, analyse sales metrics to forecast likely consumer demand on an ongoing basis. You can then hold the requisite stock on hand to enable you to ride out any short-term supply chain disruptions.

6. Consider simplifying your ranges, but beware of the trade-offs.

Reducing the number of products in your range can reduce disruptions and may leave you open to increased risk. It is up to you to decide where you stand with this trade-off, as the reality will be different for every company.

A good example is what we're seeing in many global supermarkets. Before the pandemic, many were moving away from giving consumers as much choice as possible and instead focusing on a smaller range of core products. As such, supermarkets that went down this route: 

  • Are now less susceptible to having stockouts and gaps on shelves 
  • Deal with fewer suppliers
  • Have simpler supply chains and can enjoy the knock-on effects of how that impacts spending on risk assessments and other associated costs
  • Make it easier for their customers to shop

However, at the same time, they are more sensitive to supply chain issues. For example, say they only now offer two pasta brands, and an issue hits one of them, their customers have no choice.

Your business will have a sweet spot between simplicity, diversity, and what you need to do to meet consumer demand. It's up to you to find it.

7. Embrace digital transformation

If your business doesn't already see digital transformation as an opportunity rather than an obstacle, that's a mindset you need to change as soon as you can. On the other hand, if your wider business has already undergone a digital transformation, it's time to bring that to your supply chains.

While innovation and new technologies can be challenging and intimidating at first, in the long term, they'll enable you to reduce costs, improve processes, and lower the environmental impact of your supply chains, among other things.

A perfect example is the potential of automation.

Now, what automation means to you depends on what industry you work in and what your supply chain looks like. For example, you might want to automate stock ordering processes. Alternatively, you might want to look for suppliers who can reduce production costs by automating various production line elements by using technologies like artificial intelligence and machine learning. Such is the impact of automation on cost reduction that it may even enable you to bring production back to nearshore suppliers, which mitigates risk and addresses many of the other points we've discussed here.

8. Ensure supply chain monitoring is a priority

We finish by going back to McKinsey's study. Alarmingly, McKinsey found that only 39% of businesses planned to prioritise investment in supply chain disruption monitoring.

However, such an approach would lead to supply chain management being a hugely reactive endeavour. In a world where consumers are increasingly aware of the proactive levers available to help keep supply chains moving, this is unlikely to be a sustainable approach for many businesses.

Your business can make supply chain monitoring a priority. Serai’s Visibility Solution can help you visualise, optimise, and understand your supply chain from end to end. With real-time dashboards and reporting, you'll have everything you need to make intelligent decisions to protect your business based on accurate real-world data.

Discover how Serai Can help you monitor your supply chain.

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