Beyond the Crisis: How Covid-19 will change the design, planning and operation of global supply chains

I felt honored to join the discussion about the future of supply chains with Linda Dunn, Faculty Director and Assistant Professor of the Practice, Supply Chain Management Program and Joerg Pirron, Managing Director and Partner, Protema, moderated by Carlos Alvarenga, CEO Katalyst and sponsored by Reinbruecke. The online event took place on 7 May 2020. Please find below some of the notes of my contribution to the conversation.

1-     We have read the stories of how COVID-19 has disrupted supply chains around the world. What is your personal take on what we have just experienced?

We have experienced a simultaneous supply and demand shock. A decline of economic activity across the globe. But the developments impact organizations in different ways. I cluster businesses into three groups. The first group is about companies that are thriving, the second group contains those that are just coping, and the third consists of the ones that are struggling. Whether a company thrives, copes, or struggles depends less on the business itself but more on the sector and the country where it operates.

Some selected real-life examples illustrate the landscape.

One company I am involved in is operating in a B2B environment in Spain. The country is experiencing a long lockdown period and our suppliers and clients have shut down. There is no supply chain anymore and little one can do, apart from reducing payroll, improving parts of the business model, and strengthening relationships with business partners. This venture has a 12-month runway and we hope this is enough to survive. Another company is based in California. It is a software-as-a- service (SaaS) business with a hardware component to it – offering asset tracking and shipment monitoring. The company faces some supply chain disruption, for example, one shipment was stuck in Delhi customs. We also face challenges on the implementation side, as the operational teams cannot travel to deploy the devices on-site. But demand for digital solutions to improve visibility along the supply chain is strong. The business grows and proof of concept projects are largely continuing. I am also chairman of the board of directors of a leading business-to-consumer (B2C) parcel delivery operator in South Korea. There, I observe a shift in demand through the mix of the merchandise that we are delivering: Agricultural products, food, and medicine, for example, see an uptick, while deliveries of furniture, sports, and leisure goods have dropped. In terms of financial performance, the company is on track. I am also working with a platform business in The Netherlands. The company connects small shippers with small truckers. During Covid-19, smaller players are looking for alternatives and are more open for innovative solutions. Each month the platform has achieved a new record and performs above plan. Finally, there is another Dutch business I am involved in, an online store offering without waste and the business is going through the roof. There is a shift in demand towards more sustainable products.

Hence, Covid-19 is a mixed bag. Overall times are certainly tougher than before and we see various shifts in the supply chain. What the future will eventually bring for supply chain and logistics, however, depends on the economic development going forward.

2-     There has been so much money spent on visibility, control towers and other SCM systems in the past decade, and yet those are the challenges supply leaders point to today. What innovation will be created because of Covid-19?

Nobody knows what this pandemic will eventually bring. But what I expect is a technology push and see several themes emerging.

-         The first theme is “early warning signals”. I believe that despite the investments in visibility in the past, we have just scratched the surface. On the one hand there is too little data, on the other hand there is too much. Companies do not need data overflow; they want status updates and early warning signals so that they can act when things go or better risk to go off track. We will see a lot of uptake and innovation in the field of data set completion and data analysis.

-         The second theme is a “classic”. I am speaking about mapping of supply networks. Knowing your suppliers – down to the raw material providers; what they can deliver, what their weaknesses are, and what their impact on revenues is. But mapping is a cumbersome process. Therefore, I expect more digital mapping tools to emerge.

-         Supply-demand matchmaking surfaced as another challenge. New systems will emerge that help to identify stocks and suppliers of, for example, personal protection equipment (PPE) across the globe. The need for better matchmaking fuels innovation of artificial intelligence and blockchain powered solutions.

-         Then there is supply chain and trade finance. Assuming that their will be a credit crunch in the wake of the Corvid-19 outbreak, we can expect innovation in this area too.

-         Working-from-home is another big theme. This outbreak was a major experiment of distributing labor. The surprisingly successful outcome of this unexpected pilot triggers changes in the way how companies organize work. This will increase the demand for new tools and software. In addition, distant working comes with cyber risks and the need for developing new cybersecurity tools.

-         Finally, I see a stronger digitization push across the small and midsized enterprises (SMEs) segment. Smaller players along the supply chain have two choices. Either they take part in an ecosystem built by a big player. Or they join a small-to-small business community. Both options require digitization and innovation around shared architectures and platforms. The small-to-small concepts demands new players or new bespoke digital solutions.

The past has shown that times of crisis can be catalysts for progress, innovation and change.

3-     As a final question to each of you as supply chain thought leaders, what has surprised you about how this crisis has played out? What has happened that you did not expect? What has not happened that you did expect?

What surprised me is how quickly consumer trust may erode. In a Statista survey on average 65 percent of consumers indicate that a brand’s behaviour during the outbreak would have a huge impact on their likelihood to buy their products in the future.

A thing I did not expect is the lockdown of entire countries, of 4 billion people, and even more so the collapse of global coordination. I expected closer alignment between sectors and nations. A more considerate approach to national policymaking and a stronger supra-national guidance. We face a void of a standard for essential services. The strict stay-at-home mandates and unclarity around exceptions are preventing replacement crews from reaching their ships, planes, trucks, and trains. Crews are stuck, impossible to move to the next assignment or return to home. This, although the U.S. Department of Homeland Security, for instance, has deemed what it considers essential workforces. But the authorities struggle to identify what is essential. In part, due to the complexity of the supply chain which requires a broad range of essential functions to operate.

Finally, I expected that communities would step up. Collaboration is part of the DNA of supply chain and logistics companies. The industry did an amazing job and deserves lots of credit for it. I also expected the discussion about sourcing goods from China and the rise in demand for digital supply chain management solutions. Supply chain and risk management in the 21st century can hardly be handled without powerful advanced digital tools and services.

4-     Closing remarks

We need more coordination to find responses to the world’s burning questions. How to protect people during a pandemic and keep life and economy going? How to ensure that ships can call ports and are not turned away? How to keep critical infrastructure, like airports and ports open to ensure the flow of goods? How to ensure that enough air cargo capacity is available? How to avoid sudden border controls that disrupt road transport? A sector that provides nearly 6% of all jobs. I am not sure what way we are going to walk, but I sincerely hope it will be the route towards a more collaborative and aligned world.