Supply Chain vs COVID-19 – What have been the effects of the pandemic on Supply Chain?

2020 was an unprecedented year for Supply Chains. A spotlight was shone in its direction like never before. Supply Chains were asked to solve problems that were previously unfaced on this scale and a reliance grew on the function to find solutions to world issues. 

To understand how the pandemic has affected the Life Sciences Supply Chain, I have leveraged my network to learn the viewpoints of Supply Chain leaders inside and outside of the industry as well as those working as 3rd party suppliers. 

What were the initial issues? 

The disruptions caused by Covid-19 in early 2020 simultaneously crept up on us and somehow happened overnight. We knew of the virus outbreak as far back as December 2019, yet the effects of it happened very suddenly. However, what the effects were came with much more clarity. 

A common issue across the Supply Chain came at the operational level. Huge disruptions were caused by lockdowns, where headcount was severely reduced and, in some cases, ceased to exist. This occurred across all stages of the Supply Chain, whether it be warehousing, manufacturing plants, retail or transportation. 

Both Brittain Ladd (Supply Chain Consultant, Retail & Digital Expert) and Eric ten Kate (Global Life Science 3PL Leader) explained to me that this isn’t a new issue and a shortage of drivers has been a steadily rising issue for some time. However, Armando Stagno (Senior Supply Chain Planning Leader, Medical Devices) went on to point out that never in his career has he seen driver, container, port and vessel constraints all at the same time. 

The shortage of drivers swiftly led to inflation in transportation. But this wasn’t the only price spike…

To ensure facilities could run at some capacity, they required new safety protocols. Thomas Hawkins (EMEA Logistics Leader, Medical Devices) described the effect this had on costs, with new, more stringent protocols leading to increased pricing on 3rd party warehousing. 

Warehousing and transportation costs is an extra headache for Supply Chain leaders. But arguably the biggest issue caused by the pandemic, and certainly the one most felt by the general public, was that of panic purchasing. This occurred both on the consumer and business-to-business level and as stated by Armando, resulted in a lot of wasted inventory stuck at hospitals and wholesalers. The high demand became a difficult pairing when partnered with operations shortages across the Supply Chain. 

How did Supply Chain plug the leaks? 

Short-term solutions were required and there were a few angles to look at it. 

From a transportation and logistics standpoint, both Eric and Thomas told similar stories. The key was developing options in transportation channels, especially when supplying from Asia. Mix and matching between road, rail, ocean and air freight allowed for greater flexibility and leverage to adapt to disruptions. 

Armando outlined the planning approach, which was centred around greater visibility. Through increasing analytical data and moving information faster, planning could take a much shorter-term view and in doing so, become more reactive. 

And then there’s the procurement perspective. Armando also discussed the importance of creating a good understanding and relationship with tier one suppliers, whilst improving the understanding of the capabilities of your tier two and three suppliers. This is where we saw the greater importance of communication and collaboration, which continued through into the long-term effects. 

What were the long-term solutions? 

Eric talked of how critical it has been to maintain an increased line of communication with both customers and carriers throughout the past year. Techniques such as leveraging bigger volume shipments and using airlines who were still carrying through “ghost flights” were key in tough moments. Overall, however, taking a more partnership approach, working together with a more humanitarian cause in mind has been the most positive theme he has seen throughout this past year. This is something we also saw in the approach to creating vaccines, where two companies would leverage each other’s capabilities to reach the common goal, the humanitarian goal. 

Other examples Eric discussed were the creation of logistic parks and distribution hubs and allowing freight forwarders to use this infrastructure whilst also leveraging each other’s networks. 

Armando went into detail about the idea of Supply Chain readiness. Continuing with increased demand visibility is massively important in a crisis management approach and ensuring everything is ready for the next big disruption. 

Has the perceived importance of Supply Chain changed? 

Victor Nieto, Global Supply Chain and Manufacturing Network Leader said: 

“In some companies and industries Supply Chain really saved the year.” 

However, has this been realised by business leaders? Has the perceived importance of Supply Chain changed in the opinions of those that can green light change? 

In short, yes. Thomas Hawkins described the “buzz” around the supply chain now. It’s in the news almost daily. People are now more interested in the purpose and achievements of the supply chain. Thomas even described how the need for a mature Supply Chain in high margin industries, such as Pharmaceuticals and Medical Devices, wasn’t fully understood. It is now, however. 

Armando talked about Supply Chain gaining greater respect for being a “big enabler for change”. Eric discussed the CSCO having a greater input because of people becoming more aware that business is all about product availability. And Brittain even talked about the realisation that Supply Chain is “critical” in enabling company growth. 

However, Victor raised the important point that people must not forget the impact of the pandemic and become complacent once normality resumes. If we are to implement change, it is important that the reasons for the change remain at the front of our minds. 

What is next for Supply Chain? 

This greater perceived importance should lead to further advancements in the Supply Chain function. Investing in Supply Chain should be seen as that, an investment, not a cost, and this is the direction business leaders are moving in. Where should this investment go, though? 

Armando Stagno think that: 

“2021 should be the year for digitalisation.” 

Brittain Ladd, an expert in digital strategy, explained that an automated Supply Chain is less likely to see disruption and believes that automation can, and should, happen each step along the Supply Chain, through transportation, in the warehouse and across retail. 

This does create the issue that people will lose their jobs due to them being replaced by automation. Brittain believes the solution is simple and lies in organisations taking responsibility to upskill those whose jobs are replaced. There are jobs created by automation to help with the rebalance too, but it is important that responsibility to provide the opportunity to upskill falls at those introducing the automation. 

Victor Nieto believes that advancements will take time and investment, this is a 3 to 5-year process. However, his vision is grand. He spoke of creating a balance between cost, agility and sustainability. Three topics that haven’t been at the core together consistently. This is particularly relevant as we see environmental sustainability, or the lack of it, continuing to cause larger and more consistent disruptions in Supply Chain. 

Victor discussed developing a more sustainable Supply Chain through the creation of a more local/regional network and moving away from single-source suppliers. He said: 

“For years we have been pushing to produce in low-cost countries at the expense of agility and at the expense of forced issues like the pandemic”. 

Planning was also a key focus on a more mature Supply Chain. Victor went on to say: 

“This all means better planning. We won’t be able to afford the fat and having inventory lying around. We all need to work closer together than we have in the past. There will be a need for something beyond S&OP.” 

How do we balance inventory and cash better moving forward? Cash gives flexibility and unnecessary inventory is business “fat” as Victor described. However, Thomas Hawkins argued for a strategy that consists of producing more inventory for not only the in-demand products that have spiked during the pandemic but also the out-of-demand products that will re-emerge post-pandemic. He stated that you can’t afford to not have enough stock when demand resumes on these products. 

Brittain Ladd described a “military-style” approach that consists of stockpiling emergency supplies in strategic locations. This can be applied both in retail with household products that we saw go off the shelves suddenly and in business-to-business products that become scarce when transportation routes are cut-off. This should also avoid stockpiling from customers in the future with them feeling safe in the knowledge that there is ample supply and with that avoid the disruptions caused by products going out of stock. 

Conclusion 

Inventory balance is an important point which ultimately comes down to the increased understanding of the market through accurate forecasting and mature demand planning. How this is achieved is through better communication and collaboration which in-turn creates cost-efficiency, agility and sustainability. These are all important themes highlighted by the pandemic which will now guide Supply Chain’s next steps. 

This has been an incredibly challenging year for everyone, but this type of adversity breeds growth. My hope is now that we can see a more environmentally sustainable Supply Chain and I am confident in our Supply Chain leader’s ability to be able to forge this. If this past year has shown anything, it is that Supply Chain is blessed with incredibly talented leaders who are more than capable of guiding the industry through difficult times and taking it to new levels. 

Special Thanks 

I’d like to thank the following people for their contribution to this article and more importantly, for their leadership throughout this pandemic: 

• Armando Stagno 
• Brittain Ladd 
• Eric ten Kate 
• Thomas Hawkins 
• Victor Nieto 

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