Labor shortages, supply scarcities and transportation delays all caught companies off guard as the COVID-19 pandemic swept the globe. But over the past two years, the crisis also forced companies to rethink how they approached the supply chain – and in the long run, that might be a very good thing for business.
Two years ago, the term “supply chain” was not part of the public lexicon, at best invisible and at worst a cost center. The pandemic, however, gave the supply chain an image makeover. Now seen as a corporate engine, an innovative, well-run supply chain is no longer viewed as a cost center, but as a competitive advantage.
Smart companies have looked closely at supply chain processes and adapted to be more flexible and future-proof going forward. There’s still time to learn from the pandemic’s lessons and make changes going forward. Here are four key insights:.
The end of just-in-time inventory?
Just-in-time (JIT) inventory strategies allow companies to hold less inventory, reducing warehouse and inventory costs. But problems arise when key materials are not immediately accessible, whether due to a run on raw materials, component manufacturing shortages or transportation delays. All three became issues during the early days of the pandemic, and are expected to continue for the foreseeable future.
Companies like American Eagle used an approach of increasing buffer stock of the most critical components. Yes, this option costs more, but it can also act as insurance against losing valuable sales and relationships. Using a vendor-managed inventory system can also help increase raw material or product availability while reducing warehousing and logistics costs.
American Eagle is not alone in tweaking its use of the JIT approach. A 2020 Interos survey of 450 U.S. executives across multiple industries, and in companies with $1+ billion in revenue, showed that 16% were already moving away from the JIT model, and 38% planned to in the future.
Increase supplier diversity
Using a single source or a single region supplier puts companies in a risky situation. Sometimes firms have no choice: one location, like China, may be the only option for certain raw materials and manufacturing needs. During the pandemic, however, that choice left many organizations vulnerable.
Buying products from multiple sources or replicating technology in several locations is costlier in the short run. But it can pay off long term if one location is compromised.
Technology hardware is one example, as its supply chain is concentrated in China, South Korea, Taiwan, Japan and the U.S. Individual components like motherboards are almost exclusively made in China, while the U.S. makes almost all processors and graphics cards.
The German detergent company Henkel uses two locations to manufacture key products at two different locales, in case one site runs into a problem. The solution only works in the short term, but the company can manage the supply for several weeks with one location online. Many companies globally had issues, especially in the pandemic, when their contracted manufacturers shut down to stop COVID’s spread.
Henkel also uses flexibility in its product formulations to allow for supplier diversity, given that the pandemic continues to cause shortages of various raw materials.
Other organizations are moving some manufacturing and procurement closer to their shores. After difficulty procuring protective gear for its staff during the pandemic, Ochsner Health built a manufacturing facility in Louisiana to produce nitrile gloves and other PPE needs.
Supply chain visibility
The ability to track all components across a supply chain, from moving raw materials to a manufacturing plant to knowing the amount of inventory at hand has become table stakes. It’s one thing to know where the materials needed for a final product, like laundry detergent, are located. It can be nearly impossible to start digging down further, to track the supplies needed to make the plastic bottles where the laundry detergent will be stored. One completed product can involve dozens or even hundreds of suppliers. Just one of those lower-tiered suppliers going down can impact the product’s entire supply chain.
Visibility also helped with mRNA COVID vaccines, which had strict temperature requirements. Pfizer-BioNTech, for example, used Controlant technology, which provided real-time tracking and monitoring of its vaccines.
Tracking technology can help deliver more insight and helping companies plan better. Everstream Analytics, for example, can track global risk across a supply chain and let companies adjust their procurement and shipping. End-to-end transportation visibility software by companies like Four Kites and Project 44 can improve supply chain resiliency by sharing tracking information, and help resolve problems like temperature variations before they are too costly.
Improving last-mile delivery through the supply chain
Online sales rose globally during COVID. Online retail sales in seven countries earned $2,495 billion in sales in 2020, up from $2,038 the year before. Of that, 19% was from e-commerce in 2020, up from 16% in 2019. But e-commerce deeply depends on last-mile delivery, and finding drivers during the pandemic was a challenge. UPS and FedEx suspended their service guarantees and placed capacity limits for some customers.
To get products to customers faster, retailers like Target and Walmart started offering customers the option to pick up their online orders in stores. Target took another route, acquiring delivery company Shipt, and leveraging the service during COVID to increase sales.
Companies continue to play whack-a-mole with supply chain issues, and likely will keep doing so for at least another year or two. This gives companies time to make or tweak their resiliency plans, testing them against new hiccups. It’s not possible to anticipate or solve for every problem in advance, but the pandemic has been a case study in how supply chains work, and every company should take lessons from that.
