Supply Chain after COVID-19
In February 2020 I posted my last blog about the supply chain of the future, predicting an ongoing integration between the players in a company’s ecosystem. A lot has happened since then, changing life as we know it. COVID-19 has disrupted supply chains, causing shortages in supplies of materials and parts. It also revealed the vulnerability of globalization to crises such as pandemics.
For the last 30 years our economy has seen the development of increasingly global supply chains driven by reduced trade barriers and an increasing international Taylorism of supply chains. Assuming that this development will prevail, a lot of companies have ignored and/or accepted the risk of interdependency between the players in this multistage production process. Furthermore, with this deeper tiering of supply chains, the transparency about the underlying processes could not keep pace.
Supply chains were not ready for this future, and it’s something we can learn from
With companies being surprised by closed borders and disrupted supply chains, what can be done to assure or ramp-up production after the COVID-19 lockdown?
The immediate solution pursued by many companies is to switch to more reliable logistic means like air freight. Indeed, air freight is experiencing increasing business. To the contrary, air freight capacities are limited since approximately 40% of them are so-called belly capacities, i.e., space in the bellies of passenger aircrafts. So, airfreight capacities are shrinking due to the fact that most airlines have reduced their regular passenger flights to 5% to 10% of their capacity.
All other feasible alternatives to counter the effects of the crisis on supplies are mid- to long-term, for example:
- The buildup of second or third sources in closer proximity to a company`s production will take time and might also increase the cost of the supplies. Therefore, the cost increase for supplies needs to be weighted with the greater supply chain resilience conveyed by additional sources.
- Secondly, the buildup of additional safety stock might be an alternative. Here companies need to precisely define what stock levels will be needed to escape future supply chain disruptions. This needs to be tightly balanced with the additional costs incurred.
Such difficult tasks can only be fulfilled if companies have comprehensive transparency about the performance and costs of their supply chains, as well as real-time insights into logistics processes.
Holding on to what we have
Furthermore, the dynamics of the crisis call for a permanent re-evaluation of logistics activities including daily deliveries. Some examples of what can be done now:
- Solutions such as Precise Time of Arrival can help to make reliable predictions about the arrival time of supplies. They do this by processing external information such as traffic volumes and restrictions, regulations and travel bans, and turning them into predictions.
- Route Optimization will help to find the best routes to assure that supplies will reach their final destination.
- In-Transport Visibility helps to monitor the condition of the supplies during transportation, sending alerts in case specific parameters are exceeded.
All these tools will not compensate for the unavailability of supplies due to lockups of suppliers, but they will contribute to securing the remaining supply chains. Holding on to our existing supply chains is the first step toward future readiness.
Transport and Logistics