Supply Chain Optimization in the Age of COVID

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The COVID-19 pandemic has forced companies worldwide to scale back production and transportation, temporarily close, or shut down permanently. These disruptions have severely impacted global supply chain optimization.

Supply chain optimization is key to operating at optimal performance, and the health crisis has created new challenges for businesses across all industries to maintain their highest rate of productivity.

If companies want to survive throughout the pandemic and successfully emerge from it, they must focus on protecting and improving their supply chain efficiency. To do so, business leaders need to:

  • Understand the ways the disease has impacted their supply chains
  • How they can adapt to these changes
  • Learn the steps to take to protect themselves
  • Plan for the future of supply chain optimization post-COVID-19

Diving Deeper: How COVID-19 Affects Supply Chain Optimization

Reduced Workforce

Over 235 countries have recorded Coronavirus cases, with more than 35 million people infected, and over one million deaths as of early October 2020, according to the Johns Hopkins University Center for Systems Science and Engineering. In the U.S., there have been 7.4 million cases and 210,000 deaths from the disease.

Following government guidelines, companies have taken steps to ensure their employees’ safety, such as requiring face coverings, social distancing, remote work, and limiting the number of employees on each shift. Many employees have also refused to return to work out of fear for their health.

All these factors have created a reduced workforce, leading to less product manufacturing and slower delivery times.

For example, consider the farming industry. Many farms rely on migrant workers as their workforce. Shortly after the pandemic hit, the U.S. announced immigration and travel bans, which included seasonal migrant workers.

Over the spring and summer, countless farms faced a shortage of labor to pick produce. The situation left farmers with excess fruit and vegetables rotting in unharvested fields. That meant less produce reached consumers, and what did reach them came at an inflated price.

Supply and Demand

While reduced production has reduced supply, demand shortages have ravaged other industries. The travel and leisure industries have suffered the hardest. Since the pandemic started, fewer people are buying airline tickets or booking hotel rooms, and many hot tourist destinations are in lockdown.

Airline travel was essentially grounded at the start of the pandemic. Customers were simply too fearful to fly. As a result, many airline companies have reduced their daily flights, removed routes, and scaled back plans to purchase new planes.

With more planes left on the ground, fewer planes need regularly scheduled maintenance and updated parts. Companies that manufacturer those parts will either build up a surplus or limit production capacity.

Companies that build airplanes are in the same boat. The slowdown or cancellation of airplane production has caused a ripple effect for airplane part production companies.

For example, Boeing temporarily stopped producing its 787 Dreamliner planes at facilities in South Carolina and Seattle due to COVID-19 restrictions. The Chicago-based company applied for federal relief to cover losses and to boost its supply chain.

These examples are just a small window into the havoc COVID-19 has wreaked on supply chains worldwide—like dominos, supply and demand changes affect every link in the chain. The pandemic has forced companies to place emphasis on planning short-term and long-term contingency plans. Only those who find innovative ways to mitigate supply chain disruptions will be standing when the economy stabilizes, and that requires supply chain optimization.

How Companies are Adjusting

Six months into the pandemic, companies are learning to steer through supply chain problems by developing new policies. Many business leaders find themselves:

  • Staying away from single-source dealers
  • Ordering extra inventory
  • Reviewing their contracts with suppliers
  • Developing mapping to maximize efficiency

Bidding Farewell to Single-Source Dealers

In an attempt to get the best deal, many companies narrow down the field of suppliers to one company. While this may drive the price of the product down, it can leave those same companies without a Plan B.

If a company’s single-source supplier can’t deliver a product, then the company is left to scramble to find another supplier. The pandemic has highlighted just how dangerous counting on Plan A can be, as many suppliers have either shut down or been unable to manufacture their products.

Smart logistics managers are now lining up contingency plans for their supply lines with a hybrid approach where they order products from two or more suppliers. While it may increase costs, the move provides insurance that the company will receive its products and continue to meet customer demands.

Ordering Extra Inventory

Many companies rely on just-in-time manufacturing to reduce supply chain waste. With this system, suppliers deliver materials according to a pre-arranged schedule. This approach works efficiently because manufacturers can order the exact amount of product necessary without any excess.

However, we never know when the next crisis will hit. Right now, the world is dealing with a pandemic. The next international calamity could be a natural disaster in a geographical location that is a critical link in the supply chain, a war, or who knows what else.

To plan for the worst, companies have begun to stock up on inventory to reduce the chance of a shortage of materials if an unplanned event impacts their primary supplier. Just-in-time ordering hasn’t been abandoned, rather cautiously reserved for less-vital supply chain elements.

Reviewing Contracts with Suppliers

The pandemic has raised some red flags on the current contracts suppliers and manufacturers have agreed to, as well as on future contracts. Due to fewer flights, closed ports, and fewer trucks on the road, product delivery has been delayed.

Companies are closely monitoring their existing contracts with suppliers to determine what obligations each party is liable for. When existing contracts are set to expire, companies are considering the ramifications of the pandemic and future global emergencies that could arise.

Developing Mapping of a Supply Chain to Maximize Efficiency

When it comes to supply chains, companies have different tiers of suppliers. The Tier 1 level is primary suppliers, while Tier 2 is secondary suppliers.

For a company to manage an international crisis, it must keep track of all its suppliers – and not just the Tier 1 level. The disruption of one supplier can halt or delay the entire supply chain. Companies that have visibility across all levels can survive a supply chain catastrophe, mostly unscathed.

General Motors is a perfect example of this approach. When the tsunami of 2011 impacted Japan, GM invested in mapping tools. These supply chain tools helped GM to discover which suppliers were close to the event.

In turn, GM figured out what steps were necessary to avert a major disruption to its supply chain.

As the coronavirus first originated in Wuhan, China, companies with updated mapping tools knew whether they had suppliers in the area. If they did, they were able to reach out to suppliers in other areas or countries to order their products.

How Companies are Safeguarding Their Supply Chains

Almost every industry is currently focused on taking preemptive measures to diminish the threat of COVID-19 on their supply chains when it comes to personnel—and rightly so. Here are a few examples of the steps that may counter future delays:

  • Focus on showing employees how they can avoid catching the coronavirus. Business leaders must remind the workforce to wear a face covering, remain six feet apart from co-workers, and frequently wash their hands.
  • Develop a screening process. Companies are requiring employees to answer a series of questions to determine their risk and possible exposure to COVID-19.
  • Take temperatures daily to test for a fever with a touchless thermometer. The Centers for Disease Control considers someone with a temperature of 100.4 degrees or greater to have a fever.
  • Plan for a daily reduction in the workforce. According to the CDC, employees who have a confirmed COVID-19 diagnosis or contact with someone who does must quarantine for at least 14 days. Businesses must prepare for employees to remain out of work with contingency plans to cover for anyone unable to return to work for an extended period.

Measures to protect supply chains that are not related to personnel are also a worthy consideration, such as:

  • Concentrate on cash flow
  • Understand Tier 1 supplier risk management
  • Identifying multiple suppliers and eliminating single-source suppliers
  • Managing inventory levels
  • Following trends in supply and demand
  • Developing supply chain mapping tools

The Future of Supply Chain Optimization During a Pandemic

The COVID-19 pandemic has established new norms in supply chain optimization. Experts predict manufacturers will shift from international suppliers to more regional outfits. They also see a move away from single-source suppliers to multi-source suppliers – even if it comes at a higher cost to consumers.

Above all else, the pandemic has taught companies to think more strategically to avoid falling victim to international emergencies. They will need to take advantage of the latest supply chain optimization technology to figure out how to continue to maximize and sustain peak productivity.