The global supply chain didn’t grind to a complete halt during the early months of COVID-19, but the grinding of many gears has been loud and impactful in every industry. The “standard” supply chain model is shifting right now as companies still try to get a handle on suppliers, shipping lanes, fulfilment, and consumer habits.
As these short-term changes continue to occur and new practices and concerns take over, we see a larger pattern emerge. While supply chains look resilient and customers seem eager to continue to buy, there is troubling news that guarantees we’re not going back to “business as usual” when all is said and done.
The lean focus highlights weaknesses
Supply chain professionals have prioritised running lean in recent years. There are countless guides and best practice lists for how to optimize cross-docking and limit storage waste. Focuses on lead times and habits such as consolidating vendors and suppliers have helped companies shave costs and grow margins. However, they’re also practices that limit supply and ability to respond to black swan events.
As immediate impacts resolve and suppliers open up, we expect to see lean practices evolve and still prioritize overall business protections instead of pure revenue growth. The benefit for supply chains will be that restrictions and changes are likely going to continue to be slow to return to “normal,” so there will be ample time and data to study supply chains.
Regardless of how this strategy evolves, we’re still going to see long-term changes to products in the supply chain, where goods are produced, and significant consumer spending habit shifts. Companies are also beginning to consider consolidation efforts, which might mean we see the emergence of more 5PLs in the future.
SKUs are slow to recover
The growth in e-commerce has led to a plethora of SKUs, many of which you can find from multiple sellers on a single marketplace like Amazon. Those options can hide individual store impacts better, so there is less visibility into SKU reductions for many individual companies.
To better control their costs, prioritise supply chain capacity, and keep freight volume manageable, many smaller stores are reducing the number of SKUs they carry. Some have ceased carrying low-volume and lower-margin products. Others are keeping general product lines but limiting how much they resupply different product variants — colours, sizes, etc. Inventory planning is a complicated exercise now focused on balancing many factors.
The slowdown in inventory being carried is slowly moving up the supply chain and is starting to impact manufacturers at distinct levels. No individual company is creating a deep ripple from what we can tell, but manufacturers in profoundly impacted sectors may face a death by a thousand cuts.
Supply chain and public health collide
One unfortunate long-term impact of COVID-19 is that the people in our lives will continue to be at risk. In terms of work, that means companies will struggle to protect customers and staff. When workforce health can’t be assured, companies will need to continue to spend on preventative measures and those to speed response in the event of something happening.
Supply chains are, almost inherently, packed places where the more people you can have moving swiftly through space, the faster you can get things done. That’s a perfect scenario for a virus to spread. So, companies are slowing fulfilment and minimising staff, limiting both output and revenue opportunities.
There’s no clear answer to this concern right now. The best thing any logistics company can do is to slow down and protect people. It’s the absolute right thing to do for your staff. A secondary benefit is that it limits risks to your operations.
In the COVID-19 world, we need to be more tortoise than hare if we want to protect global supply chains.
