The next few months could bring a second wave of the COVID-19 outbreak, delaying the expected holiday season recovery and a return to normal demand-supply patterns. Let’s examine the top pressure points for supply chains in the next few months.
The pandemic wreaked havoc on the global supply chains, to say the least. Back in March 2020, a survey found that three-quarters of U.S. companies were already seeing an impact on their supply chains. And those were just early days – as the months wore on, organizations had to rejig their supply chain priorities to meet the challenges of the pandemic. A report released by Microsoft and Bain & Company in October 2020 revealed that almost 90% of companies are looking at supply chain modifications, and cost-efficiency is no longer the top priority for many.
Now, as the news of a possible second wave extends across countries, supply chain managers are revisiting their plans. In the last few weeks, countries in the E.U., parts of the U.K., and several U.S. states have announced a return to lockdown regulations, which halts the initial stages of recovery several supply chain managers were hoping for.
This has several implications on the way forward.
Specific Industries Will Face Heightened Exposure to Supply Chain Vulnerabilities
Some sectors, like consumer electronics, will be more exposed to supply chain vulnerabilities than others.
The movement of technology goods and consumer electronics could be disrupted further, as these rely significantly on international logistics lines, cross-border transport, and regulatory conditions. The consumer electronics sector is also sensitive to time-bound market dynamics, leaving little room for inventory stockpiling beyond the initial months of the pandemic.
“Mobile phones are exposed to a range of shocks. It’s very exposed to trade disputes because these are high-value goods. It’s exposed to some of the geophysical risks because it sits largely in coastal Asia,” comments Susan Lund, a partner at McKinsey’s Washington D.C. office.
Next is lifestyle and apparel.
As the economy slows down for several of the world’s largest markets, the demand for lifestyle goods and apparel will also stutter. The second wave could prevent the demand spike that companies were hoping for during the holiday season. This will inevitably influence the labor force in top manufacturing countries such as Bangladesh or China, possibly leading to loss of livelihoods.
Companies that can pivot to digitalization could successfully navigate this challenge, reimagining their supply chains for a touchless economy that can reach lifestyle products to customers from the safety of their own homes. In fact, the digitalization of supply chains can support economies and protect livelihoods through these difficult times. This is among the key lessons companies will have to remember and action from their experiences of the pandemic’s first wave.
Finally, the global crude oil industry will continue to grapple with oversupply.
Initially, analysts had predicted that there would be an inventory buildup of 1.95 million barrels in the U.S. by now due to dipping demand. Given the second wave, the reality stands at 4.17 million+ barrels, posing a chronic oversupply problem.
“We don’t think oil markets are in a position to absorb the 2% of global supply that the Organization of the Petroleum Exporting Countries (OPEC) and its allies are expected to restart from January 1, 2021,” says Vivek Dhar, a Commonwealth Bank commodities analyst.
Economic stimuli from governments, regulatory interventions, and intelligent, diplomatic relationships could be key for riding out this period.
Small Businesses and Small Economies Are at Risk
While large enterprises and mature economies may be able to absorb the shock long enough for the second wave to pass, smaller entities are in a difficult place.
For instance, countries under the Pacific Islands Countries and Territories (PICTs) category rely on external supply networks for their food systems. As these countries continue to regulate tourism and as exporting countries restrict the international movement of food products, both the economy and access to food are at risk in the PICTs.
Research suggests that it might be more advisable for PICTs countries to develop alternative, self-sustained food supply ecosystems in response to the second wave than attempt a return to a pre-pandemic normal.
Like small economies with major external dependencies, small businesses too are at risk from supply chain shocks. Arts and entertainment institutions, bars, health and beauty service providers, and accommodation providers have shut their outlets in huge numbers since the start of the pandemic. Now, as experts anticipate a second wave during the winter months, these businesses could lose out on holiday demand. Besides, supply shortfall could prevent them from maximizing holiday season opportunities.
“We’ve had these simultaneous shocks on both the demand and the supply side, and really over a very long period. That’s very different from any of the shocks economically we’ve ever seen,” notes Nada Sanders, distinguished professor of supply chain management at the Northeastern University.
Small businesses must strengthen supplier relationships, shedding any extra weight, and become lean and agile if they are to stay viable through this period.
Looming Pressures for COVID-19 Vaccine Distribution
The global supply chain is about to face an unprecedented task once one or more of the many COVID-19 vaccines – currently in various phases of testing – reach approval stages.
Vaccine candidates by Pfizer and Moderna both need to be stored inside ultra-cold freezers to remain viable. While Moderna’s alternative is compatible with normal refrigerator temperatures, long-term storage will still require -20 degrees Celsius.
Not surprisingly, countries such as the U.S., Canada, and Japan have already started to prepare for what could become a logistical nightmare. Ultra-cold freezers, specially designed transportation lines, zero inefficiency movements, and minimal waste will be critical to this process.
In addition to this, the second wave of COVID-19 will also bring a surge in demand for PPE, ventilators, and other related equipment. For instance, the World Health Organization (WHO) recommends that the supply for PPE kits be increased by at least 40% to meet the global demand. Companies can explore decentralized models where multiple local suppliers use open-source design for production and power quick assembly to achieve this.
No Longer Unprecedented: How Are Companies Gearing Up for the Second Wave?
Hindsight, as they say, is always 20-20, and in this case, it could work out in the industry’s favor. Accenture and the Massachusetts Institute of Technology (MIT) are working on a supply resilience stress test based on a digital twin technology. This technology can create and run over 40 scenarios simultaneously, letting companies study the possible points of impact during a disruption.
As resilience becomes a key priority throughout and after the second wave, data captured from every supply chain node will help map out predictive scenarios, improving visibility and enabling agile decisions. Companies may even leverage these improvements to increase production in response to any unexpected spike in demand. For example, IKEA is offering its suppliers loans and prepayments to continue production, helping the company meet consumer demand for home improvement during lockdowns.
“The big thing is we don’t stop production. There are slower sales, but there is not the inefficiency of the first lockdown,” Martin van Dam, the CFO of Inter Ikea, comments on the second wave.
Companies should approach this as a watershed moment, an opportunity to rectify many of the unavoidable errors of the initial months of the pandemic. While parameters like import restrictions and product demand might be invariable, a smart strategy coupled with operational and technology preparedness can help companies reach the other side.
Do you believe a second wave could cripple supply chains? Or do you think it is an opportunity for companies to rise to the challenge? Comment below or let us know on LinkedIn, Twitter, or Facebook. We would love to hear from you!