Adapting to the Situation: What Are the Challenges Supply Chains Are Facing During the COVID-19 Lockdown?
The coronavirus pandemic has, unquestionably, resulted in a global health and economic turning point. As governments, organizations, and individuals have had to balance the need for safety with economic vigor, the supply chain of goods and services has been impacted in multiple ways. Some of those impacts have created unique challenges for suppliers, manufacturers, wholesalers, and retailers. The end consumer has also been affected, both in terms of being able to acquire necessary goods and services and the ability to afford them.
One of the most notable effects of COVID-19 is supply shortages in retail outlets, including online stores. As consumers rushed to panic buy necessary supplies like toilet paper en masse, the entire supply chain had trouble keeping up with the unprecedented demand. Organizations like JS Forwarding that provide wholesale and warehousing services have been unable to transfer enough products to retailers in time.
This has been largely due to the fact that manufacturers were unprepared for the sudden demand surge. While product manufacturers have had to scramble to find ways to up production, the fact remains that panic buying surges are temporary. Trying to predict when and how consumers will demand surplus supplies of products is difficult, to say the least.
Another factor that contributed to supply shortages is an overreliance on countries like China for a variety of goods. Knowledge of this is one of the main reasons panic buying occurred in the first place, as consumers became concerned they would be unable to purchase the goods they needed. Unfortunately, this compounded the problem and has prevented retailers from being able to keep shelves stocked.
Although some of the resilience factors that retailers and supply chain components put into effect helped ease the shortages, there is still the unpredictability factor. Retailers can shorten operating hours, adopt designated shopping hours for vulnerable population groups and fill orders with substitutes. Wholesalers can also help alert manufacturers to surges in demand for certain products, especially as regional or local surges create potential disparities.
Unpredictable Demand Surges
Another factor driving the unpredictable demand surges is government-mandated lockdowns and restrictions on businesses like restaurants. With these types of mandates, people have been driven by the need to stock up on essentials such as food and necessary personal products. These restrictions have also driven an increase of online shopping and home delivery, taxing workers and exposing them to heightened risks.
Again, the components of the supply chain have had to implement resilience factors such as hiring temporary workers, offering incentive or bonus pay, and warning consumers of potential delays. As consumers have purchased months of supplies within a single day, retailers have also had to implement purchase restrictions on certain items. For instance, many retailers have posted signs asking consumers to buy only what they need for two weeks of quarantine. Others have put limits on how many packages consumers can purchase of high-demand items.
Yet another new tactic some retailers have implemented is designating additional store hours for the restocking of shelves, helping to prevent early morning demand surges or product runs. For example, a grocery store chain reduced the number of hours checkout lanes were available for use (including self-checkout machines) to allow store employees additional hours to prepare and stock shelves. Shopping hours have also been reduced in a number of stores for the same reason.
Supply Chain Resilience Factors
IMD lists five different pillars of supply chain resilience. Those pillars include vulnerability, management culture, procurement, operations, and demand and visibility. Vulnerability has to do with being able to identify existing and potential bottlenecks or areas where the flow of goods and services could become blocked. Common sources of disruptions or blockages include demand surges, supplier disruptions, and internal operational disruptions.
Management culture can impact resilience in the sense that management either prioritizes supply chain resilience or ignores it. By prioritizing the buildup of shock absorbency within the chain and its partners, a single organization can help reduce demand shocks and blockages. This does not mean that the supply chain or individual partners within the chain will not experience issues, but that these partners and organizations will be able to respond effectively to the issues and correct or mitigate them swiftly.
Procurement has to do with identifying vulnerabilities in suppliers and finding ways around those vulnerabilities. For example, does the organization need to expand its sources of suppliers for certain goods, especially in cases of emergencies? How and when do each of the suppliers need to be audited? How can more collaborative relationships be formed and strengthened to help mitigate potential shortages? What type of supplier rating system does the organization need to implement?
Operations takes a look at different sources of materials and goods, inventory risk mitigation, and agility. In other words, how does the organization currently respond to not being able to receive x number of a certain good on time? How much back stock or inventory of various items should the business maintain in order to mitigate supply chain disruptions? How easily can the business respond to these disruptions?
The final pillar, demand and visibility, is about sharing information on existing inventory and demand. By sharing this information through technology applications, partners in the supply chain can get a better “big picture” sense of what goods need additional production, where the distribution of goods is being slowed down, and how partners can optimize the allocation of products that are in high demand. Visibility can also result in the prioritization of goods that are at high risk of disruptions or shortages.
Aftermath of Demand Surges
Even though demand surges can be unpredictable and difficult to manage, the aftereffects created by these surges also need to be addressed. A main factor driving the aftereffects is a lack of visibility throughout the supply chain. For instance, when consumers start to panic or buy months of supplies for a certain product within days, it can take awhile for this information to move up the supply chain. Increasing visibility and transparency in communications is one way to mitigate this.
Still, it can be more difficult for manufacturers to immediately respond to these types of demand surges despite increased visibility. The amount of effort and time it takes for manufacturers to acquire resources to ramp up production can mean the demand surge has already fallen by the time production increases. Manufacturers then have to reduce production once they receive information that demand has slowed.
The slowdown can, however, be temporary. Subsequent surges can occur as new lockdowns or increased demand happens. This calls for manufacturer agility or the built-in capability of being able to ramp up and slow down accordingly.
What this can mean is the ability to convert existing resources rapidly, the implementation of contingency operations, or the ability to make more accurate predictions based on existing information. It can also mean improved top-down communication where manufacturers are able to inform supply chain partners of expected shipments, quantities, and capacities. This can help retailers set consumer expectations and implement purchase restrictions.
Adjusting to a New Normal
The effects of COVID-19 have ushered in the need to adapt to a new set of principles and what is considered “normal.” Pre-pandemic means of operating and living are unlikely to return in the near future. Even if a vaccine is developed soon, time will be needed to adjust to deployment and effects of administering it through the healthcare system. Diverse healthcare practices around the globe could also result in disparities in how populations are immunized and the long-term effectiveness of different vaccines.
For example, countries like the United States could prioritize the administration of a vaccine to vulnerable and designated populations first. This could delay the protection of the general population or those responsible for two-thirds of the economy. Other countries that have centralized healthcare systems could potentially immunize general populations more efficiently, resulting in the full opening of some global economies in lieu of others.
The “new normal” has also resulted in a shift in consumer buying preferences and trends. As the recessionary effects of the pandemic have taken hold, consumers are unable to afford items that are considered recreational or luxurious. The decline in the number of airline bookings is an example, although this has also been driven by travel restrictions and safety concerns.
Shifts in consumer behaviors and government restrictions have resulted in cutbacks as much as they have in shortages. Some industries, goods, and services have experienced sharp declines in demand, while others have experienced increases. This could have several implications for consumers, workers, and organizations in terms of needing to reinvent strategies and improve agility. Being able to shift gears and adjust to these shifts, while also increasing reliance on government intervention, are crucial to survival.
As the economic effects of COVID-19 continue to play out, the supply chain will need to constantly adjust to rapid changes. This may mean the quick reallocation of resources and increased interdependence among partners. It may also create an opportunity for innovation and increased resilience.