At the beginning of the COVID-19 outbreak, the focus of the supply chain management was how to fulfill the demands, especially panic buying had created an unusual shortage and disorder in inventory management.
Although this pandemic doesn’t seem to end yet, the “new normal” in terms of supply chain management in various sectors such as electronics, automotive, medical, food, and others start to be visible. We can already sense a change in supply and demand.
Studying this change, we can guess that the supply chain model might transform globally considering that many companies are unable to cope with this drastic alteration. So, how does this outbreak affect the supply chain? And how do companies respond to it? Is there a better way to handle this?
The impact of COVID-19 in supply chain
This outbreak hit China first, the second-largest economy in the world. This country is the main importer of key commodities for many countries. Dun&Bradstreet states that there are 51,000 companies that depend on China as their Tier 1 supplier and more. There are also five million companies that rely on China as their Tier 2.
When China released policies to prevent the widespread of the virus, the global supply chain was in shock. Business operations were interrupted and revenue plunged. It worsened when the disease status escalated into a pandemic. Each country has its own problem that affects globally. The Organisation for Economic Co-operation and Development (OECD) predicts that global economic growth will drop until 1.5% in the worst scenario.
There are two problems in supply chain management due to the virus outbreak. First, there is a difficulty for companies to monitor both short-term and long-term demand and inventory. It is the consequence of factory closures and the slowing economic growth.
On the other side, retailers are suffering from an inventory shortage because customers tend to buy products in bulk because they want to minimize roaming in public spaces.
Various ways of how companies handle the situation
Not so long ago, Deloitte released a report that briefly explained how companies respond and mitigate their supply chain disruption. There are three categories based on their readiness in facing the change:
Companies with better preparation to mitigate
These companies have developed and implemented supply chain management risk management and business continuity strategy. Their suppliers are not only from one geographical area to minimize the risks if one specific area is troubled.
They also have several vendors for key components so that they don’t entirely depend on one supplier. Moreover, they have prepared an inventory management strategy to face the sudden transformation.
Companies with better preparation to respond
These companies have a strong relationship with their main suppliers. They make sure that the system can give them visibility to the extensive supply network to understand the risks better and take specific actions based on their priority.
Moreover, these companies have the agility in the production and distribution network so they can quickly learn and maintain global demands. They invested in supply chain planning and control tower solutions to detect, respond, even predict supply chain issues.
Companies who are scrambling
These companies rely on one supplier only or suppliers in the same region for their key components. They don’t have the visibility in the supply chain network to prepare for the risks.
Furthermore, they don’t have the system to monitor stock level, predict the material stock out and optimize the production, or predict finished goods stock out to optimize customer allocation. There is also no flexible logistic network to make sure that the goods are in a profitable manner.
The role of technology in mitigating global supply chain disruption
According to the explanation above, we can see that the companies that can respond well are those that have implemented a supply chain system. It is a technology that provides business visibility of crucial elements in management. When the information is used as the base for any business strategy and decisions, companies can mitigate the disruption well.
The COVID-19 pandemic is a catalyst for companies to start considering AI-based smart systems, automation, hybrid cloud, external data analysis, and blockchain technology. That kind of technology will help companies to identify supply and demand patterns both locally and globally. Therefore, companies will be able to face dynamic business challenges and unavoidable disruption.
Here are the benefits of the technology aforementioned:
- The demand for main products and certain regions is fulfilled well because the prediction is nearly accurate by learning customer’s purchase patterns after the COVID-19.
- Potential problems in suppliers is visible and hence helps the decision-making process about the supply of the goods.
- Management and transaction processes with new suppliers are easier to be conducted to ensure stock availability if the main suppliers are in trouble.
- Risks identification, decision-making, and solution implementation are more valid because it is based on external data and AI analysis.
To this day, some countries are loosening their social distancing policy which means the factories are reopening again. Productions are starting again. The tense due to the interrupted supply chain starts to decrease. OECD also predicts that the impact of COVID-19 will slowly recover in 2021.
However, this kind of outbreak is unpredictable. The understanding of risks and supply chain opportunities and the ability to give good customer service can not be done without the help of technology. In short, technology implementation is very useful to maximize supply chain efficiently.