News: COVID-19 revealed the fragility of supply chains
All these materials and components find their way in the supply chain, but their stories get lost along the way.
Contributor
Early in the pandemic, it was apparent that there would be worldwide lockdowns of varying degrees. So naturally, there was a run on toilet paper (and to a lesser extent, paper towels and tissues). Stores suddenly found themselves sold out of one of the most basic conveniences consumed by humans.
We had never seen this level of preparation, and the supply chains were not ready. They were still moving at the speed of business-as-usual, creating a gap between supply and demand.
Sliding further into the pandemic, this supply issue for basic goods shifted to the front-line workers who were stretching the safe limits of their personal protective equipment (PPE). This exposed the effect of a sudden change of demand in supply chains. Companies began to repurpose their production to produce protection equipment and hand sanitizer. Some to make a quick profit, others to fill a need in the supply chain.
It is time for companies and entire industries to rethink and transform their global supply chain models — in close collaboration with governments.
Governments and corporations were scrambling. There were spreadsheets floating around with offers from potential suppliers.
During this period, it was difficult to get an overview of the entire market, as quality, vendor search and price fluctuations caused general chaos. It was near impossible to track the origin of production, receive any information about any data related to the quality controls of production facilities. The market was flooded with bad products, fakes and so on. Think pieces started to appear with a beginner’s guide to supply chain structure.
Consumers began to understand that the system as it stood was not built for this type of upheaval.
Corporate sourcing strategies have been challenged
We have clearly witnessed that companies have little control of the supply chains. Normally most companies only have a moderately competent risk plan for tier one suppliers. We can only assume that this is why most of us are going without an Xbox Series X or PlayStation 5 this holiday season. These are not products that are built with components from one source; there are multiple components and materials that go into creating one of these machines.
From the refining process of the outer materials, to the dyeing colors, plastic elements and the need to have low-cost production sites in low-cost countries, all contribute to possible delays in production when things are not moving as they should be. De-constructing a gaming console reveals an extremely complicated matrix of companies, processes, materials and countries.
If we had direct visibility into the journey of each component in a gaming console as a sort of smart-representation exposing all the materials, people involved, companies and locations, we would be able to pinpoint inefficiencies in the supply chain.
All these materials and components find their way in the supply chain, but their stories get lost along the way. That specific data is not available, and thus both companies and countries are struggling to create effective risk plans for world events that throw the supply chain into chaos. Currently, there is a revolution happening under the radar of most people, enabled by distributed ledger technologies (blockchain) to bring such transparency into the supply chains.
Identify your vulnerabilities
Understanding where the risks lie so that companies can protect themselves may require a lot of digging. It entails going far beyond the first and second tiers and mapping full supply chains, including distribution facilities and transportation hubs. This is time-consuming and expensive, which explains why most major firms have focused their attention only on strategic direct suppliers that account for large amounts of their expenditures.
But a surprise disruption that brings a business to a halt can be much more costly than a deep look into a supply chain.
The goal of the mapping process should be to categorize suppliers as low, medium, or high risk and build appropriate mitigation strategies. But this approach is only possible if we can access the data generated by different suppliers at any tier in the supply chain — and we can trust this data for analysis.
The aim is to have early warnings of delays or disruptions, allowing for either the diversification of sources or the stockpiling of key materials or items. Of course, that is all speculative as we have a vaccine rolling out, only months after running out of toilet paper.
Pandemic and the vaccine and supply chains
What we thought was a global and free market was challenged this year. Medical companies experienced a lack of capability to source some core ingredients, such as active ingredients in headache pills produced in India. Everything became a national fight to secure needed goods for one’s own country — a trend also enhanced by the increased nationalism and protectionism in trade. The need for control and visibility into supply chains was apparent and also became a priority for governments and not only the private sector.
With the rollout of a vaccine (or several vaccines), we not only will see the issues presented above in the sense of risk, control of sourcing and process, but quality and responsibility as well. From fakes to already active cyberattacks targeting a very specific point of the supply chain process (vaccines must be shipped and held at a certain temperature) we’re seeing the need for decentralized logistic systems that tell the story of every touch point in production. But none of this will matter if governments cannot manage their own supply chain needs, as we’re already seeing.
It is possible that lessons will be learned from the COVID-19 pandemic. It is time for companies and entire industries to rethink and transform their global supply chain models — in close collaboration with governments. One thing is for sure, the pandemic has already exposed the vulnerabilities of many organizations, especially those who have a solid dependence on global sourcing for raw or finished materials.
The good news is that new supply chain technologies are emerging that will heighten visibility across supply chains, reducing risk and creating an infrastructure that can handle the volatility of the next pandemic. The application of distributed ledger technology has already proven to be useful as a solution to ensure accountability and trust in the data provided along the supply chain. Digital supply networks will slowly replace linear supply chain models, breaking down functional silos to create end-to-end visibility, collaboration, agility and optimization.
That is good news for the future, especially since we’re all experts in supply chain logistics after nearly a year of working from home, stockpiling toilet paper and clicking refresh to hopefully add one of the not-nearly-enough gaming consoles to our cart.
