The Long Term Impact of Coronavirus on Global Supply Chains

The Long Term Impact of Coronavirus on Global Supply Chains

In our previous article we predicted the likely short-term implications of Coronavirus and how we will start to see significant shortages. Since the first article we have seen significant outbreaks in South Korea and Italy and even the largest organisations are now warning of supply interruptions.

Immediate responses are by nature tactical, but this second article takes a step back and looks at the longer-term implications for the global supply chain structure and strategy.

Rebalancing supply chain cost and risk

Coronavirus has demonstrated the need for fundamental change in how we balance supply chain risk with cost. This should lead to multi-regional manufacture of each product. In many cases this will be via multiple low-cost environments (Asia, South America and Africa) or for critical parts through repatriation of manufacturing into higher cost economies. The protectionist political environment that is emerging is also likely to play into the decision making.

However, this strategy will only work if we can dynamically rebalance supply between locations and still meet total global demand. This will require additional, routinely underutilised capacity that can be rapidly brought online. Easier to justify with high-margin products in high-margin markets, but far more challenging for commodity products. This will make demand segmentation and integrated supply chain design/network analysis critical.

Even if we have globally resilient internal supply chains, we will fail if our suppliers of even commodity parts don’t have redundancy or hold adequate inventory buffers. The second key of global supply strategy will drive a review of our sourcing strategy and approved supplier criteria.

A key starting point, whilst not discussed in this article, will be the modelled understanding of your cost to serve (we have a webinar on this topic on the 4th March which you can sign up to here). This is critical for the design and operation of your supply chains as the risk profile changes and you move from one operating model to another. An interesting read on the extent to which you focus on flexibility is “Operations Rules Delivering Customer Value Through Flexible Operations” by David Simchi-Levi.

Technology to the rescue?

If we accept the above premise, resilient supply chains are significantly more complex to manage than today’s single source, low-cost supply chains. This will be a catalyst for control systems that contain costs and deliver agility and will drive the uptake of:

• Integrated Supply Chain Planning Systems that dynamically balance supply and demand in near real time. These were the subject of a recent webinar (which we are running again). In the webinar we were thinking more about changing demand patterns, but the logic applies equally to the supply side risk/cost balance.
• Technology including IoT again the subject of recently published an article on the emerging technologies that are starting to impact the way we manage supply chains.

The good news is that with a combination of new technology and integrated supply chain planning systems we have the capability to manage our global supply chains effectively both when there is limited risk and when risks are much higher.

How Iter can help

Iter Consulting is a specialist supply chain and operational excellence consultancy and we support our clients in balancing working capital, operating cost and service.

We are experts in supply chain strategy, supply chain risk management and technology who can help you prepare for the next one in a hundred year event and deliver value when your competitors are failing to do so.

Tim Richardson
Development Director
Iter Consulting