By Hossam Refaat
Can the complex global supply network survive the COVID-19 pandemic? And, assuming it can, how will it adapt to the new realities?
Just-in-time delivery of finished goods and components has been put under tremendous strain. In the retail sector, supermarkets initially saw their highest weekly sales ever, as consumers stocked up on goods that they feared were in short supply.
This led to many countries closing shops for non-essential and discretionary purchases, and even when open, consumers were cautious about venturing to the high street, preferring to shop online.
The flexibility of the logistics industry has been one of the positives during the Covid-19 crisis. Elizabeth de Jong of the UK Freight Trade Association told the BBC that demand is up 50 - 100 per cent, and road hauliers have adapted to keep up. She predicted that shoppers would see more restricted ranges on supermarket shelves “to allow more throughput from suppliers and manufacturers of food”.
Harvest time is upon many countries in the northern hemisphere. How will they cope with lockdowns, restrictions on the movement of migrant labour, and many workers suffering symptoms and/or in isolation?
In Italy, for example, approximately 150,000 agricultural labourers are from abroad, according to the Italian statistical office, Istat. Emilia-Romagna, one of the provinces hardest hit by Covid-19, is especially dependent on migrant labour and accounts for about a third of Italian agricultural and industrial output. It is estimated that overall, European agricultural enterprises will have a labour shortfall of 300,000.
To address the labour shortage, the German Federal Ministry of Food and Agriculture launched the job portal Das Land hilft (“The country helps”), by means of which the unemployed and farmers can get in touch with each other quickly and without bureaucracy. Despite these initiatives, it may be too late to save much of the spring and early summer crop.
Much of the available domestic labour, for example hotel and bar staff on furlough, simply are not used to field work. The Federal Government is therefore relaxing rules to allow asylum seekers and migrants from non-EU countries such as Albania, Bosnia and Herzegovina.
At the end of March, long queues of European Union trucks built up on the Turkish border as Turkey imposed a 14-day quarantine to reduce the risk of the spread of Covid-19. Bulgaria was excluded from the restriction and started building the “world’s largest parking lot for trucks” to manage freight transfers to and from Turkey, also a major supplier to the EU not just of agricultural but also manufactured goods.
This is perhaps an extreme example, but it highlights how Covid-19 caused severe disruptions to supply chains. The broader issue is that border controls and travel bans limit the ability of supply managers to identify and qualify new suppliers.
Countries such as the UK and Ireland, which are highly reliant on air freight, are particularly exposed to this kind of supply chain risk. The reduction in air travel means companies must find alternatives, for example increasing warehouse capacity for non-perishable goods and chartering special flights for perishable goods.
As China returns to normal export activity, a further challenge short to medium-term may be warehousing capacity. Goods will be arriving in ships but many of them will have nowhere to go so long as many retail outlets are shut. We will see how well the logistics industry copes in the coming months, but companies such as Maersk remain confident.
For many years large enterprises have taken it for granted that trade barriers are low and focusing on achieving competitive advantage, for example by offshoring production, building not buying, saving on inventory with just-in-time production, and sourcing from low-cost countries. To further reduce costs, many buyers have relied on just one supplier for certain categories of spend. Great when you can count on the supply, not so great if the supplier shuts down production for any length of time or there are travel bans.
The pandemic is likely to change the equation; the emphasis will shift away from cost-cutting to risk mitigation. The world is waking up to the fact that another major disruption could arise at any moment. It makes more sense to source from several suppliers with some spare capacity rather than just the one or two who are most cost-efficient.
One of the few positives of this crisis has been in seeing how well many of the sectors have been able to adapt. As RiskMethods advised in its report on the impact of coronavirus, smart organisations are already considering how they can build more resilient supply chains before the next crisis hits. Here at Jaggaer we too are supporting our customers with solutions such as Jaggaer Sourcing Optimizer to get on top of the challenges today and in the future.
Here’s another positive. There is not the slightest doubt that in an uncertain world, AI-based solutions that enable organisations to predict and act on fluctuating supply patterns will play an increasingly important role in business, and this in turn will increase the demand for technology-literate professionals in supply management and procurement.