The COVID-19 pandemic shocked businesses around the world out of the complacency of believing that their carefully orchestrated global supply chain had made them impervious to disruption. The problem was that the virus itself was also global.
As a result, nearly 75% of companies experienced some supply chain disruption in the early days of the crisis, according to Institute for Supply Management research cited in Industry Week. It turned out that the world's largest 1,000 companies or their suppliers had more than 12,000 operations in areas that were effectively cut off from the rest of the world, according to the Harvard Business Review.
Many experts believe the disruptions were a consequence of the quest for supply chain efficiencies that organizations have pursued for the last 25 years. "These incredibly complicated, complex global supply chains…were designed for cost and efficiency, but without really a thought to what could go wrong along the way," said Susan Lund, a partner at the McKinsey Global Institute.
When it comes to global supply chain visibility, the lesson of the pandemic is that businesses need to rethink their priorities in several areas.
Supply chain visibility
By most accounts, even the most sophisticated organizations have real-time visibility into only a fraction of their supply chain. A 2019 study by Frost & Sullivan and IBM found that 84% of chief supply chain officers cited "lack of visibility" as their biggest challenge.1
Part of the problem is that global networks of secondary and tertiary suppliers can become so complex that even the primary suppliers they service don't have a full picture of their own chains. Geographic decentralization has made these views even more opaque and vulnerable to local disruption. McKinsey estimates that 80% of trade flows through countries that are experiencing declining political stability.
Companies can improve supply chain visibility by demanding better accountability from primary suppliers about who supplies them. They also need to do the hard work of mapping their full supply chain, including multiple tiers as well as distribution facilities and transportation networks.
Technologies like 5G wireless networks also make it possible for sensors attached to goods to be tracked continuously while in shipment. When combined with smart sensors, this enables businesses to monitor not only location but temperature, vibration and other factors that may impact quality.
Industries such as electronics and pharmaceuticals are heavily dependent upon Asian countries for raw materials and components. That fact, combined with the shift to lean manufacturing, has led to many companies being overly dependent upon a single supplier or a few critical suppliers in the same area.
The unprecedented region-wide lockdowns during COVID-19 exposed the vulnerability of these strategies. With both political and competitive pressures growing on companies to eliminate their dependence on sources that are deemed risky, now is a good time for businesses to develop alternative global supply chain networks.
Factory automation and robotics are improving efficiency and reducing manufacturing costs, making it more practical for companies that previously shipped operations offshore to bring them back closer to home.
Other cases call for a different approach. For example, the 2011 Fukushima disaster revealed to Toyota that its worldwide manufacturing operations were too dependent upon parts produced in Japan. Its moves to diversify supply chains across the country and the globe aimed to better protect it against regional disruptions.
Supply chain risk has typically centered on a few predictable vulnerabilities, such as storms, earthquakes and civil unrest. Many firms were blindsided by COVID-19, but the pandemic shouldn't have been such a surprise given that smaller outbreaks are not uncommon. The only difference this time was scale.
Risk managers need to take a clean-slate approach to evaluating global supply chain vulnerability, incorporating even far-fetched scenarios like a comet strike. The idea isn't to prepare the organization for every possible threat but to weigh the likelihood of events against impacts on the business and allocate resources accordingly.
Reinvention and innovation: IoT in the supply chain
A crisis can sometimes reveal opportunity. For example, some delivery businesses took advantage of the demand for their services during COVID-19 to expand into home meal and grocery delivery. A number of clothing makers retooled to produce personal protective equipment. In evaluating risk, organizations can also consider the opportunity that arises from a crisis, even if the benefits are more reputational and financial.
Reinvention can also come from within. The capabilities of smart Internet of Things (IoT) devices are improving rapidly, enabling companies to incorporate IoT in the supply chain to automate more functions on the factory and warehouse floor. For example, 3D printing may make it possible for some parts to be produced in-house as a backup supply. Robots may be able to take the place of human workers whose mobility is limited by social distancing guidelines.
Discover how Verizon 5G and mobile edge computing (MEC) solutions are enabling pharmaceutical supply chain visibility.