Adjusting Supply Chains Amid COVID-19

Male warehouse worker take inventory at a distribution center to help manage supply chains during COVID-19.

The global shock waves caused by the COVID-19 crisis hit virtually every industry. While countries closed borders and companies closed down production of parts, materials and ingredients, the supply chain went into a virtual collapse, and lean manufacturing began to appear frail.

Now, with recovery plans moving forward, U.S. manufacturers and processors are assessing whether to change or entirely abandon their application of "Just-in-Time," the nearly fifty-year-old method of managing supply chains. They are balancing the costs of carrying added inventory against the costs of shutting down production in the face of supply chain failure.

In its annual report on the state of U.S. logistics, consulting firm A.T. Kearney framed the challenge going forward: The pandemic makes clear the risks of super-efficient, single-source, just-in-time supply chains. While it is undeniable the benefits of just-in-time inventory management have proven themselves across nations and industries, a global disruption has caused many leaders to take a step back to consider how they manage their supply chains, with a focus on creating more resilience and fewer points of potential weakness.

Risk Assessment: The Foundation of Smart Decisions

Before making pivotal decisions about moving away from just-in-time to a supply chain management strategy that looks more like “just-in-case”—and will likely add to costs—many experts and consultants advise a rigorous process to assess strengths and vulnerabilities of current suppliers.

  • Start with a complete inventory of all suppliers at all levels—Tiers One, Two and Three. Each can have an impact on your company, or the tier above them.
  • Assess the ability of each to meet supply requirements without interruption and, ultimately, manage potential risks.
  • Evaluate workforce planning and capabilities for all suppliers and their programs for restarting production after a shutdown of any kind. This not only has a potential impact for product, part or ingredient availability but on quality management as well.
  • With a clear assessment of all suppliers, determine for which it’s wise to identify additional or alternate sources.
  • Stay current with the list of sanctioned and embargoed countries.
  • Develop alternate supply sources, with a particular focus on those in non-impacted countries. In early plans for recovery from the current pandemic, many companies began looking away from China and toward sources in Mexico, Brazil, India or Chile. But stay aware of current conditions; the status of many countries currently feeling little or no impact from the virus continues to change.

The Chief Business Continuity Officer

The global crisis has elevated the role of procurement manager to levels not commonly seen before. Procurement news and opinion publisher Spend Matters says the coronavirus disruption has focused an intense spotlight on procurement departments: CEOs are skipping CIOs and CFOs and going directly to Chief Procurement Officers for answers.

Across industries, CPOs are re-calibrating their agendas to help ensure recovery and resilience. Many of them are operating with new priorities and adjusting their action plans to ensure business continuity and smart cost containment, while organizing smaller, more agile teams and task forces. The net effect: the perception of procurement leaders has shifted from chief of cost containment to architect of resilience.

“Companies are realizing the asset they have in their procurement team. They have visibility into every tier of the supply chain—including their suppliers’ suppliers—and can provide the flexibility and the know-how required to tackle this complex task as the virus moves around the world,” says Dawn Tiura, President and CEO of the Sourcing Industry Group, a global sourcing association.

Digital Transformation: Supply Chain at the Head of the Line

Many manufacturers are now considering traditional methods of supply chain management or processes that have hampered procurement teams and which must be replaced. Outdated methods on their way out include issuing numerous requests for quotation, or RFQs; using traditional spreadsheets to manage those responses; traveling long distances to audit suppliers; and managing quality from a distance.

In what is a tectonic shift for many companies, the need to move away from traditional procurement and supply chain management methods and toward digital processes has intensified. In a PwC survey of 288 U.S. CFOs, more than a third report they are now leveraging automation to improve the speed and accuracy of decision-making within their supply chains. That number is up from 26% of CFOs surveyed just two weeks prior. These leaders now recognize the effect of critical time lost during the pandemic due to insufficient data needed for informed decisions on spending, pricing actions to move excess stock, or getting a clear view of opportunities to shift a mix of offerings.

Next Normal for Warehousing

Warehouses and distribution centers are preparing for new, pandemic-driven demands on both their processes and workspaces. Now that social distancing is a requirement for a healthy, dependably-staffed workforce, two options are on the table: larger spaces and automated operations requiring smaller workforces. Or both.

The recommendations from the Occupational Health and Safety Administration are likely to create the need for reconfigured or expanded warehouse shop floor footprints. These include designated spaces for frequent hand washing or sanitizing, daily temperature checks, or secure rooms to isolate employees who become ill. Partitions between workspaces are also recommended to ensure six-foot distancing.

When expanding workspaces is difficult or impossible, integrating automated storage and retrieval systems may be the answer. These include horizontal or vertical carousels, vertical lift or buffer modules. Consolidating inventory with ASRS can not only increase capacity but save up to 85% floor space, too.

Just-In-Case Space

Industrial real estate and logistics experts at Prologis estimate that businesses could increase their inventories by 5% to 10% over the long term to guard against the demand shocks to the supply chain that were seen during the pandemic lockdowns.

Higher inventory levels and the accelerating growth of e-commerce, which typically requires about three times as much space as traditional distribution operations, could increase U.S. warehouse space demands by as much as 400 million square feet over ­­the next two to three years.

Investing for the Next

While the disruptions caused by the global crisis are likely to continue rattling supply chains, impacting both buyers and suppliers, one thing is clear: Putting every link in your supply chain under intense review and identifying potential failure points will be key to survival and future growth. As one parts manufacturer CEO said, “We’re taking it down to the studs to make sure the rebuild is solid.”

With that analysis in hand, it may make sense to move from a just-in-time inventory management platform to one offering greater resilience and agility. And once risk assessment is complete and opportunities for investment—whether in automation or workspace footprints—are identified, it’s an equally sound strategy to work with professionals across all categories to ensure wise spending.

The views expressed by the author are not necessarily those of Fifth Third Bank, National Association, and are solely the opinions of the author. This article is for informational purposes only. It does not constitute the rendering of legal, tax, accounting advice, or other professional services by Fifth Third Bank, National Association or any of their subsidiaries or affiliates, and are provided without any warranty whatsoever. Deposit and credit products provided by Fifth Third Bank, National Association. Member FDIC.