How COVID-19 has transformed the business processes of Global Supply Chain?
Updated: Sep 8, 2020
"How COVID-19 has transformed business processes of Global Supply Chains"
By Ayantika Ghosh, SS Consultants
The best way to build a high-performing supply chain is to identify the roadmap in the beginning. Let me tell you a story- the story of Choluteca Bridge in Honduras; which is quite an evident and classic metaphor of “change”. We often try to keep things unchanged and maybe that is where we go wrong. With every passing day, things around us change, just like we do. And as we stepped into the year 2020, the biggest possible change is leaving the “old normal”. We have adapted ourselves to online meetings, lectures, and everything possible virtually. But there are a few things which probably would go beyond this as well. Just like the unpredictability of the hurricane that moved the route of the river and the bridge was so firm that it was not even possible to change the design or the construction of the bridge and till now it stands stills with no human activity. Who would want such an investment where there is no ROI at all? Nobody would probably want such a thing to happen. With the wave of COVID-19 pandemic, nature has shown how it can function by its own rules and how dreadful could be its principles. The nature functions in such a way that “predictability” is becoming a far-fetched thing in practice now. Moreover, we are moving towards “adaptability” which is quite practical to do. The classic case of Choluteca Bridge is also about the over-estimation of the administration that no storm could ever shatter the bridge. They achieved what they had aimed but this lead to something as unpredictable as changing the route of the river on which the bridge was made.
“Experience did not lead people toward more accurate self-assessment of performances”. This work of overestimation was explained by Kruger in 1998 and hence, it is known as the Dunning-Kruger effect. The theory does not end with over-estimation alone; it talks about under-estimation as well. Any business, be it small, medium, or big, must take care of the Dunning-Kruger effect. The pandemic has affected several businesses and their supply chains, nationally and internationally. The intensity is so high that it has complicated each step of the supply chain. Restaurants, bars, malls, and small businesses are shutting down. In an emerging market like India, nearly 38% of the start-ups are out of funds and 4% have already shut due to the lockdown and severe economic degradation. The logistics and transportation industry was severely affected due to the lockdowns announced in various markets around the world. Only the essential items were allowed to move and everything was operated under the purview of restrictions imposed by the respective administration. Pandemic has badly affected the developed economies like the USA, Japan, European countries as well as emerging economies like South Africa, India, and China. Major economies are into the worst phase of their economies. In the second quarter of 2020, the GDP growth rate in the USA was -32.9%, the UK with -20.4%, Japan with -27.8%, and India’s and Canada’s is estimated to be –1.2% and 12% respectively. But interestingly, China is one of those emerging markets whose GDP growth in the second quarter of 2020 is estimated to be +3.2%.
The pandemic has eaten up a huge number of jobs all around the world. The job pattern is evolving, the demand for skills is changing over the night. Though the number of job losses in G7 countries like the USA and Japan has a huge difference with 30 million to 1.76 million respectively. Probably, this is much about the skill set that differs in these two countries and the population as well. There is a commonly used term in the field of the supply chain, JIT (Just in time), a Japanese management philosophy to provide customers with minimum delays. COVID -19 pandemic is a classic time to test whether this approach that was developed by the automotive giant was viable or not? JIT is more vertically integrated and supply chains are more regional. Otherwise, it would take a longer time for input materials to ship from one place to another which will eventually lead to longer hours till the end product is manufactured. By the time everything happens, the customer would have had a change in taste and preference and hence the demand. Due to the on-going pandemic, JIT has got affected for many reasons, such as lockdowns, change in demand, and many more. JIT works in such a strategy that there is no room for any type of leakage or blockage, the COVID-19 scenario a contra-indication to its strategy. Even medical equipment (one of the most essential items during the pandemic) could not reach the end-user on-time. As Harsha Razdan (Partner and Head, Consumer Markets and Internet Business, KPMG India) says that companies should look at their demand projections and their forecasts, they might have to review it not only for their competitors but also for other categories where there is a share in their customer’s wallet. As I mentioned earlier in the article, adaption to changes would be critical to succeed whether there is an emergency or not. Razdan also adds that he believes in “just in case” keeping in mind the on-going scenario until the businesses return to their old normal, which might take some time.
The change in the global supply chain is multi-faceted. Companies of developed markets are moving their contract manufacturing units from China to other emerging markets. Due to the outbreak of the Coronavirus in the Chinese province of Hubei, assembly and manufacturing units were closed down to prevent the disease from spreading, and hence the supply chain eventually got affected. This was just the initiation point after which the global economy slipped. The below-mentioned graph represents the falling of exports from China to the rest of the world, hampering the smooth distribution chain.
Though the pandemic has disrupted global trade there is always an alternative to everything. Effective supply chain management and operations management requires the coordination of complex economic activities and strategies both, within firms and across firms in a supply chain. We, at SS Consultants, have driven our forces in an effective methodology to gain a higher momentum. The current competency levels of staff and a team gets assessed so that the impact of the action is higher, hence increasing the level of supply chain operations of our client organizations. We use a wide array of well-developed analytical tools such as SCRUM Model (a framework for transparency, inspection, and adaption for project management ) Further, we effectively focus on our work by prioritizing the value of the work we have undertaken, and that the lead project time is at a minimum. This strengthens the units for whom the work is being done.