The pandemic has proven to be a test for resilience and flexibility of global supply chains in their mission to keep essential operations running.
While already of paramount importance prior to this crisis, the pandemic has also meant an increased societal and organizational focus on sustainability. Companies and their activities are expected and desired to behave in a more sustainable, committed and respectful manner towards the planet and society.
Among the characteristics expected of a socially responsible company, is to have a sustainable supply chain, regardless of whether this is simple or whether it branches out internationally in a complex manner.
How Has COVID-19 Impacted our Supply Chains?
Many businesses have seen their revenues significantly reduced. Restaurants, hotel chains, airports, entertainment venues and shopping malls are suffering most acutely from the effects of this global pandemic.
Even with government assistance, they still face enormous uncertainties about how their businesses will evolve and whether they will be able to survive. Cash flow management has become key to ensuring liquidity and survival: one could argue that it is being managed and administered with "surgical precision".
This is creating enormous pressure and numerous challenges for FMCG industries. Many companies have responded with actions to mitigate their costs, such as temporary staff layoffs or executive and management pay cuts of 20-30%, for example.
All of these actions are an attempt to preserve cash and keep the team on the payroll. Companies are also extending deadlines and prioritizing their accounts payable, reducing their
inventory wherever possible, and delaying any new product introductions to minimize their expenses. Companies are faced with the challenge of managing a complex balance: they must maintain their ability to serve customers to ensure revenue, retain their workforce to operate, while protecting and preserving cash flow to survive.
Fundamental changes are not only on the demand side; operating conditions have also changed. Significantly higher volumes in new channels, in product categories or in business lines have generated some degree of supply shortages and created production capacity shortfalls.
Many companies have taken steps to continue to deliver the required volumes by leveraging the resource of incurring overtime, shipping and delivering on weekends, and expediting supplies to distant geographies.
At the same time, some companies have slowed down production lines that have minimal demand, making additional new capacity available.
Companies are implementing health and safety protection measures to reduce the risk of contagion. In some cases, premium pay (or hazard pay) is used to incentivize employees to continue performing high-risk work and avoid shutting down a facility. As a result of these operational difficulties, service levels have suffered and manufacturing costs are rising, while productivity and results have declined.
Logistics
Relationships with carriers have historically been considered, in many cases, as a "cost" to the supply strategy. However, those companies that have invested time in developing strategic alliances have been able to differentiate themselves by securing transportation supply in these critical weeks.
In many cases, it implies rethinking the Route-to-Market to market aligned with the commercial strategy of the Go-to-Market.
Defining strategies for last-mile distribution is essential in view of the growing concentration in large cities. Where to locate the production and logistics nodes, how many nodes to use and with what logistics strategy they should operate, etc.
These are times to develop collaborative schemes and win-win strategies with distribution partners, to support and invest in. Also, to support and invest in long-term relationships, based on the incorporation of technology and continuous improvement. It is no use having the best product if we are not in a position to reach the customer when and how we need to do so.
In certain critical processes, such as order picking/sorting and product movement, logistics automation is becoming increasingly important to ensure that companies have the capacity available to secure supply and meet required service levels.