How the pandemic will change supply chain strategy

The emphasis will be more on ensuring a diversity of suppliers and less on cost-cutting say experts

Coronavirus has thrust a massive spanner into the normally smooth-running workings of global supply chains, leading to disruptions across the length and breadth of distribution networks.

Shipments have been delayed, cancelled or rerouted. We've seen shortages of some products, higher logistics prices, higher overseas manufacturing costs, cash flow problems, payments freezes and a frantic search for alternative suppliers.

But the pain has not been equally distributed.

In retail, the food and groceries supply chains have stood up remarkably well despite their just-in-time supply structure. While there have certainly been some difficulties - the sudden demand for toilet rolls broke all the predictive models - and shops and supermarkets have had to substitute availability for choice, overall it could have been a lot worse.

Supermarkets enjoy a strong loyalty due to store location and brand, and in these unusual times consumers have proved to be much more forgiving and have changed their expectations in the spirit of being all in this together.

Clothing woes

Of course, food shops have remained open throughout the crisis, unlike fashion retailers which are closed and whose customers buy far less online.

Year-on-year clothing sales in the UK dropped by more than half in April, according to the ONS.

"There's been a severe impact to the fashion industry and a lot of that impact has flowed upstream from retailers who have found it impossible to find a route to market for their product," said Julian Burnett, IBM's VP distribution sector UK and Ireland, during a press briefing.

Even here, though, the impact has been patchy. Specialised firms like sports brand Gymshark, which sells exclusively online, have barely been affected by the storm, perhaps because of the increase in people working out from home.

"We haven't seen a dramatic change," said chief data officer Gemma Hulbert. "We've seen lounge wear a little more in demand, but not dramatically. There hasn't been a huge shift."

Broadly speaking, organisations like Gymshark with a strong brand and well-developed digital channels are suffering less than those without. Indeed, as a result of the pandemic we are likely to see a greater focus on supply chain agility and less on cost-cutting, said Peter Fensky, VP distribution sector Europe at IBM, who said the next 18 months will see some major shifts in supply chain strategy. "Sourcing decisions will be made in a different light, with economies of scale balanced against being dependent on single sources or logistics routes."

More sources and more routes will mean more complexity, meaning there will need to be more visibility across the supply chain channels, together with increased intelligence and automation so that manufacturers, distributors, dealers and customers know exactly where a particular shipment is and when it will arrive. The ability to swap one supplier for another at short notice and without undue friction will be another sought-after quality.

Supply chain management

IBM is one of a number of global IT vendors with a portfolio of supply chain management services, some are part of ERP packages, others standalone services based in the cloud; all will be eyeing up the opportunity to help change the way supply lines work. One of the more interesting recent developments, in part because of its early demonstration of the viability of blockchains for something other than cryptocurrency, has been IBM's TradeLens collaboration with shipping giant Maersk., one of a number of blockchain-based consortia with the involvement of Big Blue.

TradeLens has faced some initial regulatory and credibility hurdles but in January the US Federal Maritime Commission (FMC) amended its regulations that had limited cooperation between carriers. Many of the large global maritime shipping firms are now part of the consortium.

"We've tracked over a billion shipping events," said TradeLens business development executive Richard Stockley. "That's something like 22 million containers tracked."

TradeLens uses a permissioned (private) blockchain to store transactions immutably in a transparent fashion. It can drive efficiency and flexibility by allowing the physical, financial and digital aspects of the supply chain to run "in parallel rather than in series", according to Stockley, and also allow second-tier suppliers to collaborate on the same platform (although there has been some reluctance from that quarter due to competitive pressures). With transparency and real-time visibility come agility, he said.

Stockley said that in the last two months about 7 million shipping containers have been cancelled owing to virus-induced disruptions.

New routes

The mismatch between demand and supply has meant that CIOs have had to work out new ways of ensuring continuity. A head of IT from a construction and engineering firm which has seen business activity increase during the downturn, who asked not to be named, said finding enough laptops to support working from home had been a real struggle.

"We decided we'd get everyone in India working from home and that we'd pay for their broadband, but how do you get it installed? So we got creative and booked hotel rooms for them. We wanted to refresh 6,000 PCs and laptops, but it's a nightmare because everyone's fighting in the same pool and Barclays Bank ordered 100,000 laptops, so it's where you are in the queue."

Other measures were rolling out VDI to allow file sharing, and using Citrix to allow engineers users to connect remotely with CAD machines in the office.

"Because we've managed to work our way around these problems we've really seen IT's popularity rise within the company," he said.