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A DHL perspective on the impact of the COVID-19 pandemic on supply chains and logistics. By Professor Richard Wilding, Full Professor & Chair in Supply Chain Strategy, Cranfield University School of Management; Dr Klaus Dohrmann, VP Sector Development Engineering, Manufacturing and Energy Sector, DHL Customer Solutions and Innovation (CSI); Dr Malcolm Wheatley, Visiting Fellow, Cranfield University School of Management.

As we write this, the world is still in the middle of a historic pandemic caused by the novel coronavirus SARS-CoV-2.

This pandemic affects every aspect of our private and business lives:

  • The global economy and global trade
  • Industries and individual businesses 
  • Politics
  • The way we live, travel and interact and
  • Supply chains around the globe.

Many say that this pandemic will change the world forever.

For a post-pandemic world, this crisis will accelerate changes that had already begun, and at the same time unveil new trends and new priorities. As a result, consumers, businesses, and supply chain managers will find themselves in a ‘new normal’.

In this article we outline the shape of the ‘new normal’ from a supply chain perspective, in order to help you answer the following questions:

  • What are the characteristics of a new normal relevant for supply chains? How does a transition to a new normal via a ‘pre-new normal’ phase look like?
  • What are the post-coronavirus impacts on supply chains and how can supply chain management contribute to future business success?
  • What are the long-term lasting lessons to consider as a supply chain decision maker?
  • What are the actions to be taken and success factors in order to build the resilient supply chain of the future?

We believe that there is no single solution to the opportunities and challenges ahead caused by the coronavirus pandemic. We therefore invite you, our customers and partners, to discuss those challenges, and to explore innovative supply chain solutions in the near future.

 

Supply Chain Disruptions

The spread of the novel coronavirus SARS-CoV-2 is first and foremost “a public health emergency of international concern” as declared by the World Health Organisation.

However, even in its very early stages, its significant impact on supply chains and the crucial role of supply chain management became obvious. 

It has become more clear that the essential role of the logistics industry is to keep supply chains operating around the globe. Hence there is a remarkable story to be told about the sector that supports our well-being in every possible dimension; one that continues to unfold.

DHL Resilience360 published a Resilience Report, “The Novel Coronavirus: Impact on Supply Chain Operations amid the Lunar New Year” on 29 January 2020. Even at this very early stage, the report highlighted severe disruptions to air cargo, as well as congestion for vessels on the Yangtze River near Wuhan, highlighting the likelihood of impending supply chain disruptions.

Starting early March with northern Italy followed by most of Europe and North America, more and more countries went into lockdown with most non-essential commercial activity halted and people confined to their homes. 

As an example, beginning of April 2020 in Europe, more than 1 million of the 2.6 million auto workers had been furloughed at large car manufacturers and suppliers.

With border closures to international visitors and other travel restrictions, airlines either completely or mostly suspended their entire operations, leading to a significant contraction of cargo capacity. Freighters and charter capacity were used to deliver essential medical equipment; other shipments were switched to alternative modes such as ocean or rail transport.

In summary, the resilience of supply chains was tested in unexpected ways. However, the following economic crisis was not driven by collapsing supply chains but a significant lack of consumer demand.

Hence, any shape of recovery depends on the speed and magnitude of consumer spending behaviour. Short- and long-term it seems inevitable that supply chains will be different. In the wake of the still ongoing pandemic many lessons have been learned already; a desire for more resilient and flexible supply chains has become more prominent.

As countries begin to emerge from lockdown, businesses are contemplating those lessons, and beginning to consider exactly how supply chains will differ between yesterday and tomorrow.

Even allowing for an element of hype, overreaction or exaggeration, it seems almost certain that a return to normality will herald a new normal that is very different from the old normal.

 

Transition To The ‘Pre-New Normal’

Businesses and their supply chains will not transition to the new normal immediately. Its shape, for one thing, is not yet clear. We see its outlines, but not all the fine details. However, it is simply not practical to go from today’s crisis situation to immediate, full operation.

So it makes sense to think about and plan for an intermediate phase: one that we can actually envisage more precisely, and begin to understand. We call this intermediate phase the ‘pre-new normal’.

At its start, countries and their businesses will be emerging from lockdown, and beginning to engage once more in economic activity with production and sales increasing.

At its end, the ‘new normal’ will have arrived. In between there will be a period of indeterminate duration, longer in some countries and industries than in others, of adjustment.

 

Key Supply Chain Drivers

How best to explore these scenarios? Clearly, the transition environments will affect different industries in different ways, and probably at slightly different times: aerospace and automotive may be slower to recover than, for example, life sciences, healthcare, and the foodstuffs supply chain.

Accordingly, it perhaps makes most sense to view these scenarios through the lens of how they are shaped by the post-coronavirus impact of key supply chain driver categories:

  • Resilience
  • Demand
  • Transportation & warehousing
  • Workplace operational practice

In each scenario, we explore what the ‘new normal’ might look like, describe the likely shape of the ‘pre-new normal’, and briefly weave in what might be termed the lasting habits that will emerge as businesses adjust to a post-coronavirus world.

We also briefly address, where pertinent, any noteworthy sector or industry ramifications not otherwise addressed.

 

Resilience – Operations & Strategy

Resilience is often thought of as an operational issue, focused on securing the supply from first-tier suppliers. In general, few organisations extend resiliency planning further upstream to their second- or third-tier suppliers.

In future, supply chain managers, planners and procurement professionals may well consider further tiers as they make decisions about sourcing, inventory buffers, and transportation routes. 

Sometimes overlooked, there is also a strategic dimension to resilience. The risk profile of a supply chain is generally ‘locked in’ within the early stages of strategic development. Ensuring that the processes to achieve supply chain transparency and continuous monitoring are embedded at an early stage of supply chain design is recognised as good practice, though this, too, may not receive sufficient attention. 

The coronavirus pandemic has exposed resiliency weak spots, both for countries and businesses. For example, it transpired that the active ingredients for a number of important pharmaceutical products were manufactured in China, in factories then under lockdown.

As United States trade representative Robert Lighthizer told G20 trade ministers at the end of March: “We are learning in this crisis that the overdependence on other countries as a source of cheap medical products and supplies has created a strategic vulnerability to our economy.”

Parallel sentiments have also been expressed by Peter Navarro, the White House’s trade and manufacturing adviser, who has argued for pharmaceutical supply chains to be repatriated back to the United States, in order to “simultaneously reduce America’s foreign dependencies, strengthen its public health industrial base, and defend our citizens, economy, and national security.”

The European Commission has equally become acutely aware of Europe’s reliance on Asia for the production of personal protective equipment, and is working with European manufacturers to establish greater manufacturing capacity in Europe, in part on an emergency basis by repurposing existing production lines.

Implicit in the operational view is that resilience is cost-neutral: there might be a cost, to be sure, but it is often well worth paying for the resulting added protection and peace of mind. As those costs increase, the decision as to whether the price is worth paying is made at an increasing level of seniority.

Clearly, this points to a rise in the prominence of senior supply chain executives within the corporate hierarchy and decision-making process.

 

Resilience – Supply Chain Configuration

Diversification of supply chains for more resilience was already considered by many businesses prior to the coronavirus pandemic. Exposure to the supply chain disruption stemming from natural disasters was one impetus. For instance, consider the flooding in Thailand in October 2011, which submerged seven of the country’s largest industrial zones for several weeks, including two zones with factories belonging to two of the world’s largest manufacturers of computer hard drives. According to a New York Times report, of the 227 factories in Thailand’s Khlong Luang industrial zone, only 15 percent had restarted production six months later.

 

Conclusions

Post-coronavirus, it is clear that a new normal will emerge. Going forward, industries and supply chains will not be the same post-coronavirus as they were pre-coronavirus. The exact shape of that new normal is uncertain, although its broad outlines are emerging. What is certain, though, is that businesses will not launch abruptly into this new normal: as this article has argued, an interim stage, called the ‘pre-new normal’, bridges the gap between lockdown and the new normal, and is crucial for short- and long-term business success.

Forecasting is never an exact science, and not every potential implication may come to pass exactly as expected. Supply chains will have to be re-assessed towards higher resilience, flexibility, and robustness. Innovation and scaling new technologies such as robotics and automation, IOT, and data analytics will be crucial to success. Most of the current pandemic learnings and future implications will lead to a much more important role for supply chain management and logistics.

 

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