While supply chain management is a relatively new concept, trade is one of the oldest human occupations. Among the first global trade routes was the Silk Road, named after the silk trade, a textile industry initially developed in China around the year 2,700 BC.
Even after China’s monopoly on silk came to an end, the Silk Road continued to facilitate trade, cultural exchanges, and diplomacy. The Silk Road was 7,000 miles long; it is estimated that a round trip from Rome to China took about two years. By comparison, rail shipping from Europe to China takes 10-12 days.
Since then trade has evolved tremendously—the World Trade Organization (WTO) estimates that the value of world merchandise trade in 2018 was US$ 19.67 trillion. The only aspect that has remained constant is that supply chains are still continuously disrupted. For instance, the Silk Road spread viruses and diseases such as smallpox in the past, and it seems possible that global supply chains also contributed to the recent COVID-19 pandemic.
Disruption is the new normal in supply chain
The most recent supply chain disruptions can be grouped into two categories, based on the type of impact they had on trade:
Indirect, like economic (downturns or financial crises, and resource scarcity) and geopolitical (global warming, local conflicts, corrupt governments, and population growth)
COVID-19 is the latest disruption that has impacted supply chain operations while highlighting the importance of this industry. Hopefully, this pandemic is temporary, with operations expected to go back to normal gradually. In the meantime, COVID-19 has accelerated previous trends such as the growth of online sales and has paved the way for new business models and strategies.
Like any complex system, global supply chains have many components and each one of them can be impacted by the disruptions mentioned above. Global disruptions like the COVID-19 pandemic have hurt most parts of the supply chain. There's also the ripple effect that propagates challenges incrementally across the supply chain. For instance, the recent global quarantine led to a huge increase in online ordering, putting pressure on logistics companies. This may lead to additional risks for people working in such businesses.
This article recognizes some of the major areas of supply chain management impacted by COVID-19. Four members of the G2 research team identify the important challenges concerning product development, manufacturing, procurement, and security.
Product design and development in uncertain times
One of the major areas that have been affected by supply chain disruptions is product design and development. From fashion and retail to automotive and industrial manufacturing, virtually every industry that relies on product design has been seriously impacted by the supply chain disruptions occurring due to COVID-19.
The reason for such an influence is that the majority of design components come from factories in China, the first country affected by the coronavirus. Innumerable companies rely on China as their only source of production. So when COVID-19 hit China’s economy and countless factories were shut down, a majority of businesses were missing the most vital cog in their development process.
For years, an overwhelming number of product designers have relied solely on China as their one and only global supplier without sparing a thought about secondary or tertiary suppliers. As a result of these supply chain disruptions, it is imperative that businesses re-evaluate the global sourcing of their products to avoid facing a similar situation in the future. Businesses should view this reevaluation as a positive influence to improve their supply chain management and supply chain planning.
Another positive step that product development teams can take is rethinking product design to create safer environments as coronavirus infections spread. Design teams can do this all while thinking of ways in which they can keep global sourcing limited, using software and technology at their disposal.
HP Inc. is a great example in this regard. The company is using 3D printing technology to create respiratory valves, protective masks, and face shields. 3D printing requires limited materials that can be locally sourced.
Creator, a burger restaurant in San Francisco, developed a new pressurized takeout window to reduce the amount of exposure that both customers and employees would have to one another during the takeout process.
Creator used general purpose-CAD software and PLM software to manage the materials and create the design within a few days. Once again, this was made possible with limited sources and local materials, another example of rethinking design to reduce global sourcing.
As the COVID-19 pandemic continues to have an impact on supply chains around the world, designers can utilize this opportunity to reimagine ways to design locally sourced products with the goal to minimize the global impact.
How our constantly changing needs will impact manufacturing and services
Manufacturers need to adapt to market changes such as evolving customer demand. These changes are usually the result of constantly evolving human needs. As the psychologist, Abraham Maslow noticed in his work "A Theory of Human Motivation", humans have several types of needs: basic, psychological, and self-fulfilling.
COVID-19 has motivated a majority of the population to focus more on basic needs such as food and safety. As a result, some manufacturers switched their production norms to build products that weren't so important before but are in high demand now. A few examples are hand sanitizers, now made by alcohol manufacturers, and face masks produced by fashion and apparel companies.
Consumer and customer behavior impact supply chains. The service economy is a recent economic development that aims to address a mix of human needs. For instance, having food delivered to the door isn't a basic need, nor is it psychological or self-fulfilling. This changed recently due to COVID-19, with food delivery suddenly becoming a basic need to ensure safety. For many people, it is also the only way to get access to food under current conditions.
Some businesses such as restaurants may decide that new business models are more profitable for them. Delivery-only (or virtual) restaurants are expected to become more popular. They allow restaurants to focus more on deliveries, reducing the costs of renting and maintaining physical locations.
How to control costs and keep supply chain profitable
For the procurement team, one of the main goals is to locate and acquire supplies at the lowest cost while making sure they fall within the predetermined quality standards and guidelines. When the procurement team is forced to step outside of its normal means to obtain supplies such as paying a premium for the same materials or expediting shipments, the increased costs affect the company as a whole and not just the particular team. For example, paying a premium for materials and parts would directly increase the cost of the product and indirectly affect the finance team, and expediting shipments would impact the supply chain logistics department.
Businesses can identify alternative suppliers where possible and prebook logistics capacity to minimize exposure to potential cost hikes. If they are able to collaborate with suppliers and other stakeholders, procurement teams can be enabled to create more favorable terms like increasing capacity to make up for any lags in the supply chain.
A company's supply chain and hence its procurement team can make efforts to maintain profitability or at least minimize losses during the COVID-19 pandemic. One possible solution is to incorporate “just in time” delivery by storing no more than one month of supplies on hand. This helps to lower carrying costs but also increases the supply chain’s risk of having products out of stock. The possible downside of this is that it could lead to a disruption in the supply chain that includes production slow down and limited availability of product options and variety to the end customer.
Additionally, a company could produce and sell less of its low-volume, low-profit products, shifting its focus on its more popular, higher-margin items. This change has the potential to help maintain customer demand while still turning a profit.
The coronavirus pandemic has forced supply chains around the world to adopt a remote workforce with new devices accessing their network in new locations. Each of those remote connections and network-enabled resources contributes to expanding the attack surface. With the influx of companies into remote work, that attack surface has increased exponentially, allowing attackers to access unknown amounts of sensitive business information.
One way to prevent this is through the use of virtual private networks (VPNs) which creates an encrypted connection to the secure network across the supply chain. However, companies should ensure complete network visibility for all internet-enabled devices within the supply chain and maintain proper patch management for any and all connected devices.
VPN usage is rising, according to a recent survey conducted by G2, but it is advisable for companies to use more than just a VPN. Perimeter-based security is highly susceptible to attacks especially if the threat actor obtained credentials through sophisticated phishing attacks.
Technologies like risk-based authentication and zero-trust security can add an adaptive layer of defense to the company network. They continuously evaluate risks based on a number of factors and prompt suspicious users for further authentication even if they’ve already accessed a network. That means nefarious activity within the supply chain from external attackers, insider threats, and third-party vendors will be discovered and remediated.
Additionally, proper security awareness training for staff and supply chain partners can help prevent such credentials from being handed over in the first place. Workers must be able to identify suspicious emails, websites, and digital content to protect the company’s resources. Failing to do so may result in significant data loss, operational disruption, and fines.
Adapting to constant change
Ironically, the adage “change is the only constant in life” hasn’t changed since Heraclitus framed it more than 2000 years ago. The Greek philosopher, Heraclitus is said to have “complained that most people failed to comprehend the logos (Greek: “reason”), the universal principle through which all things are interrelated and all natural events occur, and thus lived like dreamers with a false view of the world.”
The COVID-19 pandemic and its impact on our lives and the global economy illustrates that all things are indeed interconnected and constantly evolving. Our research at G2 is also changing, but we are committed to providing insights into all the myriad types of technology that have the potential to benefit everyone—businesses, employees, and society in general.
Gabriel’s background includes more than 15 years of experience in all aspects of business software selection and implementation. His research work has involved detailed functional analyses of software vendors from various areas such as ERP, CRM, and HCM.
Gheorghiu holds a Bachelor of Arts in business administration from the Academy of Economic Studies in Bucharest (Romania), and a master's degree in territorial project management from Université Paris XII Val de Marne (France).