In the early days of the COVID-19 pandemic, the big concern was that the lockdowns in China might send a short-term shock wave through retail and manufacturing supply chains. In retrospect, that seems among the least of the world’s concerns.
Indeed, as country after country goes into lockdown and populations start to take self-isolation seriously, supply chains around the world have collapsed. And retailers and consumer goods companies are forced to adapt.
Empty shelves; empty halls
In part, today’s supply challenges are demand-led. As the virus spread to new markets and cities, consumers started to panic-buy. Food retailers suddenly found themselves with empty shelves. Online platforms could not deliver fast enough to meet demand. Inventory of certain goods – foodstuffs mostly, but also isolation ‘essentials’ such as toilet paper and elliptical machines along with certain household needs such as pet food and cleaning supplies – dried up overnight.
At the other end of the mall, retailers of discretionary goods found themselves in a very different supply situation. As footfall evaporated and consumers tightened their belts, demand disappeared. Even those using online platforms to get to market suddenly found their products being held back as the platforms prioritized essential deliveries.
Choking global supply
More recently, the longer-term supply implications have also started to become clear. Global lockdowns have forced many manufacturers and suppliers to temporarily close or repurpose to provide needed essentials. Where manufacturing floors are still operating, stocks of critical inputs and raw materials are running out. Those running lean inventory models are already feeling the pinch.
Logistics and transportation has also become increasingly disrupted. It’s not just that borders have been closed and internal freedom of movement has been curtailed in many markets. Before the crisis, part of transatlantic freight was transported on commercial passenger flights and these routes have now largely disappeared. Freight costs on some routes have more than doubled since the crisis began.
Facing the immediate impacts
All of this has left retailers and consumer goods companies reeling. Some have spent the past few weeks focusing on securing alternative suppliers and routes in order to meet existing targets. Others are working with their current suppliers to improve efficiency (by, for example, focusing on a single SKU in order to drive larger volumes on high-rotation products such as bread).
Around the world, supply chain leaders are reassessing their new realities and trying to forecast what the future may bring. Difficult questions are being asked: Do we have enough visibility into the lower tiers of our supply chain to properly assess the overall impact? Do we know our supply routes and have we explored alternatives? Have we re-evaluated our inventory positions? Do we have line of sight into which orders will potentially be impacted? Many retail and consumer goods leaders are not happy with the answers they are receiving.
Preparing for what’s next
While the world searches for a panacea to the health risks of this pandemic, it is clear that it will take some time for supply chains to return to anything resembling ‘normal’. Retailers and consumer goods organizations must start thinking beyond the initial mitigation and response phase in order to build medium-to-long term supply chain resilience.
Our view suggests leading retailers are starting to do just that. In fact, a number of retail and consumer goods organizations in the UK and the US are rapidly working to deliver an end-to-end supply chain risk resiliency program. All of the organization’s mitigation and resiliency capabilities will be strengthened – from processes and governance through to technology and operational infrastructure.
Get on the front foot
Over the coming months, our advice to supply chain leaders at retail and consumer goods companies is to deal with the short-term supply and demand shocks while simultaneously planning for longer-term resilience. This means working with your current supply chain to improve efficiency and security of supply while also finding new suppliers and routes that allow your organization to diversify in times of crisis. Companies that can stabilize their supply chains and position themselves to assess future disruption by providing structured responses to their risk and exposure points will be in a position to withstand the current landscape.
Those organizations that manage their supply chain and demand issues reactively will not survive long. In this environment, it is those with the most agile, efficient and resilient supply chains that will survive and win in the market.