Over the past year, the world has watched as COVID-19 has shut­tered restau­rants and bars, forced non-essen­tial work­ers and stu­dents into quar­an­tine, and lay siege to the health care indus­try. The out­break is hav­ing a pro­found impact on indus­tries and insti­tu­tions that are inte­gral to mod­ern life. Of all of our mod­ern insti­tu­tions, one of the sys­tems most affect­ed by COVID-19 is the glob­al, just-in-time sup­ply chain busi­ness­es of all types have come to rely on. 

These estab­lished lines of trade con­trol not only what we can pur­chase as con­sumers, but also what man­u­fac­tur­ers of all types and sizes can pro­duce in the first place. All over the world, dif­fi­cul­ties posed by COVID-19 are dis­rupt­ing the sup­ply chains we depend on for food, med­i­cine, clean­ing sup­plies, and, of course, toi­let paper.

The Biggest Sup­ply Chain Dis­rup­tion Since WWII

“The lev­el of dis­rup­tion in a short space of time has been mon­u­men­tal,” said Richard San­dall, chief sup­ply chain evan­ge­list at Inno­vapp­tive, a mobile sup­ply chain and plant main­te­nance solu­tion provider and SAP part­ner. ​“COVID-19 is prob­a­bly the biggest dis­rup­tion to sup­ply chains that we’ve seen since World War II. It’s affect­ing the entire globe.”

What makes the impact of COVID-19 so remark­able is how it is affect­ing every aspect of the sup­ply chain, com­pli­cat­ing both upstream and down­stream sup­ply lines. Com­pa­nies are hav­ing trou­ble acquir­ing the mate­ri­als need­ed to make prod­ucts, and they are strug­gling to ship their prod­ucts to stores and whole­salers. Unlike oth­er dis­rup­tions, COVID-19 is impact­ing vir­tu­al­ly every sin­gle aspect of sup­ply chains. 

[ad]

Short-Term Effects of COVID-19 on Sup­ply Chains 

As COVID-19 forces the clo­sures of pro­duc­tion plants and busi­ness­es, the sheer effect of those clo­sures is weigh­ing heav­i­ly on cur­rent sup­ply chains through dis­rup­tion and demand imbalances.

“Our inter­na­tion­al sup­ply chains are fray­ing and break­ing down,” said Tom Craig, CEO of Tom Craig Con­sult­ing. Craig spoke about the Port of Vir­ginia, which announced that it will soon close its car­go ter­mi­nal because of a drop in the vol­ume of prod­ucts and resources mov­ing through the port.

“There are so many con­tain­er ships laid up because there is no car­go for them,” Craig said. ​“I think that will con­tin­ue for a while until the econ­o­my demand shock passes.”

Anoth­er promi­nent exam­ple is the Amer­i­can auto­mo­tive indus­try, which came to a halt when pro­duc­tion plants closed down as a way to curb the spread of the dis­ease. Some auto­mo­tive sup­pli­ers even piv­ot­ed their fac­to­ries from mak­ing cars to build­ing ven­ti­la­tors. As the indus­try looks to restart, San­dall said com­pa­nies are tak­ing mea­sures in plants and ware­hous­es to avoid fur­ther spread of the virus. These mea­sures include run­ning pro­duc­tion lines at slow­er speeds, assign­ing work­ers to des­ig­nat­ed work areas, and san­i­tiz­ing equip­ment between shifts.

Sup­ply Chains After COVID-19

Mov­ing for­ward, the COVID-19 out­break will also have some wide-reach­ing, long-term effects on sup­ply chains. San­dall said that com­pa­nies have focused on least-cost sup­ply chains over the last two decades. But that will change after COVID-19.

“There’s now going to be a much big­ger focus on build­ing resilience, con­tin­gency plans, and risk assess­ment into sup­ply chains,” San­dall said.

Bring­ing the Sup­ply Chain Back Home

Part of this focus includes reshoring — mov­ing pro­duc­tion back into its home coun­try — as opposed to out­sourc­ing or off­shoring pro­duc­tion. Many Amer­i­can com­pa­nies will begin exam­in­ing how to pro­duce their prod­ucts either back in the U.S. or in a clos­er loca­tion. This process could take some time, how­ev­er, as the U.S. has a size­able (but shrink­ing) inter­na­tion­al trade deficit and imports bil­lions of dol­lars of goods each year.

“It took us decades to get where we are,” Craig said. ​“This change isn’t going to hap­pen overnight.”

Plan­ning Around Poten­tial Sup­ply Bottlenecks

The COVID-19 out­break also is encour­ag­ing com­pa­nies to re-exam­ine the sup­ply chain best prac­tices and con­tin­gency plans they have in place.

“This out­break shines a light on the need for true busi­ness con­ti­nu­ity and dis­as­ter recov­ery plan­ning,” said Chris Hay­don, pres­i­dent of SAP pro­cure­ment solu­tions. ​“It’s pret­ty clear this is an area that wasn’t ready.”

Accord­ing to Hay­don, com­pa­nies will begin ana­lyz­ing and under­stand­ing key bot­tle­necks in their sup­ply chains. Most impor­tant­ly, the out­break allows com­pa­nies to eval­u­ate sup­ply-chain risks. ​“This is how com­pa­nies will get stronger,” Hay­don said. ​“They’ll be able to go back and exam­ine the sup­ply chain capa­bil­i­ties of their core busi­ness processes.”

As com­pa­nies fig­ure out how to con­duct busi­ness in this envi­ron­ment, they also need to make sure that what they rebuild is sus­tain­able. ​“You now have to be respon­sive and see what’s com­ing at a dif­fer­ent rate,” Hay­don said. ​“You can take noth­ing for granted.”

ASUG is con­tin­u­ing the sup­ply chain con­ver­sa­tion with its upcom­ing vir­tu­al event, ASUG Best Prac­tices: SAP for Sup­ply Chain. On May 11 and 12, hear from cus­tomers, experts, and thought lead­ers on how the last year has chal­lenged and changed sup­ply chains, and what tech­nolo­gies com­pa­nies are using to bol­ster their sup­ply chains.