The year 2020 has been full of dark days, but we have seen many bright spots too. As we move into 2021, we bring you a series on the global pandemic’s impact with an exporting and international business lens. Each month we will dive deeper into topics that impact the way business has changed due to COVID-19 and how innovations and ingenuity can make our lives better for the future.
Our first topic is toilet paper. Well, not toilet paper exactly, but why this seemingly ordinary product became so scarce so quickly. And for that, we take a closer look into supply chains.
For many businesses, their goods, components, pieces, and parts come from a variety of places beyond the companies physical location. This can be as simple as the bananas at the grocery store in the middle of ND or the computer components built into tractors for increased data visibility. Many US manufacturers import components to produce the final product, which is then exported again. Even though something is made in the US, it does not mean that every piece is sourced from the US. Companies rely on suppliers for specific parts from all across the globe.
Take a computer built into a tractor that is manufactured in the US. The computer system and all its raw materials likely came from 10 or more locations to arrive in the US; then, they are combined into the tractor. When one or more unpredictable events disrupt the creation of raw materials, demand for such materials or those materials’ movement can become unreliable. The whole process of how raw materials are made into a final consumer product is called a supply chain or value chain. When outside events impact demand, shipping reliability, or the human-power to create goods are disrupted, the chain gets a chink in it.
Disruptions in supply chains became very apparent with the global pandemic sweeping its way across the world. Many countries shut down, also changing the flow of goods along the way. Then, all of a sudden, all the toilet paper was gone! Stores were not prepared for an uptick in demand for this particular product. More and more toilet paper was flying off the shelves, and the suppliers could not get their hands on enough due to the many chinks in the supply chain experienced throughout the global pandemic. It is reasonable to assume that the demand for toilet paper has historically remained steady, and many stores place orders for such goods months in advance. Timing and erratic purchasing caught stores off guard resulting in shortages.
Manufactures may not have felt the disruptions immediately. Still, if there was a specific component sourced from an area experiencing shutdowns, there was likely disruption to the supply of that good. Manufacturing could not continue or adapted to make up for the gap. Knowing where a company’s goods are sourced becomes a valuable tool to understand the vulnerabilities and how companies can become more resilient to disruptions.
The McKinsey Global Institute (MGI) used Nike as an example of a company that had the agility to shift supplies to meet consumer demand quickly. The company has significant investments into understanding its supply chains. When the global pandemic started to take hold in January 2020, Nike could see that brick-and-mortar stores were shutting down. The company was able to reroute inventory to fulfillment centers allowing for direct to consumer shipping. This shift helped offset large losses that other companies felt as the inventory of goods started to pile up at brick-and-mortar stores, just as in-person consumer shopping decreased. With companies ordering goods months in advance, the pandemic and lack of consumer spending (in certain) industries highlighted companies’ vulnerabilities with too much inventory and funds tied up in that inventory. The reverse problem of not enough stock to manufacture items with increased demand was also problematic.
A global pandemic is not the only thing that has been disruptive to supply chains worldwide. The MGI reports a significant disruption in supply chains can be seen about every 3.5 years. These disruptions can be fueled by trade policy, war, natural disasters, political uncertainty, and even human-made disasters, like the nuclear meltdown in Fukushima, Japan, in 2011. Car manufacturers have worked to diversify their supply chains as the nuclear meltdown in Japan impacted a large part of their business for several years. While it may be a feeble attempt to predict the next global supply chain issue, if one will happen, is inevitable. It is more beneficial to recognize supply chain vulnerabilities and how to fix them rather than the event type or timing.
Jim Tompkins of Tompkins International (a company that focuses on international supply chain solutions) says that we need to stop thinking of supply chains as chains, which implies a linear network. As a solution, we need to look at the whole ecosystem of a product from raw materials to consumers, which will help to understand vulnerabilities and become more resilient. By understanding the overall network of resources, a company can determine the weak points and reduce and mitigate devastating disruptions.
Technology for supply chain management comes into play in a few different ways. One of which, is supply chain management software systems that use algorithms to detect and track the movement of goods. These systems alert company’s to any irregularities and can potentially provide options for mitigation. Some systems can integrate with current inventory, deadlines, and suppliers to prioritize the most beneficial decisions based on factors critical to your business. These technologies can be pricey, but these systems are likely beneficial in the long run when considering frequent disruptions every few years.
Tompkin believes innovations in large-scale technology to build global networks, increase the transparency of supply chains and goods distributions are on their way. An integrated network will allow for access to both businesses and consumers to know exactly where components are coming from every step of the way and identify needs in real-time instead of filling orders six months in advance to receive goods.
Companies that recognize their vulnerabilities and seek to understand their supply chains quickly find it can be a daunting task. Supply chain identification experts are professionals dedicated to investigating supply chains from raw materials to production. These experts can be hired and may provide valuable insights into how a company purchases its business components. There is also a trend for increasing consumer interest in supply chains which could drive companies to make educated decisions on supplies based on values other than low-cost for sourcing goods. Some of the most recent trade deals, for instance, consider fair payment for labor and other humanitarian issues, which was seen in the US Mexico and Canada Agreement (USMCA).
As we continue to see new ways to operate through the global pandemic, we are likely to see shifts in supply chain management, along with increased awareness of vulnerabilities. Events such as trade policy shifts, tariffs, natural and human-made disasters will continue to happen, but how much they impact supply chains can be mitigated through understanding weaknesses, data collection, and smarter technology. Many companies will take this as a lesson learned and find new ways to become more resilient, while others will continue to operate as usual and hope for the best.
References:
- EPS News: How Covid-19 and New Technology is Shifting Supply Chain Management–
- Harvard Business Review: Global Supply Chains in a Post-Pandemic World –
- Supply Chain Management Review: The Supply Chain is Dead. Long Live the Ecosystem–
- McKinsey Global Institute: Risk, resilience, and rebalancing in global value chains