Inside the global supply chain shortage after COVID-19

When COVID-19 became an international crisis in January 2020, businesses began to focus on ways to protect their staff. A tsunami of a supply chain crisis soon followed. By February 2020, 94 per cent of Fortune 1000 companies were experiencing supply chain disruptions that had far-reaching, expensive and sometimes catastrophic consequences for businesses and individuals worldwide ^[1].

More than two years later most companies worldwide continue to experience issues and the machinations of the world’s global supply chain are forever changed.

For anyone who wants a successful career in business, an understanding of the global supply chain and specifically what went wrong during COVID-19 is essential. Here, we will discuss in detail what the global supply chain is and delve into the impacts of COVID-19. We will also examine global supply chain and logistics examples during COVID-19, as well as global supply chain best practices.

What is the global supply chain?

It is integral to understand what the supply chain is before examining COVID-19 related issues. The global supply chain is the distribution of products and services throughout the globe that a worldwide network of suppliers, supply routes and manufacturing procedures make possible. Companies employ the global supply chain to effectively distribute their goods and maximise their profit.

The global supply chain is complex, with many countries sourcing parts and products from global suppliers. In turn, those suppliers source from other transnational suppliers, transporting goods on pallets and in containers, via ship and air, worldwide. However, the global supply chain was once much simpler.

Global supply chains in the early 20th century

Before 1900 (and before the Industrial Revolution), most supply chains were local. For example, a city would receive all of its goods from local suppliers, including food and other consumables, because other transport options were simply not available.

This began to change with the increasing prevalence of railroads in the 20th century. With the invention of the first Mack truck in 1900, goods began to be transported by truck around countries, and suddenly suppliers could reach customers across the country. Around this time, pallets began to be used in warehouses, signalling the beginning of bulk goods transport.

Logistics during and after the war

From the 1930s onwards, supply chains became mechanised, a situation that World War II largely forced on the world. Supply chain innovations aided the manufacturing and shipment of military hardware and supplies. Industrial engineering also took off at this point, with much research into supply chain engineering.

Perhaps the most important invention in this period was the development of pallets, pallet handling and storage systems that enabled goods to be stored and shipped in a standardised manner. Pallet handling and storage helped logistics companies to better load, unload and consolidate goods, resulting in much faster delivery and distribution.

After the war, another important invention emerged: the shipping container. Along with pallets, shipping containers enabled goods to be easily shipped throughout the world.

The modern supply chain

From the 1960s onwards, the global supply chain grew to what we know today. An important development was the advent of computerisation in the mid-1960s. Computerisation enabled companies to track in real-time their inventory data and to streamline all elements of their logistics. For the first time, organisations could scan barcodes and give products stock-keeping units (SKUs) and codes.

The 1980s and 1990s saw the popularity of the term ‘supply chain management’ for what had become an increasingly complex field, especially as companies moved their production to lower-cost countries such as China and Bangladesh.

With the introduction of even more technology in the 2000s, such as artificial intelligence (AI) and machine learning, organisations have had more data than ever on their supply chains, but also an increasing need to manage those supply chains effectively.

Global supply chain issues during COVID-19

The COVID-19 pandemic managed to affect almost all parts of the global supply chain, with almost every organisation suffering some consequences. Originating in China, the crisis soon turned global, spilling over from one issue to the next.

Supply issues with China

With nearly 30 per cent of the world’s goods manufactured in China ^[2], a large part of the global supply chain issues that ensued during the COVID-19 pandemic began there.

In early 2020, scientists classified a collection of mysterious pneumonia cases as COVID-19. By late January, the virus had spread, and China introduced the first of many citywide lockdowns in Wuhan. By early March, many countries worldwide had begun to restrict travellers from China, causing a reduction in air travel and also airfreight. Supply chain issues had already started to be reported worldwide, with 94 per cent of Fortune 1000 companies affected.

Nationwide lockdowns

After the virus began to spread globally, almost every country in the world introduced lockdowns.

Long and strict lockdowns had catastrophic effects on global supply chains. The lockdowns often meant that essential freight workers could not go to work, or if they could go to work, they could only do so on restricted shifts, and under certain conditions that made efficiency challenging. Nationwide lockdowns also meant that consumers could not spend money on certain services, such as events or live art.

Reduced airfreight

One of many global supply chain issues during the COVID-19 pandemic was substantially reduced airfreight. Approximately 35 per cent of the world’s total trade is transported by air; that’s the equivalent of over AUD $8 trillion a year, a significant number ^[3].

During the pandemic, airfreighting goods was near impossible. For a substantial period of time, most countries restricted travel to only essential workers or sometimes family. For example, Australia’s borders were closed to all but essential dignitaries and workers for more than two years, with the border closure in some cases being so strict that even dual citizens were not allowed to leave the country.

Reducing people’s ability to travel significantly reduced the number of flights around the world, with air travel dropping by 60 per cent ^[4].

Workforces affected by the virus

Among other significant global supply chain issues that COVID-19 caused was that a significant proportion of logistics and supply chain professionals who worked on the ground (for example, at the docks, on trucks or in distribution warehouses) ended up contracting COVID-19.

This had a far-reaching effect. If a worker at a distribution warehouse contracted COVID, with the strict isolation rules governments imposed, often everyone who worked with that person would have to self-isolate for up to 14 days. This led to entire workforces being off work for weeks, meaning that goods could not be transported, processed or sent to their final destination.

Global supply chain examples during COVID-19

The onset of the COVID-19 pandemic was a pivotal moment for the global supply chain and exposed its many weaknesses, interdependencies and vulnerabilities. Here are three global supply chain examples from the COVID-19 pandemic that illuminate the issues many industries and businesses faced.

Toilet paper

One of the more bizarre examples of global supply chain issues from the COVID-19 pandemic was the severe shortage of toilet paper that plagued many countries in the world when lockdowns were first introduced.

When countries first began locking down their citizens, panic buying ensued. Believing that supermarkets might close down, people rushed to their local grocery stores and began hoarding essential items like rice, pasta, hand sanitiser and, unsurprisingly, toilet paper. This led to many grocery stores completely selling out of toilet paper for days or even weeks and imposing strict buying limits thereafter.

The panic buying even led to a toilet paper black market, where hoarders charged outrageous prices for a single roll.^[5]

Timber

Another interesting global supply chain issue from the COVID-19 pandemic is how the timber industry fared.

As travel was largely banned during the height of the COVID-19 pandemic (and will likely take years to recover), many people in developed nations focused on building new homes (or renovating their existing ones). For example, in Australia, as of late 2021, the number of homes being built had hit an all-time high, having increased by more than 20 per cent ^[6]. Given that many more homes were being built, timber experienced a massive increase in demand.

Unfortunately the timber industry, like many other industries, has faced considerable supply challenges. These challenges include heightened freight prices, restrictions on retail activity, labour shortages and logistical issues at mills and ports caused by COVID-19.

Masks and surgical gowns

Another issue in the global supply chain from the COVID-19 pandemic is the shortage of masks and surgical gowns.

When the first wave of the COVID-19 pandemic hit, many healthcare professionals found themselves without essential personal protective equipment (PPE), including masks and gowns. Some were forced to reuse items (which was not recommended for health reasons) or simply go without.

Fortunately, many fashion brands worldwide provided almost immediate assistance. With events all but cancelled worldwide, renowned fashion brands such as Prada and Louis Vuitton were able to repurpose their factories to provide much-needed medical masks and surgical gowns, sometimes producing as many as 500,000 items for local hospitals and staff in need.^[7]

Global supply chain and logistics management best practices during COVID-19

The COVID-19 pandemic has changed everything for the supply chain and has also helped cement some global supply chain and logistics management best practices that companies continue to follow today. Here are four examples of best practices.

Hold safety stock

With the cost of freight skyrocketing and the time taken to ship or airfreight goods becoming extremely unreliable, one best practice that has emerged for companies is to hold safety stock.

Before the pandemic, this practice was effectively shunned in favour of just-in-time (JIT) manufacturing, in which companies hold just enough stock and simply produce on demand. Safety stock was seen to be at risk of obsolescence.

However, increased freight costs and the risk of stock arriving extremely late, especially when it is seasonal stock such as clothing, now often outweigh those risks, and companies have begun investing in more warehousing for stock until global freight becomes more predictable again.

Better risk management

Risk has always been something on the agenda for supply chain and logistics management professionals, but the pandemic has pushed it to the top of the agenda for professionals everywhere.

Throughout the pandemic, organisations of all types started to focus on risk management, as suddenly suppliers everywhere were experiencing issues, and freight and logistics had become a nightmare. Many invested in risk management via new software or tools, whereas others focused on implementing new practices and providing more comprehensive staff training.

Organisations also switched from being somewhat reactive when it came to risks to more proactively managing them, especially managing the risks of second- and third-tier suppliers.

Improved manufacturing and supply agility

During the pandemic, demand for certain goods and services either skyrocketed or plummeted overnight. For example, in the early part of the pandemic, demand for toilet paper and other essentials soared to all-time highs, whereas demand for travel hit an all-time low. These changes occurred almost instantly, and companies often could not adapt quickly to the surge or lull.

For this reason, one change that many companies are looking to make includes investigating how they can make their production more agile and either scaling up or changing their market or product more quickly. For example, food suppliers had to change instantly from servicing cafes to filling excess demand from supermarkets.

Introduce process innovations

While the COVID-19 pandemic wreaked havoc on supply chains everywhere, it also had the benefit of forcing many organisations to innovate their global supply chain and logistics management. This occurred as many organisations had to change suppliers or move production elsewhere. As a result, they had the opportunity to revisit processes and create new and better ones.

Some process innovations that organisations began using (or scaling up) due to the pandemic included the following:

• • Automation. With factory workers often being the hardest hit, many companies explored how they could better use automation in their production process, including the use of robots. As one example, many logistics companies began using robotic palletisers, which helped to decrease the amount of manual labour required to pack and ship goods.
• • Three-dimensional printing. 3D printing is an exciting innovation that allows manufacturers to reduce the manufacturing process of complex objects into sometimes a single step. Doing so prevents companies from relying on multiple suppliers for component manufacturing and rapidly decreases the labour involved to make goods.
• • Intelligent demand planning. Many organisations began to look at data from past crises to try to predict any future surges in demand, or they used data-led platforms or technology to help them do the same. These types of analytics were increasingly integrated into supply chains, ensuring that many underwent digital transformations far earlier than they otherwise would.

The COVID-19 supply chain: Creating resilience

The COVID-19 pandemic has changed the world in more ways than one. One of the primary changes it brought was forcing organisations everywhere to revisit, rethink and redesign their supply chain and sharpen their focus on any global supply chain issues they may experience.

The pandemic has created an increasingly resilient and agile global supply chain. This type of resilience is essential both in supply chains and to the effective functioning of global business for a more sustainable future.

Want to learn how to drive business strategy with a global perspective? Learn more about what you can achieve with an MBA Global from JCU Online today.

Sources

^{[1] Fortune: Coronavirus Impact}

^{[2] Global Upside: Top 10 Manufacturing Countries in the World}

^{[3] IATA: The Value of Air Cargo}

^{[4] UN News: Air travel down 60 per cent, as airline industry losses top $370 billion: ICAO}

^{[5] Daily Mail: Toilet Paper Rip-Off}

^{[6] Realestate.com.au: The Number of Houses Being Built Hits an All-Time High}

^{[7] De Zeen: Fashion Brands Pivot to Making Face Masks as Coronavirus Spreads}