COMMENTARY

Covid-19 could trigger these 10 changes in the future of supply chains

Businesses that do well will be those that roll with the changes. The virus outbreak has created a big reality check for them.

WITH Covid-19 causing profound changes in how we live, work and play these days, many people are now talking about a "new normal" way of life post Covid-19.But as far as supply-chain management is concerned, there is unlikely to be a "new normal".

A supply chain is not so much a "chain" but rather an ecosystem that should and is constantly changing and evolving, whether we like it or not.

Every day, business requirements change, new legislation is introduced, new technologies and tools become available and new opportunities present themselves. Hence, the new normal is not a special occurrence but is something that true logisticians will have to contend with.

Covid-19 will certainly have a transformative effect on supply chains, not just because technology and digitalisation have presented ways to get through the pandemic, but also because it has brought to the fore a number of practices and technologies that will shape the future of commerce, logistics and supply chains.

Here, in no particular order, are some of these new practices:

1. Hybrid of brick-and-mortar with online offerings

Covid-19 has forced us to spend more of our lives digitally. We expect the boundary between online and offline commerce to blur even further whether it is shopping for essentials or video-calling our friends and family.

Instead of brick-and-mortar stores disappearing, we expect to see more online businesses invest in the offline economy, such as food retailing or logistics. Omnichannel supply chains will become the norm.

2. Lean is not agile

Coupled with this increase in omni-channel supply chains, the pandemic has taught us that having a lean supply chain, with a reliance on a single source of supply could prove fatal.

We will not just see the further emphasis on omni-channel routes to market, but also omni-supply ones. Nissan was one automaker which had to shut production facilities because of supply disruptions from China.

Firms across multiple industries have been affected and even today, very few supply chains are functioning the way they were before the pandemic.

3. Anywhere But China (ABC)

ABC - a term coined as far back as 2011 - will increase as we move ahead in the post Covid-19 world. Japan has earmarked US$2.2 billion of its record economic stimulus package to help its manufacturers shift production out of China.

India and the Modi government are jumping on the bandwagon and trying to attract companies to set up in India.

Will we see a mass exodus overnight? Probably not, but it will bring forward plans many companies already have and it is a good reminder to logisticians that we should always be looking at the optimum place to source, make and sell.

4. Online shopping to grow

Despite virus-related supply and demand issues, there has been a huge increase in online food and grocery shopping, with many customers most likely trying out the channel for the first time. These new customers who have tried purchasing online are here to stay, albeit not completely online.

5. Rise of logistics real estate

Logistics real estate has increased in demand as blank sailings, grounded aircraft and congestion at load and destination ports means inventory needs to be held in warehouses.

The pandemic may also accelerate the use of automation and robots in operations and reduce the sector's reliance on labour.

The move to online shopping, especially for groceries, could become more permanent and, in turn, boost demand for logistics space.

6. Shopping locally

Shopping locally will see a resurgence, especially if a readily available and low-cost vaccine for Covid-19 is not forthcoming in the short to medium term. To avoid crowds at larger stores, many people will continue shopping for their essentials at smaller local retailers.

7. Driverless and drone deliveries

Driverless vehicles or drones have already been deployed in places like Wuhan, Dubai and Singapore, but with social distancing and reduced human contact, these solutions will attract increased interest.

The World Economic Forum is working with industry to investigate how autonomous vehicles can assist in the crisis, alleviating the strain on existing delivery services and providing a contactless experience.

8. Near-shoring

While China may be the world's factory, it imports the majority of its raw materials; aside from crude oil, around 50 to 70 per cent of the world's copper, iron ore, metallurgical coal and nickel is also consumed by China to produce goods used all over the world.

A risky dependence on extended and convoluted supply chains have surfaced vulnerable nodes in global supply chains, and this will lead to production and sourcing moving closer to end-users, and companies choosing to localise their supply chains.

In the near to medium time frame, firms will look to build more resilient supply chains that are capable of responding to disruptions and there will be an increased focus and interest in nascent technologies like 3D and 4D printing.

9. Rise of the gig economy

The pandemic has seen a rise of workers in the gig economy. This is an unhealthy trend as the gig economy undermines the traditional economy of full-time workers who rarely change positions and instead focus on a lifetime career.

Health benefits, job security and career advancement are sacrificed at the expense of perceived flexibility and higher initial earnings.

The pandemic has increased the need for temporary and flexible job roles to be fulfilled as firms tend towards hiring independent contractors and freelancers instead of full-time employees to ride the spikes and troughs in labour requirements.

Work-from-home requirements have also made people re-think how they work and when the epidemic is over, many firms and individuals will change the way they work.

10. Digital transformation

One positive impacts to come out of the crisis is a wider recognition by firms of the value of Industry 4.0, specifically in digital transformation in areas such as robotic process automation and artificial intelligence.

This is a wake-up call for organisations that have placed too much emphasis on low-cost, low-skilled labour to execute tasks in warehouses or distributions centres, back-room operations and manufacturing.

The focus on daily operational needs at the expense of investing in digital business and long-term resilience has proven to be an unhealthy strategy.

Businesses that can shift technology capacity and investments to digital platforms will mitigate the impact of the outbreak and keep their companies running smoothly, now and over the long term.

As we continue to navigate the crisis, whether any or all of these possible scenarios come to pass remains to be seen.

Businesses that prosper will be the ones that best react to change. In a topsy-turvy world, some things that we viewed as de rigueur are no longer the case and this is a huge reality check for many firms.

  • The writer is editor-at-large of CargoNOW magazine