COVID-19 pandemic ‘will drive supply chain diversification but not de-globalisation’
International companies will need to restructure, diversify and ‘de-risk’ their supply chains in response to the COVID-19 pandemic but large-scale ‘near-shoring’ or ‘de-globalisation’ are unlikely, according to logistics experts.
The pandemic will drive supply chain changes, focusing on improving resilience and reducing risk, Prof. Richard Wilding predicted. In particular, changes will be necessary in both transportation and warehousing as supply chains evolve through a ‘pre-new normal’ to a ‘new normal’.
Meanwhile, the worldwide boom in online shopping was the ‘biggest surprise’ during the disruption caused by coronavirus-related lockdown restrictions in recent months, in the view of DHL’s Chief Commercial Officer, Katja Busch.
Wilding, professor of Supply Chain Strategy at Cranfield University in the UK, and Busch, who heads Deutsche Post DHL’s Customer Solutions & Innovation (CSI) unit, were speaking in a media briefing to present a new DHL White Paper on the ‘Post-Coronavirus Supply Chain Recovery – The Journey Towards The New Normal’. Wilding was the main author of the report.
"With the easing of restrictions and the unfreezing of the economy in many regions of the world, it is time to establish a first retrospective summary on the resilience of global supply chains," explained Busch. "For us as logistics experts, it is important to analyze the challenges and experiences across industries during this crisis and to envision how resilient supply chains can be in the future so that we may best advise our customers. As a world leader in logistics, we have the insights and the expertise to accurately evaluate the situation."
More resilience, network changes and volatile demand
The main findings of the research paper, which presents possible strategies and actions, are that supply chain leaders are moving from an era marked by procurement for cost to an era marked by procurement for resilience; that changes in consumer behaviour require adjustments to transport flow and warehouse networks; and that new ways of working will disrupt established processes, providing fresh impetus to digitalization and automation initiatives.
In a pre-new normal world, supply chains will be re-shaped to make them more resilient, according to the report. For instance, the fact that both manufacturing and warehouse locations were equally affected by regional lockdowns and varying regulations, will result in more distributed manufacturing, storage, dual sourcing, re-shoring, and near-shoring in the future.
Furthermore, demand will be more volatile and consumer tastes may fluctuate erratically, increasing the need for flexible and alternative transportation flows and warehouse networks, the report’s authors believe. While online shopping will be more prevalent and direct-to-consumer sales will increase, other retail channels and industries will be disrupted.
Crisis accelerates e-commerce by three years
Looking back, Busch said Deutsche Post DHL’s own resilient business model had paid off during the corona crisis. “We have never been that close with our customers (in the past),” she commented. After healthcare, logistics had proven to be the second-most important sector for economies and society, she noted.
“What surprised me the most was the complete explosion of the entire online business,” Busch commented. “Experts say that this crisis accelerated the development of online by nearly three years, which is really massive. We see this in Post and Parcel Germany, in Express.”
Looking ahead, the DHL CCO emphasised that more innovations will be necessary to help cope with the impact of the COVID-19 pandemic. DHL, for example, is currently working on an ‘alert bangle’ to warn warehouse staff if they are too close to other workers.
In response to a CEP-Research question about the potential for companies to ‘de-globalise’ their supply chains, for example by reducing dependence on China, Busch commented: “I personally do not believe that globalisation will go away any more. What I strongly believe is that if you sourced solely from China, then you could source from Vietnam as well, for example. This is something we are currently discussing with our customers."
Costs remains “a big driver” in supply chain, she emphasised. “It’s naïve to think consumers will be willing to pay much more for things because they were produced near-shore. So we will see changes but I believe it will be more diversity in sourcing. I don’t believe we will turn back outsourcing into Asia.”
Deeper supply chain risk planning needed
Wilding highlighted that, with ‘Supply Chain 4.0’, “we are now getting to a point where we have the capability of being able to manufacture locally at the same cost of doing global sourcing. We may start to see small-footprint manufacturing being near-shored because of this.
“When we start to get cost parity between manufacturing globally and locally, that will start to create a trend where we can near-source. However, we are not suddenly not going to have global sourcing,” he made clear.
Presenting the main themes of the report, Wilding stressed that companies need to do deeper risk planning and better understand their supply chain structure before making changes.
In particular, such supply chain changes to reduce risks might require changes in transportation and warehousing, he explained. For example, companies should review the locations of warehouses and inventory “to avoid the risk of everything in one place”.
Moreover, companies face more volatile demand as customers switch buying patterns such as buying frequency. This could easily lead to a ‘bullwhip effect’ where companies over-compensate by ordering too many goods ‘just-in-case’ of a sudden surge in demand or supply shortages, he warned.