Shifting Supply Chains in the Time of COVID-19

The Future of Logistics

BotFactory Inc., Edward Salas

The New Norm

As I work through another long workday, I cannot help but notice a set of prying eyes in the corner of the room — It’s my cat, currently looking at me judgmentally from the windowsill.  Like many others around the world, the coronavirus has forced me into self-quarantine, and as I look upon Spring starting to bloom outside I can also feel the way my cat is mentally wishing I was gone from ‘her’ apartment. Interestingly, it seems that this sentiment is not a unique experience and we, as a society, will need to adjust to the new ‘normal’, whatever that turns out to be.

We can see changes already happening, such as the new ritual of daily applause you can hear in New York City at the change in hospital shifts, the barren interiors of restaurants which have become take-out and delivery only, the makeshift office spaces in people's homes, or the sparse number of people all accompanied by mandatory facemasks in many metropolitan areas. But the biggest changes are not ones which we can yet see; they are only starting to be considered, and in limited cases, starting to be implemented in several places across the world.

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Adapting for the Future

Japan, a country well-known for its many technological advances in consumer electronics, medical devices, and robotics, recently put forward ¥220 billion ($2 billion) to encourage their companies to move manufacturing out of China and back onto its home islands. Private and public firms are now finding themselves eyeing a way to diversify their own sources of components due to both increasing political tension and the encompassing worldwide health crisis. Clearly, this is not the first time a natural or manmade disaster has thrown a wrench in the economic machinery of many countries. In 2011 after an earthquake-tsunami one-two punch, many Japanese car manufacturers had to restructure their entire supply chains.  In the same year severe flooding in Thailand caused a sharp disruption to the stream of the world’s electronic components. To be part of the modern world is to be willing to adapt and change with the circumstances, lest we all become destined for the junk heap of history.

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Accelerating Change

While the drive to diversify the source of supply existed before COVID-19 burst onto the scene, its emergence has accelerated the need for a more robust supply chain as various countries pause their economies due to the new illness. Factories that were once operating at peak efficiency, are now shuttered, causing long-established logistical trains to stop in their proverbial tracks, leaving everyone that depends on the uninterrupted flow of supply suddenly to start scrambling to find fresh sources. In search of answers, many countries are beginning again to look closer to home to find insurance that the next pandemic, political upheaval, or natural disaster will not hurt their bottom line.  

Before COVID, China was the source of about 28 percent of the global manufacturing output, but that number started to shrink as many companies have moved their production to China’s competitors, such as Vietnam, Thailand, and Mexico. At first this was done to negate the US-China trade war tariffs, but now it is to make sure that their inventories are ready to weather upcoming storms. This exodus from China is expected to accelerate as many firms start to view what was once a market known for low-cost labor and plentiful inventory as a bottleneck that may hinder their stability.

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Closer to Home

What this ultimately means, of course, is that we will see a greater shift in domestic research & development as well as domestic manufacturing of critical supplies. According to the US Department of Health and Human services, up to 95% of surgical masks, including the now-ubiquitous N95 mask, and 70% of respirators are mass-produced overseas. To bring just a fraction of critical supplies such as those into domestic production would cause a huge shift, from expanding manufacturing itself to increasing demand for warehousing and logistics. Furthermore, companies would likely set aside additional inventory of the most critical and high-demand items to act as a ‘buffer’ in order to insure against shortages caused by panic-buying as well as roller-coastering demand of the kind we have seen in recent weeks. All of this put together would re-energize the domestic manufacturing sector, which has been flagging in recent years, even before the pandemic hit. 

As Napoleon once quipped, ‘An army marches on its stomach.’ Even though boxes of bolts, electronic parts, and raw materials are not glamorous, they are all necessary building blocks of not only the economy but the world around us. With the scramble for new supply, new opportunities are bound to open up for individuals and businesses who are willing and able to adapt and provide solutions to ease these growing pains. While we have yet to see the end of this crisis, we can start to put strategies and plans in place to ensure we implement the lessons learned from it. Changing the status-quo is never easy or comfortable. However, if we want to be prepared for the next hurdle that this century seems to so much enjoy throwing at us, we must adapt and grow supply chains and manufacturing processes with the changing times.

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