A new supply chain impact study has found that 85% of global supply chains faced a reduction in operations during the pandemic, while 6% shut down all together. Fortunately, 77% believe their supply chains were at least moderately prepared for the disruption of Covid-19, meaning 60% expect business to recover within just six months.
With natural and man-made crises disrupting supply chains more regularly, businesses need to evaluate whether it is sustainable to rely on a sole location for a resource, or assumptions that demand will go unhindered as a rule of thumb. According to a report from McKinsey & Company earlier in 2020, the Covid-19 crisis could top $5 trillion in worldwide economic losses, if supply chains spanning the globe fail to adapt to reduce exposure to threats to business survival, such as a further wave of the pandemic.
According to a new study from Infosys, while the supply chain sector has shown signs of stress over the duration of the Covid-19 outbreak, it has also demonstrated signs of resilience which could help avoid the massive losses warned at by McKinsey. Infosys found that 57% of companies in logistics reported a reduction in operations of more than 25%, including one-quarter of respondents who lost more than 50%, and 6% who shutdown outright. While the impact of Covid-19 on supply chain specialists cannot be overstated, though, many firms remain upbeat about the amount of time it will take for their business to bounce back.
Even with the dreaded second wave on the horizon, some 60% of supply chain leaders feel their business will recover in just half-a-year. While 18% of respondents said that they would either take longer than a year to regain full functionality, or never manage it, a surprising 28% said it would take them under three months. This is likely due to the preparedness of supply chains companies for addressing a crises, with the majority having taken at least some kind of steps to steel themselves for a major disruption before 2020.
While the Covid-19 pandemic and accompanying recession are unprecedented blows to supply chains, 2020 was already expected to be a challenge for logistics. Looming trade wars between the US and China, preparations for the Post Brexit economy in the Euro zone and an increasing focus on sustainability and environmental consciousness had all been on the cards for some time, and while nobody could argue that none of these moments took the world by surprise in the way the pandemic did, they did push global supply chains to review and reengineer their operating models.
As a result, 77% of Infosys’ respondents said that they were somewhat prepared for a major disruption before the coronavirus crisis. With that being said, firms clearly feel the crisis has highlighted some major chinks in their armour, causing the number who now describe themselves as somewhat prepared falling to just 39% now. This will likely spur many firms into action when it comes for preparing for future crises, such as pandemics, meaning the majority of surviving firms will learn from a troubled 2020 to run better fortified models in the future.
The three most impacted parts of the supply chain so far have been sourcing and procurement at 65%, warehousing and distribution at 48%, and supplier networks as mentioned by 43% of respondents. According to Infosys, firms are prioritising three key areas in order to help address this. Around 43% of companies are investing in demand forecasting, while 39% are exploring readiness and continuity planning, and the same number are investigating new inventory management techniques. According to Andrew Duncan, Partner and UK CEO of Infosys Consulting, digital technology could be the key to addressing these needs.
“It is reassuring to see that supply chain executives are optimistic about future recovery,” Duncan noted. “However, many organisations were overconfident in their ability to weather a major disruption, indicating the need for better strategies, tools and planning moving forward… Digital tools and analytics will be a fundamental part of building resilience in the future, helping us better able to navigate uncertain supply and demand, adjust to disruptions in operations and supply chains, and adapt to sharp changes in consumer confidence and priorities.”
Duncan added that this is particularly important in the UK, where the economically disruptive ‘cliff-edge’ outcome of a No Deal Brexit still remains possible. As time ticks down for the final Brexit deadline on December 31st, supply chain leaders should be preparing for friction at the UK-EU border, leading to longer delivery times and critical production holdups. He concluded, “Such an outcome will significantly extend the post-crisis recovery in our supply chains that we were hoping for in 2021 and beyond.”