Report: Pandemic hits companies hard on the supply side
Manufacturers and retailers say local sourcing, better planning, and increased reliance on 3PLs will shape their supply chain strategies in the wake of Covid-19.
Supply chain organizations have learned some tough lessons from the Covid-19 pandemic, and many say they will implement better strategies to deal with similar events in the future, including creating “comprehensive pandemic plans,” according to a survey from data and analytics firm Resilience 360, a division of transport and logistics giant DHL, and the Business Continuity Institute, released earlier this month.
Covid-19: The Future of Supply Chain surveyed 350 manufacturers and retailers and revealed that most were hit especially hard on the supply side by the pandemic. Going forward, manufacturers and retailers say they plan to diversify their supply base and source more locally, as well as increase their use of third-party logistics services (3PL) providers.
“[Less than] half of organizations had a pandemic plan in place [that] they felt was adequate to cover supply chain issues during the pandemic. As a result, the majority of organizations will now make changes to their plans going forward,” the researchers wrote. “Just over half of organizations will write a pandemic-specific plan and include supply chain in more detail, while another third will alter their general continuity plans to strengthen supply chain-specific elements.”
Nearly three-quarters of organizations said they encountered “some or significant” detrimental effects on the supply side of their operation, and nearly 65% reported the same on the demand side. Twenty percent reported an increase in demand for their products and services, including IT, telecommunications, and pharmaceutical organizations; others said they launched new products and services that catered to different customer demands during the pandemic.
As a result, more than 57% of respondents said they will diversify their supplier base in a post-Covid-19 economy, with many saying that means reducing their reliance on the Far East. About 30% said they will source less from the Far East, with 13% saying they will source less from China, in particular. Two-thirds of respondents said they plan to source goods more locally post-pandemic, with 21% saying they will move “a considerable number of suppliers more locally,” according to the survey.
“Although a further fifth will be engaging in more stockpiling post-pandemic, many are using local sourcing as a more cost-effective way of ensuring goods can be acquired quickly and efficiently,” the researchers said.
The research also revealed that 3PLs may benefit from the crisis, with more than 12% of respondents saying they intend to increase their use of 3PLs going forward.
The survey also found that:
The pandemic has caused many organizations to carry out due diligence deeper in their supply chains going forward. Although organizations had largely carried out good levels of due diligence (such as determining suppliers’ location and obtaining business continuity plans) among their tier 1 supplier base, such due diligence started to tail off beyond tier 2. The pandemic caused disruptions to many organizations’ supply chains beyond tier 1: many European-based manufacturers, for example, are heavily reliant on Asia for components, which caused issues for many organizations’ tier 1 suppliers. As a result, nearly two-thirds of organizations said they plan to perform deeper due diligence going forward, the researchers said.
More organizations are using technology to help them perform the required due diligence. There has been a discernible increase in the use of technology during the pandemic to help with supply chain planning and strategy: 57.1% of organizations are using their own internal systems and spreadsheets for supply chain mapping, [and] 13.5% are using specialist tools–a notable uptick on the 22.6% recorded in the BCI Supply Chain Resilience 2019 report, the researchers said. In addition, of those who are not currently using tools, a fifth are now considering purchasing a specialist tool, the researchers also said.
For more coverage of the coronavirus crisis and how it's affecting the supply chain, check out our Covid-19 landing page.
Ron Marotta of Yusen Logistics listens to Rick DiMaio of Ace Hardware talk about the steps Ace is taking to keep its store stocked after Hurricane Helene and during the East and Gulf Coast Port Strike.
The East and Gulf Coast port strike was the top discussion point during a panel discussion of shippers and logistics providers at the Council of Supply Chain Management Professionals (CSCMP) annual EDGE Conference this morning. The session, which was supposed to be focused on providing an update to CSCMP’s “2024 State of Logistics Report,” quickly shifted to addressing the effect that the strike by nearly 50,000 dockworker at 36 ports in the Eastern half of the U.S. could have on supply chains.
“The seriousness of this action cannot to be taken lightly,” said Ron Marotta, vice president of the freight forwarder and supply chain service provider Yusen Logistics (America). “It has not happened since 1977. Our lives depend on sustaining a smooth global supply chain.”
Marotta warned that for every day that the ports were not open, it would take four to five days to recover from the impact. One added concern is how the port closures would affect recovery efforts for Hurricane Helene. “There’s a huge amount of item that would normally be replenished by importers and retailers,” Marotta said.
Rick DiMaio, executive vice president and chief supply chain officer, for Ace Hardware Corp., commented that the hardware retail cooperative was doing okay for now keeping stores in stock, although he did expect the company would be “chasing generators for awhile.” “But in this recovery phase [from the hurricane], we certainly don’t need a strike right now,” he said.
The port closure will also have a knock-on effect on other transportation modes. For example, Andy Moses, senior vice president of sales and solutions for logistics services provider Penske Logistics, expects to see some companies turn to air freight as a result of the strike. This will, in turn, cause air freight capacity to tighten up and rates to rise. Furthermore, the longer the ports are closed, the more likely inflation is to rise again, according to Moses.
Nor will the effects of the strike stop at the U.S. border, according to Marotta. Many Caribbean Island nations depend on food import from the U.S. that move through East Coast ports. Additionally, some medical supplies typically are exported through the ports to Europe.
On a positive note, however, many companies took actions earlier in the year to prepare themselves for a potential strike. Ammie McAsey, senior vice president of customer distribution experience for the pharmaceutical distributor McKesson, said the pharmaceutical industry has brought in enough extra inventory that there will not be a short-term impact on the U.S. health care system due to the strike.
Government intervention?
Marotta hopes that the U.S. government takes the step of invoking the Taft-Hartley Act to stop the strike and send the International Longshoremen’s Association (ILA) and the port management group, United States Maritime Alliance (USMX) back to the negotiation table. In 2002, for example, President George W. Bush used the Taft-Hartley Act to end an 11-day lockout of union workers at West Coast ports. President Joe Biden, however, told reporters on Sunday that he would not do this.
“I hope that cooler heads prevail and that the executive branch realizes that it’s not just a labor issue, it’s also a humanitarian issue,” Marotta said.
Confronted with the closed ports, most companies can either route their imports to standard East Coast destinations and wait for the strike to clear, or else re-route those containers to West Coast sites, incurring a three week delay for extra sailing time plus another week required to truck those goods back east, Ron said in an interview at the Council of Supply Chain Management Professionals (CSCMP)’s EDGE Conference in Nashville.
However, Uber Freight says its latest platform updates offer a series of mitigation options, including alternative routings, pre-booked allocation and volume during peak season, and providing daily visibility reports on shipments impacted by routings via U.S. east and gulf coast ports. And Ron said the company can also leverage its pool of some 2.3 million truck drivers who have downloaded its smartphone app, targeting them with freight hauling opportunities in the affected regions by pricing those loads “appropriately” through its surge-pricing model.
“If this [strike] continues a month, we will see severe disruptions,” Ron said. “So we can offer them alternatives. We say, if one door is closed, we can open another door? But even with that, there are no magic solutions.”
Turning around a failing warehouse operation demands a similar methodology to how emergency room doctors triage troubled patients at the hospital, a speaker said today in a session at the Council of Supply Chain Management Professionals (CSCMP)’s EDGE Conference in Nashville.
There are many reasons that a warehouse might start to miss its targets, such as a sudden volume increase or a new IT system implementation gone wrong, said Adri McCaskill, general manager for iPlan’s Warehouse Management business unit. But whatever the cause, the basic rescue strategy is the same: “Just like medicine, you do triage,” she said. “The most life-threatening problem we try to solve first. And only then, once we’ve stopped the bleeding, we can move on.”
In McCaskill’s comparison, just as a doctor might have to break some ribs through energetic CPR to get a patient’s heart beating again, a failing warehouse might need to recover by “breaking some ribs” in a business sense, such as making management changes or stock write-downs.
Once the business has made some stopgap solutions to “stop the bleeding,” it can proceed to a disciplined recovery, she said. And to reach their final goal, managers can use the classic tools of people, process, and technology to improve what she called the three most important key performance indicators (KPIs): on time in full (OTIF), inventory accuracy, and staff turnover.
CSCMP EDGE attendees gathered Tuesday afternoon for an update and outlook on the truckload (TL) market, which is on the upswing following the longest down cycle in recorded history. Kevin Adamik of RXO (formerly Coyote Logistics), offered an overview of truckload market cycles, highlighting major trends from the recent freight recession and providing an update on where the TL cycle is now.
EDGE 2024, sponsored by the Council of Supply Chain Management Professionals (CSCMP), is taking place this week in Nashville.
Citing data from the Coyote Curve index (which measures year-over-year changes in spot market rates) and other sources, Adamik outlined the dynamics of the TL market. He explained that the last cycle—which lasted from about 2019 to 2024—was longer than the typical three to four-year market cycle, marked by volatile conditions spurred by the Covid-19 pandemic. That cycle is behind us now, he said, adding that the market has reached equilibrium and is headed toward an inflationary environment.
Adamik also told attendees that he expects the new TL cycle to be marked by far less volatility, with a return to more typical conditions. And he offered a slate of supply and demand trends to note as the industry moves into the new cycle.
Supply trends include:
Carrier operating authorities are declining;
Employment in the trucking industry is declining;
Private fleets have expanded, but the expansion has stopped;
Truckload orders are falling.
Demand trends include:
Consumer spending is stable, but is still more service-centric and less goods-intensive;
After a steep decline, imports are on the rise;
Freight volumes have been sluggish but are showing signs of life.
CSCMP EDGE runs through Wednesday, October 2, at Nashville’s Gaylord Opryland Hotel & Resort.
The relationship between shippers and third-party logistics services providers (3PLs) is at the core of successful supply chain management—so getting that relationship right is vital. A panel of industry experts from both sides of the aisle weighed in on what it takes to create strong 3PL/shipper partnerships on day two of the CSCMP EDGE conference, being held this week in Nashville.
Trust, empathy, and transparency ranked high on the list of key elements required for success in all aspects of the partnership, but there are some specifics for each step of the journey. The panel recommended a handful of actions that should take place early on, including:
Establish relationships.
For 3PLs, understand and get to the heart of the shipper’s data.
Also for 3PLs: Understand the shipper’s reason for outsourcing to a 3PL, along with the shipper’s ultimate goals.
Understand company cultures and be sure they align.
Nurture long-term relationships with good communication.
For shippers, be transparent so that the 3PL fully understands your business.
And there are also some “non-negotiables” when it comes to managing the relationship:
3PLs must demonstrate their commitment to engaging with the shipper’s personnel.
3PLs must also demonstrate their commitment to process discipline, continuous improvement, and innovation.
Shippers should ensure that they understand the 3PL’s demonstrated implementation capabilities—ask to visit established clients.
Trust—which takes longer to establish than both sides may expect.
EDGE 2024 is sponsored by the Council of Supply Chain Management Professionals (CSCMP) and runs through Wednesday, October 2, at the Gaylord Opryland Resort & Convention Center in Nashville.