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COVID-19: Managing supply chain risk and disruption

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COVID-19: Managing supply chain risk and disruption

COVID-19: Managing supply chain risk and disruption

Coronavirus highlights the need to transform traditional supply chain models

Could COVID-19 be the black swan event that finally forces many companies, and entire industries, to rethink and transform their global supply chain model? One fact is beyond doubt: It has already exposed the vulnerabilities of many organizations, especially those who have a high dependence on China to fulfil their need for raw materials or finished products.

China’s dominant role as the “world’s factory” means that any major disruption puts global supply chains at risk. Highlighting this is the fact that more than 200 of the Fortune Global 500 firms have a presence in Wuhan, the highly industrialized province where the outbreak originated, and which has been hardest hit. Companies whose supply chain is reliant on Tier 1 (direct) or Tier 2 (secondary) suppliers in China are likely to experience significant disruption, even if, according to the most optimistic reports, conditions approach normalcy in China by April.

How can organizations respond to the immediate change?

As the COVID-19 threat spreads, here are measures companies can take to protect their supply chain operations:

For companies that operate or have business relationships in China and other impacted countries, steps may include:

  1. Educate employees on COVID-19 symptoms and prevention
  2. Reinforce screening protocols
  3. Prepare for increased absenteeism
  4. Restrict non-essential travel and promote flexible working arrangements
  5. Align IT systems and support to evolving work requirements
  6. Prepare succession plans for key executive positions
  7. Focus on cash flow

For companies that produce, distribute, or source from suppliers in China and other impacted countries, steps may include:

  1. Enhance focus on workforce/labor planning
  2. Focus on Tier 1 supplier risk
  3. Illuminate the extended supply network
  4. Understand and activate alternate sources of supply
  5. Update inventory policy and planning parameters
  6. Enhance inbound materials visibility
  7. Prepare for plant closures
  8. Focus on production scheduling agility
  9. Evaluate alternative outbound logistics options and secure capacity
  10. Conduct global scenario planning

For companies that sell products or commodities to China and other impacted countries, steps may include:

  1. Understand the demand impact specific to your business
  2. Confirm short-term demand-supply synchronization strategy
  3. Prepare for potential channel shifts
  4. Evaluate alternative inbound logistics options
  5. Enhance allocated available to promise capability
  6. Open channels of communication with key customers
  7. Prepare for the rebound
  8. Conduct global scenario planning

Looking ahead: the imperative for a new supply chain model

A decades-long focus on supply chain optimization to minimize costs, reduce inventories, and drive up asset utilization has removed buffers and flexibility to absorb disruptions─and COVID-19 illustrates that many companies are not fully aware of the vulnerability of their supply chain relationships to global shocks.

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Cold-chain transport vital to COVID-19 vaccine distribution

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Cold-chain transport vital to COVID-19 vaccine distribution

Cold-chain transport vital to COVID-19 vaccine distribution

COVID-19 vaccines developed by China are being shipped to countries across the world.

Produced by one of China’s major vaccine makers, Sinovac Biotech, they must be kept below a specific temperature to remain active.

Before they’re shipped out of a production plant in Beijing, the vaccines are loaded into temperature-controlled containers and sent to the airport by cold-chain trucks.

On Wednesday, a cargo flight from Swissair picked up vaccines at the Beijing Capital International Airport to deliver them to Brazil before Christmas. With international commercial flights hampered by the pandemic, airfreight is now a major mode of vaccine transport.

Beijing Aviation Ground Service (BGS) is the local logistic company responsible for handling the vaccines from the production plant until they are loaded onto an airplane. It is the second company in China certified by the International Air Transport Association (IATA) and the Center of Excellence for Independent Validators in Pharmaceutical Logistics (CEIV Pharma).

“This isn’t a new task for us, but delivering vaccines in such a great quantity is something we haven’t seen before,” said Yan Xin, director of BGS’s International Cargo Division. “We’ve set up a special team to handle the process and to ensure the vaccines are well protected and shipped out in the most efficient way.”

Temperature sensors were put both inside and outside the container to record the temperature throughout transportation, and the team also checked to make sure the containers’ battery was fully charged before it was loaded onto the airplane.

Aviation medicine cold-chain logistics has always been the focus of global airlines. However, opportunities and challenges co-exist in the huge market.

The freight business has become a “sanctuary” for airlines in extremely difficult times, with many operating at unprecedented profits in 2020. When quarantines and blockades disrupt flights, freight costs soar, helping operators keep the remaining passenger routes open and avoid bigger deficits. IATA forecasts that airfreight revenues will triple this year to 36 percent, thanks to a 30-percent rise in average freight prices.

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China’s Cainiao Is Revolutionizing How Goods Get Delivered. Will the Rest of the World Follow Its Rules?

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In this picture taken on November 6, 2020, an employee works in the warehouse of Cainiao Smart Logistics Network, the logistics affiliate of e-commerce giant Alibaba, in Wuxi, China's eastern Jiangsu province, ahead of Singles' Day, also known as the Double 11 shopping festival - the world's biggest shopping event - which falls on November 11.

In this picture taken on November 6, 2020, an employee works in the warehouse of Cainiao Smart Logistics Network, the logistics affiliate of e-commerce giant Alibaba, in Wuxi, China’s eastern Jiangsu province, ahead of Singles’ Day, also known as the Double 11 shopping festival – the world’s biggest shopping event – which falls on November 11. Photo by HECTOR RETAMAL/AFP via Getty Images

It might not be the slickest thing on four wheels, and it definitely won’t win any time trials, but Chinese logistics firm Cainiao’s new Xiao G delivery cart could be the future.

Every hour, the three-foot by five-foot automated vehicle picks up packages from Cainiao’s depot in Hangzhou—a city of 10 million people in China’s booming east—and tours a nearby neighborhood. Locals in pajamas pop down to meet the driverless cart at their nearest delivery point and type in a reference number. A door in the vehicle’s side pops open and the customer’s parcel can be retrieved. Xiao G heads onto the next stop, weaving ponderously through traffic via 360-degree sensors.

“It sends a message to customers after setting off and another when it arrives at a pick-up point so they know to come down,” says Cainiao engineer Long Fei. “Some models allow customers to drop off as well as pick up packages.”

In terms of innovations in logistics, Xiao G may not be as earth-shaking as the shipping container or the cargo jet. But it is the most visible aspect of a stealthy revolution powered by Cainiao, which was founded in 2014 and whose name means “rookie” in Chinese. The $10 billion subsidiary of e-commerce behemoth Alibaba says it is poised to transform worldwide trade.

How your purchases could be delivered in the future

The Xiao G is part of Cainiao’s plan to create a single ecosystem for all logistics firms across the world to plug into, allowing for the seamless transfer of goods between companies and jurisdictions. Just as myriad smartphone makers all operate on Google’s Android, Cainiao envisages thousands of independent logistics firms can operate within its system, sharing everything from labeling standards to customs information.

“What they’re doing is bigger than it appears to be,” says Jeffrey Towson, a private-equity investor and a professor of investment at Peking University in Beijing. “It might be the single most important thing happening in China’s digital space.”

Cainiao is far from a typical logistics firm, but is an open platform that allows for collaboration with 3,000 logistics partners and 3 million couriers—including the top 15 delivery firms inside China and 100 operating internationally. This enables merchants to choose the most cost- and time-efficient delivery option, based upon real-time data crunching of optimum firms and routes.

For consumers and manufacturers, this means a typical, 1 kg package can be sent anywhere in China within 24 hours for around 30 cents. The goal is to deliver it anywhere in the world within 72 hours for $3. (Currently, a DHL envelope under 0.5 kg from Shanghai to London costs around $100 and takes typically 5 days.) That stands to be a life-changing boon to coffee-growers in Peru, textile-weavers in Chad, medical instrument producers in Bangalore and everyone in between.

How the COVID-19 pandemic pushed logistics innovation

By putting sensors in everything—along with cameras in every warehouse and GPS on every truck and package—Cainiao aims to digitize the logistics process from top to bottom.

In China, the implications are vast for the $1.94 trillion e-commerce sector, currently the world’s largest and three times the size of its U.S. counterpart. Some 64 billion parcels were sent last year domestically but current delivery networks are piecemeal, inefficient and wasteful. Wander any Chinese city or town and it’s common to see gangs of smoking delivery drivers sorting through heaps of crumpled packages on the street. Packaging is also obscenely wasteful: order a 0.1mm protective film for your smartphone screen and you could find it turning up in a shoebox-sized carton packed with air pillows and styrofoam.

So there’s enormous scope to boost profits, and safeguard the environment, though savings on fuel, packaging and unnecessary storage. E-shipping labels alone save over 400 billion pieces of paper and offset a billion kilograms of carbon emissions annually, according to Cainiao. And then there is the cost. “China will process 70 billion parcels this year,” says Wan. “What if you can shave just one cent off each one?”

Wan is used to thinking big. After earning a doctorate at the University of Texas at Austin, he spent nine years at Amazon, eventually reporting directly to Jeff Bezos as director of global logistics strategy. He says Seattle “still feels like home” and credits Bezos for instilling an ethos of “let’s raise the bar and exceed expectations.”

Read more at China’s Cainiao Is Revolutionizing How Goods Get Delivered. Will the Rest of the World Follow Its Rules?

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Supply Chain Creativity During COVID-19

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Supply Chain Creativity During COVID-19

Supply Chain Creativity During COVID-19

Just as we typically don’t think about how groceries get to our grocery store, we probably don’t wonder how medical supplies get to our hospital room or doctor’s office. But for those of us who work in hospital supply chain management, we know a lot of negotiating, storage and coordination goes into this at the best of times.

As the world confronts COVID-19, issues regarding medical supply chains have been thrust into the spotlight. When a previously nonexistent health threat spreads across the globe in a matter of weeks, demand for essential medical equipment suddenly outstrips supply. Fraudulent vendors become a higher risk. Established vendor partnerships are strained. In fact, this virus originated near a major personal protective equipment (PPE) manufacturing area in China. This greatly reduced supply at a time when the world needed it most.

While most of UW Health has thus far not encountered a surge of COVID-19 patients, we have still faced unprecedented challenges since the onset of the pandemic. To overcome these current and potential shortages, serious creativity and collaboration need to be front and center.

With so much still unknown, a best-case scenario might be a new normal of carefully caring for COVID-19 patients in steady conjuncture with the many other patients who need our support. This creates a significant and prolonged increased need for PPE, posing tremendous challenges as the supply chain is under immense stress.

Using Public and Private Partnerships

As an academic medical center where our physicians are also faculty of the University of Wisconsin School of Medicine and Public Health, UW Health often works methodically. Now that time is of the essence, the health system and university have been collaborating closely and swiftly, and UW Health is benefiting greatly from its close partnership and proximity to the institution’s educators and students.

Making Unusable PPE Usable

In mid-March, UW Health received 1,250 hoods from the strategic national stockpile. These were meant to be used with our PAPRs, the respiratory protection systems that protect healthcare professionals when bodily fluids can be aerosolized, such as during intubation. Powered by a blower strapped around the wearer’s waist and connected by a hose to a hood covering the head, PAPRs offer the highest form of protection to a medical professional’s head, face and respiratory system during high-risk procedures.

Keeping Hand Sanitizer Flowing

As COVID-19 rapidly spread, the supply of hand sanitizer dwindled everywhere. We knew we would be hard-pressed to safely care for patients without it, so again we relied on the ingenuity and expertise of partners, this time at the UW-Madison School of Pharmacy’s Zeeh Pharmaceutical Experiment, which typically focuses on supporting drug development.

Reuse and Recycle

Sometimes supply chain challenges are not about getting or making more, but making existing supplies go further. We began sterilizing used N-95 respirators to reuse if we experienced a significant surge of patients. We have not yet needed to use them, but preparing for the worst is vital.

UW Health goes through thousands of surgical, isolation and patient gowns each week. Sourcing new, disposable gowns would be nearly impossible in the current climate. Fortunately, we are part of a laundry cooperative that not only launders all linens but sterilizes surgical and isolation gowns. Partnerships like this put a health system in a better position to control the supply chain than if it were a contracted client to a third-party laundry vendor or disposable gown supplier.

Read more at Supply Chain Creativity During COVID-19

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EU Launches Estimated €400M Blockchain, AI Fund to Avoid Lagging US, China

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A new fund has been set up with the aim of preventing the EU falling behind nations like the U.S. and China on blockchain and artificial intelligence (AI) innovation.

The European Investment Fund (EIF) and the European Commission have together put up €100 million (over $110 million) for a dedicated investment scheme that will make capital available to AI and blockchain projects via VC funds or other investors, EIF, an EU agency set up to indirectly fund SMEs, said in a blog post on Wednesday.

With the “cornerstone” funding in place, the EIF said private investors are expected to bring up to €300 million ($331 million) into the fund, while the total could rise further from next year, with national promotional banks being able to co-invest under the scheme.

Sifted reports that the fund could ultimately raise up to €2 billion ($2.2 billion) under the InvestEU Programme.

According to the post, the EU already spends plenty on blockchain (expected spending for 2019 is $674 million), but that is mostly directed toward research and proof-of-concepts.

The U.S. is the biggest spender, with a $1.1 billion expected spend, and China is second with $319 million, according to cited numbers from the International Data Corporation.

The new fund is aimed to address the fact that not so much is spent in the EU on developing “larger scale projects.

“Investing in a portfolio of innovative AI and blockchain companies will help develop a dynamic EU-wide investors community on AI and blockchain. By involving national promotional banks, we can scale up the volume of investments at a national level,” the EIF said.

Read more at EU Launches Estimated €400M Blockchain, AI Fund to Avoid Lagging US, China

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Resilient Supply Chains in a Politically Uncertain World

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Resilient Supply Chains in a Politically Uncertain World

Resilient Supply Chains in a Politically Uncertain World

The Resilient Supply Chain

Today, the supply chain world iterates faster than at any other point in history. Disruptions – whether related to climate change, trade wars, or a no-deal Brexit – are a given, and black swan events aren’t surprises anymore. We know that the next event is coming fast and supply chains will have to react. So why have we not burned that understanding into our business DNA? Why are we still trying to leverage strategies developed 50 years ago and technologies unaligned to today’s needs?

What I mean is that every supply chain, everywhere, should be prepared at a moment’s notice to shut down, pivot, and spin up whatever operations it needs to, wherever it needs them. I’m of the strong opinion that if supply chain professionals reframe their thinking and look at uncertainties as opportunities then they will thrive. This thought came to me while reading an article on US trade disputes with China, or maybe it was an article on Brexit.

While I understand how conflicts arise, I have a hard time accepting why they are as adversely impactful to supply chains as they are. Contingency planning should cover for every possibility, and the overreliance on any single supplier or region is not smart business anymore. If the year was 1492 or 1839 or 1979, I could understand the desire to optimize a linear supply chain. That’s not the case today. With the advent of cloud technology and the reality of global markets – fallout from any one country’s instability or trade war can be mitigated.

Three Legs of a Resilient Supply Chain:

  1. Availability: For systems to work they need to be ON. As long as power and cloud servers exist, then a supply chain cannot be existentially threatened.
  2. Operational Flexibility and Configuration: Facilities available on a single network eliminate siloes and allow for customized configuration.
  3. More Control: Control is based on visibility, on knowing and seeing exactly where inventory is all the time.

What About Lost Goods?

Declare them lost, minimize losses, and deal with the repercussions.

Over the last two generations, western economies relied on an uncompetitive market to produce goods. Since 2010 the world has effectively been relying on an industrial monopoly.

It may have seemed like a good idea to rely on a single, cheap source of manufacturing fifty years ago. However, by choosing this path, countries damaged their own manufacturing economies.

They also exposed themselves to the exclusive possession and control of that same, supplier. That’s when the system naturally started to collapse. And that’s when the world began to see price-fixing and currency manipulation, among other signs of deterioration. What would you do if you ran a monopoly?

A dearth of suppliers is what companies are now contending with. There is no easy way out.

Read more at Resilient Supply Chains in a Politically Uncertain World

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Beyond the Economic Downturn: Recession Strategies to Take the Lead Now!

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Predicting a Recession

It’s overdue. Predicting the onset of a recession is difficult, but a downturn likely will arrive soon, with the current economic expansion now more than 10 years old, long by historical standards.

Signs of overleverage in the corporate sector, combined with geopolitical uncertainty – including the China-US trade war, Brexit and economic instability in some European countries – suggest the next recession is not far off.

For corporate leaders, however, the exact timing and duration of a recession matter less than being ready to seize the moment early, when they have more options. Getting ahead of the curve avoids the painful alternative – being forced to react hastily in a crisis. Bain & Company research shows that well-prepared companies emerged as winners during and after past recessions. They managed a strong defense and offense in parallel, reining in costs while simultaneously reinvesting in growth.

The next downturn will figure as just one element roiling the global economy. Several structural changes will combine to sound the starting gun to a new business cycle, including:

The end of the nontech business.

An array of evolving technologies will substantially alter customer behavior and demand in many sectors, disrupting both volume and price. In the automotive industry, shared mobility services and the shift to autonomous and electric vehicles could gut the economic returns of many manufacturing plants and assets in six to eight years – just one product cycle. In retail, digital-first insurgent brands with healthy balance sheets may take even more market share in a downturn, compounding the damage to many traditional retailers.

At the same time, new technologies are ramping up efficiencies in areas such as supply chain and manufacturing. Automation technologies, in particular, will accelerate to help companies address the dwindling supply of labor as more baby boomers move into retirement and labor force growth slows.

The end of low-interest rates.

Interest rates still hover near a six-decade low (see Figure 1). Even if central bankers hold rates low during a downturn to help stimulate their economies, we expect to see rates eventually rise. This potential change in the interest rate environment will be a new regime for most management teams and should prompt them to take a multiyear view of their capital structure and the timing of investments. A higher cost of capital will put pressure on capital spending, so if companies want to invest in technology, growth opportunities or acquisitions, the time is now.

Downturns Upend the Playing Field

These long-term trends will harden the divide between winners and losers, favoring those who act before the downturn. Headed into the global financial crisis a decade ago, a group of almost 3,900 companies worldwide that we ran through Bain’s Sustained Value Creators analysis posted double-digit earnings growth, on average, from 2003 to 2007. As soon as the storm hit, performance diverged sharply: The winners grew at a 17% compound annual growth rate (CAGR) during the downturn, compared with 0% among the losers. What’s more, the winners locked in gains to grow at an average 13% CAGR in the years after the downturn, while the losers stalled at 1%.

Read more at Beyond the Economic Downturn: Recession Strategies to Take the Lead Now!

Gravity Supply Chain Solutions: Mitigating the risks of trade wars and tariffs

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As trade wars heat up, businesses need to protect their profit margins from increased tariffs. Gravity Supply Chain Solutions CEO, Graham Parker, explains how this can get achieved by digitising the supply chain.

Optimism over an end to the trade war between the U.S. and China seems to have grown further following an extension to the original 90-day trade deal truce, which was due to expire at the beginning of March. However, the U.S. government alleges that the CFO of the Chinese telecoms giant, Huawei, has broken U.S. trade sanctions, and accuses the company of acting as a backdoor for the Chinese government to access U.S. trade secrets, subsequently passing a law that bans federal agencies from buying their products. Huawei, in return, now intends to sue the U.S. government.

In the wake of these allegations, growing hostilities between the two nations could result in trade wars intensifying yet again. For businesses, this would likely mean more rising tariffs. The immediate impact of the tariffs is that they make it more expensive for American companies, manufacturers, retailers, and suppliers, to import products or raw materials from China. American firms will also find it costlier to export goods into China.

China is the largest trade partner of the U.S. according to the U.S. Census Bureau, which estimated that bilateral trade between China and America, reached US$636 billion in 2017, and given this fact, it is highly likely that the reciprocal tariffs will increase the costs of a large proportion of U.S. based companies.

Many noteworthy U.S. corporations have already attested to this fact. For example, General Electric stated that new tariffs on its imports from China could raise its costs by US$300 million to $400 million. Caterpillar claimed U.S. tariffs on imports from China would increase its material costs by around US$100 million to $200 million in the second half of the year.

Read more at Gravity Supply Chain Solutions: Mitigating the risks of trade wars and tariffs

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Five Techniques to Manage Supply Chain Risk

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Risk has always been part of the supply chain. It’s a reality inside and outside the four walls of any organization. It’s no surprise then that as Enterprise Risk Management (ERM) programs proliferate, they have naturally begun to address anticipated and unanticipated events occurring both upstream and downstream in the supply chain.

Upstream of an organization are the suppliers who create goods and services used in a company’s own operations. These include raw components or materials that flow into direct manufacturing as raw materials. There are also indirect products and services that facilitate the company’s actual operations.

The downstream supply chain efficiently distributes a company’s products or services to its customers. All contracted suppliers, both upstream and downstream, must be proactively managed to minimize financial, confidentiality, operational, reputational and legal risks.

You don’t have to look any further than recent headlines to see potential fallout here. Did Equifax have proper data liability insurance coverage in place before 143 million accounts were hacked? And even if they did have coverage, how much was their reputation and customer account credibility damaged? This is still playing out, so not even Equifax management yet knows the impact of the risks taken.

Read more at Five Techniques to Manage Supply Chain Risk

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Globalization Creates New Avenues for Supply Chain Risk: riskmethods Shares its Predictions for 2016

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As part of our ongoing series on what procurement technology providers see as the biggest challenge for procurement in 2016, we recently spoke to riskmethods to hear its thoughts on the topic. Heiko Schwarz, riskmethods founder and managing director, pointed to increased external risks, globalization and regulation compliance as the main issues procurement and supply chain managers will have to tackle in the new year.

These three major trends will expose organizations to risks in 2016, Heiko said. External risk will continue to be an issue. For example, extreme weather such as rain or snow storms will expose and disrupt supply chains even more than in the past, he said. Political risks have been a growing trend for years, but will continue in 2016 as well, he added.

Globalization is also pushing enterprises to search for new suppliers in countries or regions they probably have not worked in before. Procurement’s scope in the last year has dramatically changed, going from a “domestic-centric” view to a more global one, Heiko said. Specifically, he believes we will see movement away from China as the cost of operating there continues to rise. China is no longer a low-cost sourcing country, and this is putting pressure on companies to move to new areas, places such as the northern regions of Africa, he said. This globalization push will put increase supply chain complexities in 2016.

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