Covid is a supply shock but supply chain management has kept working

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Covid is a supply shock but supply chain management has kept working

20 November 2020

Covid is a supply shock but supply chain management has kept working

Since the start of the pandemic, supply chains have been strained. We look at the near miracle of well-stocked supermarket shelves and a functioning manufacturing sector and the crucial role played in that by a highly professional supply chain management and logistics base.

The freight transport distribution and logistics (FTDL) sector kept going during the worst of Covid-19 because it had to, according to Mick Curran, chief executive of CILT Ireland; an essential service, it went above and beyond the call of duty to ensure that supplies kept moving.

“There is no complicated answer to this, the sector got up every morning and went to work as usual,” he says.

A Covid- 19 National Logistics Forum was established, chaired by Curran, with representatives from the transport sector, hauliers, freight forwarders, Government departments, ports, and airports. Its remit was to identify supply chain bottlenecks and solve them in a collaborative manner.

Most supply chains rely on forecasts of expected demand and set replenishment lead times to ensure products are available on the shelf or online when consumers look to make a purchase, Lorcan Sheehan, chief executive PerformanSC Supply Chain, says.

“Companies also carry a level of inventory in warehouses to buffer against unexpected demand. Covid-19 impacted many of these underlying assumptions which resulted in temporary challenges in product availability. Consumers suddenly wanted to stockpile – increasing the short-term demand for items such as toilet rolls, hand sanitiser and soaps as well as dry goods such as flour and pasta. Companies were able to respond but in some cases, there were temporary stock shortages as replenishment orders caught up on this increased consumer demand,” he says.

As the first lockdown progressed, consumers also changed how and where they purchased. With the effective shut down of much of the hospitality sector, more demand shifted to retail and, within retail, to online stores.

Last mile

“This required a reallocation of the available product but it also put pressure on last-mile delivery capacity with An Post, DPD and others seeing levels of activity in March and April comparable to what they would normally expect around Christmas time. They have now further ramped up their capacity to meet the expected increased demands for November and December,” Sheehan says.

Outside of retail, lockdowns impacted on the availability of critical components for certain industries.

“New demands emerged for PPE and critical healthcare equipment at levels previously unseen and the effective shut down of passenger air travel took as much as 35 per cent out of global airfreight capacity. Supply chains also needed to change practices to protect the health of their employees and to minimise the risk of infection,” he says.

After an initial surge in supermarkets, shelves remained well-stocked for a few key reasons, Curran says.

“Throughout the pandemic, the manufacture of goods that we consume on a daily basis did not cease, it may have slowed down in some areas and these shortages were met by ‘stockpiled goods’.

“The goods kept moving due to the heroes mentioned, to ensure that the routes by sea into Ireland remained open. The State subsidised some ferry routes to keep them operating. Essential shops remained open and fully staffed, as goods arrived in during the night and they were put on shelves.

“Finally, and perhaps most importantly, it was down to consumer confidence. If consumers had lost confidence and bulk-bought, the supply lines would have been stretched. We have seen in other jurisdictions how bulk buying led to shortages but thankfully we have a degree more confidence in our supply chain and this faith is justified,” Curran says.

Some areas of the manufacturing sector were severely affected, Curran says, as their ability to access raw materials was hampered.

“Those manufacturers who had access to raw materials and were deemed essential kept going. The main effect on manufacturers is a realisation of how precarious our supply chain actually is. Most companies work on a just-in-time basis, as this reduces the necessity to hold large volumes of inventory and so reduces costs. This model is based on robust supply lines with no supply shocks. Covid was one such shock, and some manufacturers are now looking to insulate themselves from similar type shocks. The most obvious way is to increase their holdings of raw materials, but this carries with it a cost in both the procurement of raw materials in advance of requiring them and also the cost of storing them. This will be absorbed into the retail cost of the finished product. A stronger, safer supply chain will ultimately be paid for by the consumer,” he says.

Adapt

What does the future look like – can the industry keep up with demand?

“Like many parts of society, our supply chain teams have adapted to living with Covid-19 but challenges remain,” Sheehan says. “Higher demands on supply chains over the traditional Christmas shopping season will put additional strain particularly on eCommerce retail and delivery networks. Retailers have responded by pulling forward ‘holiday’ sales to provide an extended shopping and shipping season but it is likely that we will see some delays in delivery times as we approach the peak,” he says.

“It will continue to be a busy time for supply chain professionals who are also in the final stages of preparation for the end of the Brexit transition period on January 1st. Regardless of the outcome of UK/EU free-trade discussions, the process of shipping to, from or through the UK will become more complex after that date,” he adds.

Some of the issues now high on the agenda include distribution of vaccines on a global scale, many with specific temperature requirements; changes to how products are produced, consumed and recycled to address product sustainability; and implementation of lessons learned from the current pandemic to ensure the industry is better prepared for disruptions in the future.

“There are plenty of challenges where supply chain professionals can play a significant role and this creates an opportunity for the next generation of supply chain leaders who are joining the profession,” Sheehan concludes.

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