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  First Thoughts

    Dan Gilmore

    Editor

    Supply Chain Digest



 
March 20, 2020

The Permanent Impacts of Corona on the Supply Chain and Beyond


From Grab and Go Stores to More Robots in the Supply Chain, a Huge Inflection Point


I assume I am hardly the only one having a hard time keeping focused on normal work when the coronavirus is delivering its social, health and economic whammies all around us.

But that thinking doesn't get me this week's First Thoughts column. So here I will offer some thoughts the impacts of the virus crisis on the supply chain and beyond.

And by that I mean not the immediate impacts, such as the challenges we have getting food, water and of course toilet paper to retail store shelves. Rather, I am thinking about the impacts in the medium and longer term, not only in terms of supply chain but also in the way we will live our lives and conduct our business in different ways when this is finally all over. And those lifestyle and business practice changes will in the end, as they always do, change supply chain behavior as well.

Gilmore Says....

When the next crisis comes – and it surely will – we might be better off with a lot more robots and just few humans to produce and distribute vital products.               

What do you say?

Click here to send us your comments
 

One thing is for sure: some changes we can to an extent predict now; other changes will come in areas no one is seeing.

I am not sure which category this fits in, but for example, many universities worldwide and some high schools are moving to on-line classes to finish out the semester.

What if this "test" proves easier and more effective than many expected? There have been calls for more of a move to "e-learning" from some quarters for a number of years. Will this experience push that model aggressively forward? It could dramatically change how we approach education at all levels in the end.

I have similar thoughts with regard to business meetings. There is no question that today in-person meetings are superior to on-line experiences today. Looking back, after 9-11 there was something of a push to adopt "tele-meetings," but as far as I can tell this really dropped off not much later.

But does it have to be that way? Could there not come a new generation of technology – heck, maybe it's already out there – to make on-line meetings perhaps not the full equal of the in-person sort, but close enough, without wearing you down as much as they do today.

Can your work with consultants on whatever the supply chain initiative is really not be good enough in tele-style to make to make the in-person time less necessary – especially when the result is not only better safety and improved lifestyle for frequent travelers, but also significantly reduced travel expense? I believe the answer post-virus will increasingly be Yes to this question.

The virus is likely to also accelerate the move to a cashless society. Many government types have been lobbying this for some time, in large part in a move to make sure no tax potential goes uncollected. Some Euro countries are well down the path.

But it turns out there are lots of germs on those five dollar bills, and I suspect that fact will enable cashless proponents to advance their cause to eliminate the paper currency.

Which is then also likely to drive rapid adoption of the Amazon "grab and go" store model. Amazon has rolled out its technology to a few of these convenience stores, and more recently its first full grocery store model. Payments are made automatically via a phone app, so there is no need for low social distance point of sale transactions. Amazon says it will license its technology to others. I am sure it will see strong adoption in the next few years.

But sadly to me this crisis will surely alsobe the death of many more already struggling retailers, while Amazon is hiring 100,000 more employees to deal with surging demand. With the store closures will likely come the death or repurposing of a large number of shopping malls, empty relics spread across suburbia,

From a more direct supply chain perspective, as with the 2011 earthquake and tsunami in Japan, the virus crisis will serve as a new inflection point in the field of supply chain risk management.

One of the lessons learned in 2011 was the need to more fully map your company's multi-tier supply chain. It is very difficult to do, but in 2011 companies learned they had supply chain risks from the closure of suppliers they did not even know were part of their extended supply chains.

The same thing is happening here with the closure or reduced production from factories in China due to the virus.

Our risk management frameworks will also need to evolve to better handle these "black swan" disruptions, or what Dr. David Simchi-Levi of MIT calls "unknowns unknowns." Current models don't address these well. Simchi-Levi has one approach. We need more.

I also predict this crisis will result in a new, much better funded US Highway bill in the end, maybe soon, with the need to get the economy rolling again topping other considerations. It will be funded in part from a decent jump in Federal taxes on gasoline and diesel, and will put the funding of needed infrastructure in the country on much better footing, though the truth is the total dollars needed are truly massive.

It also seems clear this is likely to finally really change China-dominant sourcing strategies. There were already some moves in that direction due to the tariff wars and perceived political and other risks, but companies found it was not so easy to do.

But now, it seems clear to many China was not open about what was happening early on in the crisis, likely contributing to its global severity now. And we are learning surprising news that for example, the US pharma supply chain is hugely dependent on China for ingredients and finished goods, which staggers the mind on how we could let that situation evolve.


So now there will be many, very strong pressures to reduce or even eliminate dependence on China, and many companies this time will really leave. What will China do then? Hard to say. It might play hardball, for example, with the rare earth metals vital for many electronics, defense, and other products for which China enjoys almost monopoly status.

An article this week in the Wall Street Journal said China was already unleashing a "post virus strategy," planning to flood the market in a number of key product categories against a weakened West and grab even more global market share.


We'll see.


Finally, with our supply chains for vital items such as food, beverages and TP heavily dependent on humans to show up for work, will this be another driver of a move to robotics?
Last I checked, robots can't get the virus, and don't have families at home to worry about.

When the next crisis comes – and it surely will – we might be better off with a lot more robots and just few humans to produce and distribute vital products.

That's my take in these trying times. Would welcome your thoughts.

 

What are your thoughts on coronavirus and supply chain and society? Let us know your thought at the Feedback section below.

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