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  First Thoughts

    Dan Gilmore


    Supply Chain Digest

Jan. 7, 2021

Top Supply Chain Themes and Trends of 2020

The Virus of Course Changed Just about Everything

It goes without saying we have just ended a very strange and transformative year, brought into sharp relief with the scene of the white ball dropping into an empty Times Square at midnight to herald in 2021.

Our world will never be the same.

The virus has and will have an incredible impact on society, therefore business and thus the supply chain.

Gilmore Says....

The really difficult and rarely addressed question is this: When do investments in resilience reach the point of diminishing returns?

What do you say?

Click here to send us your comments

Let's quickly recount the virus timeline. Though the facts are unclear and in dispute, it seem mostly likely the virus had its roots in the city of Wuhan in China, where the virus may have moved to humans from bats at a "wet" farmer's market there - or have been released accidentally or some say even purposely from a major infectious disease lab in the area. The first signs of infection cam in December 2019, spreading rapidly from there, though no one really knew what it was for many weeks.

Chinese official officials shut down the Wuhan metro area of 11 million on January 23, banning travel in or out. This ultimately leads to widespread supply chain disruptions, as hundreds of factories in China close or can't get needed parts from other suppliers, and port operations in some parts of China slow to crawl.

The WHO declares a global health emergency on Jan. 30. On Feb. 11, the WHO officially names the disease caused by the coronavirus COVID-19.

In mid-February, northern Italy and Iran see major outbreaks of the virus - but there is still not much concern in the US. But in late February sickness and deaths at a Seattle nursing home are tied to COVID-19, and it spreads rapidly to other areas of the US. By March 26 the US leads the world in the number of confirmed cases.

By late March and into early April, many states and local authorities issue lock-downs of varying severity, generally shutting down all but "essential businesses," though that definition varies widely across jurisdictions and is a matter of dispute - why, for example, can Walmart and Target be open and sell apparel in addition to food and home products while pure apparel companies cannot?

Due mostly to hoarding, shortages at retail for all kinds of products arise, notably of course for toilet paper. Meat supplies are challenged by widespread virus outbreaks at processing plants across the US.

Most of the economy is hammered, but some parts thrive (see below). In just a few weeks, the pandemic puts an incredible 10 million Americans out of work, including a staggering 6.6 million people who applied for unemployment benefits in the last week of March alone.

US GDP in Q2 fell at a staggering annual rate of 31.4%, three times larger than the previous record, a fall of 10% in the first quarter of 1958. Q3 saw the economy rebound at a 33.4% annualized rate, also a record by far, and driven by a massive Federal stimulus program. However, it still leaves it likely the US will see its largest single year decline in GDP since the Great Depression, if not of all time.

Fast forward to late 2020, and as many had predicted, the virus is surging in the US again, but few appears much interested in another set of lock-downs, especially with what it appears are several vaccines coming now to the rescue - even as there is uncertainty over its effectiveness on emerging new virus strains.

So with that quick pandemic refresher, let's look at the key supply chain-related trends and themes of 2020, almost all directly impacted by the virus, either causing a new theme or accelerating existing ones.

Work from Home: Millions of white collar workers have been primarily or substantially working from home "offices" of all sorts, overnight turning "Zoom meeting" into a household phrase. This trend seems likely to stay at some level even on the other side of the pandemic, requiring new approaches to teamwork, supply chain processes, etc.

The impact on cities and office buildings will be immense, with some chance urban areas will be "hollowed out" and in serious trouble. As I have chronicled several times before, everything from auto companies to local restaurants to gasoline tax revenues for state and local governments and many more will feel real pain as a result of the stay at home work trend.

Virtual Everything: Physical trade shows and conference were almost non-existent after early March. While on the other side of the pandemic many are likely to return as physical events, I think all conferences from here on out will have to offer a virtual option - which will impact revenues, the attendee experience, programming, etc.

Education at all levels is also likely to be permanently impacted by the experience with virtual leaning, but I think it has largely been a failure at the grade and high school levels and that the medium-term impact there will be modest. College education is another question - the impacts could be huge and negative for many schools, and closing of many colleges is possible if not likely.

Ecommerce Surge: Until the pandemic, US ecommerce sales were growing at a robust 14-16% each quarter versus the prior year. That looks like slow growth now.

On-line sales in Q3 grew 36.7%, according to data from US commerce department, after an almost mind blowing rise of 44.5% in Q2. It won't take too many more quarters like that for there to be a huge transformation in the retail sector. I recently wrote a column titled "Ecommerce Eats the World," and it is.

Bi-Modal Retail Changes: Some retailers, mostly those selling groceries, home improvement, and electronics - and of course Amazon - had a very good pandemic. The have nots in other retail sectors weren't so lucky. At least 40 major retailers filed for Chapter 11 protection and 11,157 stores were closed in 2020, both numbers representing new annual records.

Surprising Reliance on Chinese Medicines: One of the great surprises the pandemic laid bare for most of us was the extreme dependency of the US and other countries on China for pharmaceutical finished goods and ingredients.

As just a few examples, China makes about 70% of the pain reliever acetaminophen used in the US. Other important pharmaceutical ingredients made in China include the blood anticoagulant heparin, of which 80% of the global supply is made in China, with even higher percentages for various antibiotics, especially well-known amoxicillin, ciprofloxacin and tetracycline.

This is not a good scenario, for obvious reasons, potentially making the US vulnerable to forms of blackmail. There are various bills winding their way through Congress to mandate changes, and incoming President Biden has indicated he will push for new policies. We'll see if anything really happens on the other side of the pandemic.

Lots of Talk about Supply Chain Resiliency: The business and supply chain trade press was replete with articles and guest columns on the need for companies to increase supply chain "resilience," meaning a greater ability to deal with supply chain disruptions and react to fast changes to supply and/or demand. (See Dr. Yossi Sheffi of MIT on Coronavirus and the Supply Chain, or How to build More Secure, Resilient, Next-Gen Supply Chains.)

When we get back at some point to whatever the new normal is, will companies really invest in resiliency? That is the key question, as achieving resilience - such as in a simple example of moving from single to duel sourcing - isn't free.

The really difficult and rarely addressed question is this: When do investments in resilience reach the point of diminishing returns?

So there you have it - my view of the top supply trends and themes of 2020. What did I miss? Next week the top stories of 2020 by month.

Anything to add to our list of key 2020 supply chain trends? Let us know your thoughts at the Feedback button (email) or section below.

Your Comments/Feedback.




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