5 Supply Chain Lessons Learned from COVID-19

By Mark Jacob
for MxD

The COVID-19 pandemic is killing tens of thousands of people, changing social norms, and rattling markets.

It also has exposed weaknesses in the global supply chain and has demonstrated why the industry’s move toward digital manufacturing is more crucial now than ever.

MxD’s Vice President of Strategy & Engagement Jennifer Pilat discusses the lessons we’ve learned already, just weeks into the COVID-19 crisis.

“This is a time when you can’t afford to give up your efforts toward digitization,” says Pilat, who also worked on manufacturing policy for 4 ½ years in the U.S. Department of Commerce. “Because digitization is going to help you ultimately recover from this — and will help you be better prepared in the future.”

Five early lessons we’ve learned

1. Production concentrated in one region or continent makes work-arounds difficult

Many American companies began off-shoring production to Asian countries in the ‘80s to take advantage of cheaper labor and production costs.

That has begun to shift somewhat because of a skilled U.S. workforce, logistics costs and considerations, and mass customization, which means production centers are being set up closer to customers. But for a lot of products or components lower on the value chain, it’s still cheaper to make them in developing economies like Thailand or Vietnam.

Thus, when the pandemic started in Asia, manufacturing shutdowns created a ripple effect.

“Manufacturers here that make higher-value-add products can’t get the supply that they need, and that’s partly because the supply chain went down earlier in Asia,” Pilat says. 

For instance, Wuhan, the Chinese city where COVID-19 originated, is a big production center. So when Hubei province was locked down, production and logistics also were locked down, and supplies stopped coming out of that region.

“And so you’re seeing car companies and large manufacturers saying, ‘I’m suspending production here because I can’t get the parts I need from my supply chain,’ ” Pilat says.

2. There’s a lack of redundancy in the supply chain

Related to the centralization challenge is another problem: manufacturers’ failure to develop relationships with back-up vendors and suppliers so they can pivot efficiently when there are delays with their primary vendors and suppliers. 

Developing redundancy requires extra effort and cost, but the flexibility of digital manufacturing makes it easier to go to Plan B quickly in a way that is “much, much more economical,” Pilat says. And if manufacturers embrace digital, they will find that it’s more practical to build products in “places that traditionally didn’t produce them.”

3. There’s not enough transparency in the supply chain

Manufacturers typically lack visibility through all layers of their suppliers. 

They see and know their Tier 1 suppliers and maybe their Tier 2 suppliers, but they’re not sure what’s happening at the Tier 3 level. They don’t know if they’re producing or what their supply and demand is like, which means they can’t predict disruptions. And disruptions at Tier 3, affect Tier 2 production and so on up the chain.

Manufacturers without visibility into their entire supply chain don’t have enough lead time to mitigate disruptions when they occur. 

Lack of digitization is a problem here, too.

“Supply-chain management is still largely manual,” Pilat says. “This is changing, but with many manufacturers, people are still manually inputting things into Excel spreadsheets and databases, systems that are not dynamic.”  

The problem: By the time someone notices a disruption, it may be too late.

4. When the problem is global, there’s no avoiding it

Supply chain interruptions are exacerbated by the fact that the whole world is going through the same thing at the same time.  

While demand is surging in areas such as medical equipment, medical-related construction equipment, groceries and water, it’s way down in other areas, such as retail and automotive. 

But the things that people want, they want right now — and everyone is competing with everyone else to get it. That affects logistics, increasing the demand for limited air cargo and decreasing the demand for slower-to-arrive ship cargo.  

“The inventory challenges are massive as global supply chains must deal with  competing requests from countries trying to manage the crisis,” Pilat says. “The Italians need things, the U.S. needs things, the French, the Japanese, etc.”

And prices are going up, as supply and demand kicks in.

5. The exit sign is not well lit

While some cite the period after the Great Recession or the economic impact following 9/11 as possible models for what recovery may look like, nobody really knows how economic comeback from COVID-19 will unfold. Why? Because the causes of each were so different and the full impacts of how quickly the economy collapsed have yet to be seen. 

This is particularly true for manufacturers, who will be navigating new safety best practices within their factories, changing supply dynamics, and putting a refreshed focus on what goods are produced domestically.

A real-time understanding of a manufacturer’s own operations and supply chain will help arm a company with the most flexible options during this unprecedented time.

So what do we need for the future?

MxD is looking for ways to bring more data and digitization into the manufacturing supply chain, Pilat says, to address crises of the future—before they happen.

One such MxD effort is the Supply Chain Risk Alert project, which was launched by MxD, Dow and four other industry and academic partners in September 2019. 

The team built software that aggregates information to identify delays in manufacturing shipments caused by emergencies, weather or natural disasters. 

The information comes from weather, traffic and social media sources as well as proprietary shipping data. The software analyzes that information and sends automated alerts to manufacturers about specific risks to their supply chain. 

Dow is planning to launch a pilot coming out of this project, and MxD will be issuing a public request for proposals this summer to continue work in this area.

“We want our next iteration to build on our original project,” says MxD Senior Project Engineer Emily Jerger. “We’ll be looking for the best ideas out there; ideas that connect data and help manufacturers proactively manage risks to their supply chain. It’s crucial to ensure these supply shortages don’t happen next time.”

To join projects like this or others, learn about becoming an MxD partner.