Corona-proof supply chains, ‘reinventing’ the wheel to mitigate risks

Corona supply chains

According to the World Economic Forum’s Global Risk Report 2018 “humanity has become remarkably adept at understanding how to mitigate conventional risks that can be relatively easily isolated and managed with standard risk management approaches. But we are much less competent when it comes to dealing with complex risks in the interconnected systems that underpin our world.”

Speaking of complex risks and interconnectedness, the shutdown of industrial activity in quarantined areas where the coronavirus spread was more serious, has represented a major issue for manufacturing firms worldwide. According to data released by Resilinc in early March 2020, around 1,000 of the world’s largest companies, or their suppliers, own more than 12,000 facilities in the quarantined areas. These include China, Italy and South Korea in vertical sectors such as automotive, industry, heavy machinery, consumer goods, high-tech, electronics, life science, healthcare and medical devices.

Furthermore, the unforeseen outbreak of the COVID-19 pandemic has led manufacturers worldwide, especially automotive ones, to close their factories in order to protect their workforce and due to a rapid fall in demand.

Resilient and agile supply chains, however, can detect signs of crisis, prepare for unexpected events and respond in a proactive and adaptive way by quickly changing their operational processes and modus operandi. The fashion and retail sector has been a primary example of this during the coronavirus pandemic, initiating a fast response to the limited availability, or complete lack, of Personal Protective Equipment (PPE) in some European countries. Innovative companies such as Inditex-owned Zara have promptly started the production of protective masks, gloves, glasses, tights to be provided to doctors and nurses, with plans to have a 300,000 pieces weekly output. Inditex has also put at disposal of the Spanish government its logistics capabilities of fulfilment and distribution, which features a network of facilities around the world and has also operations in China.

Similarly, Italian lingerie and swim-wear fashion brand Calzedonia, started producing protective masks and gowns in two of its Italian factories and its Croatian establishments on March 23, 2020, commencing with 10,000 masks a day, but revealing plans to increase its output. The change was facilitated by the purchase of semi-automatic machines and staff training. Other examples include the likes of Prada, Gucci and H&M; the Swedish Group contacted the European Union to offer group’s expertise to hospitals for the provision of PPE.

In other instances, companies have responded to national government’s pleas for certain sanitising products, which have quickly sold out in pharmacies and beauty stores. For example, Brewdog, a Scottish brewery which is also a distillery, has made its “brewgel punk sanitiser” available, produced ad-hoc to help with hand-gel shortages in the UK. Similarly, French luxury goods brand LMVH, producer of Gucci and Dior perfumes, has deployed its resources two hours after the French government asked industries to help with the provision of medical supplies, with plans to donate 12 tonnes of hand anti-bacterial gels to 39 hospital in Paris and to deploy additional production lines.

The automotive industry has also been badly hit by the virus outbreak. Giants of the industry such as Volkswagen, Peugeot and FCA were forced to close but some have already found ways of re-invention for themselves. After announcing the shut-down of its production sites in Modena and Maranello on March 16, 2020, race car producer Ferrari later disclosed that it would turn its expertise in making racing car engines into assembling parts for hospital respirators and ventilators. The company has revealed plans to adapt its plant in Maranello to help an Italian engineering company and ramp up production of the assisted-breathing equipment.

Furthermore, the American Group General Motors revealed that it is planning to produce 200,000 mechanic respirators and similarly, BMW and Volkswagen are trying to speed up their capacity of producing such devices by utilising 3D printing. In the UK, Jaguar Land Rover, Ford and Nissan are also at work to produce medical equipment.

To sum up, companies that are most likely to ‘survive’ the coronavirus crisis are those whose supply chains are more adaptable and agile and have closed ties with local productions and distribution networks. The digitisation of their processes will also be essential to facilitate real-time data-sharing with partners and logistics providers. This would help manage the unpredictability of events such as pandemics by ensuring order fulfilment even where disruptions or new border controls are present.

David Shillingford, Chairman of Resilience360, a DHL platform that maps supply chain risks, noted two factors that will drive manufacturing supply chains after the coronavirus spread subsides: “One is having visibility through the entire network. Two is having the right data to know what the right balance is between just-in-time, lean inventory, and resilience. The future of supply chain resilience is agility, not necessarily more inventory.”

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Source: Transport Intelligence, March 26, 2020

Author: Caterina Ciccone