How COVID-19 Exposed Weaknesses In The Global Supply Chain

Hans Thalbauer

It’s flooding the news everywhere: More medical equipment is desperately needed as governments around the world scramble to obtain more masks, ventilators, gloves, and sanitizer to support the latest hot spots impacted by the coronavirus. Nobody seems to know where to get these supplies, nor do they understand what the real demand and supply actually are.

At the same time, we see specific consumer goods items in extremely high demand. It is amazing that when it comes down to necessities, we all appear to need about 20 to 30 items, such as pasta, eggs, flour, milk, dried beans, and toilet paper. We have seen a huge demand for these items, which has led to empty shelves in retail stores.

China is also trying to get back to “normal” and restart production. However, there is a lack of demand now for many of the “non-essential” items they are geared up to produce such as cars, fashion, or high-tech products – especially when it relates to exports to Europe and the U.S.

Supply chains are broken

Just looking at these examples, it’s obvious that supply chains are broken.

We are accustomed to a well-oiled global supply chain that promises “same-day delivery” of many products. Local events such as extreme weather, wildfires, and earthquakes always had an impact on supply chains, but even if they bent, they did not break. This time it’s different – this time supply chains truly are broken.

There is lack of visibility, there is lack of collaboration, and there is lack of coordination.

Because almost all supply chains are still based on a transactional, reactive model, when we have an unexpected spike or drop in demand, it takes time for it to ripple through the multi-tiered supply chain. Therefore, it can take weeks and even months to adjust supply chains – and it will take weeks and months to get inventory out of the supply chain once we enter the “new normal.”

All in all, companies and the supply chains were not prepared for a pandemic.

We can rebuild them

There are some bright spots of positive news. Even if certain products are not always available on retail shelves, there isn’t a crisis in food supply or consumer products.

Also, many companies around the world started to re-purpose their production, with many brewing companies and distilleries producing hand sanitizers, fashion companies producing masks, and automotive companies looking to produce ventilators.

These are all honorable examples of how to make these kinds of changes on the fly, as difficult as they may be. We all expect high quality in these products (especially when it comes to medical devices) and many of these products have different regulations by country. Even if a plant can be re-purposed and adjust fast, what about the components for these products? Can suppliers deliver to all of these new production locations? The answer is yes, as it is proven every day.

This tells us that, despite the fact that supposedly “well-oiled” supply chains are broken, it is possible to react quite fast, re-purpose production, and provide the help that is desperately needed.

Technology is available to support companies to get this done. There are collaboration capabilities that ensure the integrity of the processes and the quality of the product. And yes, this can be set up on the fly – or at least in a very short time.

So, to answer the question, what’s wrong with the supply chains? They are broken, and they need to evolve to a new normal.

This will not be a mere fix of current processes and solutions. It will require a true change to a more real-time, data-driven, and predictive model.

I predict that all of the discussions about Industry 4.0 (the Fourth Industrial Revolution) and the digital transformation of industries will be accelerated as a result of the COVID-19 crisis.

To learn how supply chain leaders minimize risk and maximize opportunities, attend this upcoming Webinar with Richard Howells from SAP and Ben Wright, associate editor from Oxford Economics, to review a recent research study of 1,000 COOs and chief supply chain officers.

Hans Thalbauer

About Hans Thalbauer

Hans Thalbauer is globally responsible for solution management and the go-to-market functions for SAP digital supply chain solutions and the SAP Leonardo portfolio of Internet of Things solutions. In this role, he is engaged in creative dialogues with businesses and operations worldwide, addressing customer needs and introducing innovative business processes, including the vision of creating a live business environment for everyone working in operations. Hans has more than 17 years with SAP and is based out of Palo Alto, CA, USA. He has held positions in development, product and solution management, and the go-to-market organization. Hans holds a degree in Business Information Systems from the University Vienna, Austria.