Kearney reports post-COVID supply chains are battered but not broken
Global supply chains will need to find entirely new levels of resilience in the face of the new normal imposed by COVID-related measures, according to a new report published by Kearney
Before the COVID-19 pandemic struck, supply chains were lauded for their ultra-efficient, single-source and just-in-time capabilities. However, companies that manufacture goods and services will have to value resilience in new ways and it will transform the way companies think about supply chains.
The new supply chain economy
A key finding highlighted in the report is that COVID-19 has been more economically damaging than a standard recession or an escalation of trade tensions. The current pandemic-driven recession ended 126 months of growth, the longest economic expansion in U.S. history.
In 2019, the national economy completed a strong year with 2.3% growth, taking the U.S. economy to $21.43 trillion in GDP. The logistics industry supporting that economy grew as well, to $1.652 trillion in expenditures. Its productivity improved, bringing its cost to 7.6% of GDP, an improvement from 7.9% the previous year.
However, road freight, the biggest segment of U.S. logistics spend, was already slowing down in 2019 after a troubled 2018 as years of scarce capacity and increasing rates reversed in favor of shippers.
The weakness in overall demand has been somewhat offset by the acceleration of already fast growth in e-commerce, which has different logistics needs than traditional retailing.
When the economic recovery begins to occur, it will likely be uneven and staggered warns the report. The consumer confidence index dropped 18.1 points in early April while March saw an 11.9-point decline.
Steps to build resilience
In its report Kearney highlights a number of steps that supply chain managers can introduce to increase resilience. This includessupporting demand for surges in areas like groceries and e-commerce and reconfiguring supply chains for other sectors, like heavy industry, that have cratered.
Other measures include adapting to the residual effects of social distancing as the industry is accommodating an even larger consumer appetite for home deliveries.
The report also highlights scope for redirecting idle trucks and distribution center capacity to the booming sectors. But companies must recognize that logistics providers cannot reconfigure all their capabilities and relationships on the fly.
Above all the report makes it clear that supply chains will need to be more flexible to cope with uncertainty. That will result in less emphasis on lean operations and more on optionality and inventory.
Kearney suggests that this could lead to more reshoring of manufacturing operations and that the advancement of 5G technology will play an important role in further increasing supply chain visibility.
Re-evaluating supply chains
Rick Blasgen, president and chief executive officer of CSCMPsaid"2019 was a strong year for logistics activity, and the numbers we saw at the beginning of 2020 seemed to be our way of welcoming the new decade. To say that everything changed is an understatement. Supply chain management professionals deal with change daily, and many in our industry have led efforts in adapting, innovating, and managing through unprecedented disruption while simultaneously creating new operating models!"
"It is abundantly clear logistics have a driving role in assuring resilient supply chains," said Michael Zimmerman, partner with Kearney and co-author of the 2020 report. "Logistics practitioners will need to become even more agile as they navigate recovery in the second half of 2020 and into 2021."
"With the 'reopening' of American businesses, many supply chains have become off-balance," stated Marc Althen, Penske Logistics president. "This is an important time to re-evaluate your supply chain, from distribution points to modes of transportation.”