After Coronavirus – Questions Business Leaders Are Asking Themselves

The international public health crisis prompted by the coronavirus (COVID-19) is substantially affecting the global supply chain at the international, national and local levels. Thanks to maturing global logistics systems, businesses have pushed to reduce costs over the last 20 to 30 years by lowering manufacturing expenses and implementing just-in-time supply chains to reduce inventory costs.

In many cases, this has resulted in moving to one key supplier for an item – even if that supplier was across an ocean. These efforts have yielded excellent return on investment, but they have also exposed businesses to potential risks that are now increasingly evident.

For instance, a global pandemic was regarded as a low probability event, and many equated that low probability with low risk. However, risk is a function of both probability and potential impact. Low probability with very high impact equates to significant risk that must either be accepted or mitigated by a business.

Many companies implicitly accepted that risk in the drive to lower costs.

Now, we are experiencing the significant business impacts of a pandemic, and it should cause us to re-examine our acceptance of that risk in terms of our businesses’ supply chains.

Of course, a global pandemic is not the only type of event that can disrupt the global supply chain. Every year, unpredictable natural disasters such as floods, earthquakes, hurricanes, wildfires and tornadoes cause catastrophic disruption to supply chains at the local or regional level. Human-caused events such as terrorist attacks, cyber intrusions, price wars (think oil right now), civil wars and regional conflicts add another layer of unpredictability and risk to business planning.

So, while the coronavirus crisis will pass at some point, do we simply go back to “business as usual,” or do we take a deeper look at how to mitigate business risks for when the next crisis hits?

Here are questions that leaders of businesses of all sizes might ask as we begin recovering from COVID-19:

Should we have multiple vendors from different locations for critical parts of our supply chain?

In this current public health crisis, it is sobering to note that the Council on Foreign Relations reports that “about 80% of the active pharmaceutical ingredients (APIs) used to make drugs in the United States are said to come from China and other countries like India.” A U.S. Department of Commerce study that found that 97% of all antibiotics in the United States came from China. This is endemic of many supply chains where regions become leaders in certain categories of products. The supply chain then becomes overly dependent on those regions.

When the logistics pipeline is full, there is not a problem and the costs are low. However, when a crisis starts in one region, it disrupts the pipeline – resulting in critical shortages in the supply chain and impacting a company’s ability to serve their customers (and revenues).

To mitigate this risk, it may be worth considering that a company qualify alternate sources in different geographic regions, even if they are not the lowest cost, and build a blended supply chain to keep at least some supplies flowing when the next crisis hits.

Is Just-In-Time the right answer for our business based on our industry sector?

Just-In-Time (JIT) began in the automotive industry and quickly spread across many industries as a way to reduce warehouse space and inventory costs while being even more responsive to customer needs.

Think about a local grocery store, which now features a much wider range of products than ever before. With so many products, there is less space to store and display any one type of product, so JIT allows the store to overcome this constraint by offering a consistent stream of products, which are delivered according to the predicted demand.

Thanks to this “just-in-time” process, consumers have changed their buying habits. In past years, shoppers would “stock up” for a couple of weeks or more at the grocery store. Now, they can go to the store every day if they need something, because they reasonably predict it will be there. But what if it isn’t?

Unforeseen spikes in demand, and disruptions in the logistics chain, can quickly result in shortages of critical items. All products are not equal in the potential for rapid spikes in need. Capital goods such as bulldozers or aircraft usually do not see the same spike in demand as consumable goods such as medical supplies and pharmaceuticals.

So depending on the type of company, there might be a great potential benefit of having on-hand supply to meet temporary spikes in demand – in terms of both customer goodwill and revenues – that could outweigh the costs of having that inventory.

Customers remember who was able to fill their orders in a time of critical need, and this can build ongoing customer loyalty. Balancing those potential benefits and costs should be part of a business’ ongoing plan.

How do I find local resources to augment my traditional supply chain partners?

The good news is that Georgia has very strong industry segments in manufacturing and logistics to serve companies’ needs, along with resources from the Georgia Department of Economic Development to make those connections.

The Center of Innovation for Manufacturing helps businesses connect with information and resources throughout the state to help them learn about Georgia’s manufacturing industry and gain support with new product development, process improvement, workforce development solutions and connections to manufacturing partners and suppliers. For example, the COI-Manufacturing website features relevant industry reports for Manufacturers in Georgia including:

• Georgia Purchasing Manager Index - A monthly report put together by Kennesaw State University that outlines the trends and activity of new orders, production, employment, deliveries, purchased materials, finished goods, and commodity prices for the manufacturing sector of a particular state or geographical region.
• Georgia Manufacturing Survey - A statewide study conducted every two- to three years by Georgia Tech’s Enterprise Innovation Institute and the Georgia Tech School of Public Policy to assess the business and technological conditions of Georgia’s manufacturers.
• On-shoring Data - The Reshoring Initiative, an organization committed to helping manufacturers recognize the profit potential of domestic sourcing and production, has published its “Top Reshoring Cases” infographic that illustrates the U.S. manufacturing advantages driving reshoring.

The Center of Innovation for Logistics helps companies take advantage of the state’s world-class logistics industry so they can improve supply chain efficiencies, support growth and increase global competitiveness. Georgia has unparalleled options for cost-effective intermodal transportation – ocean, truck, rail and air – as well as reliable connections to suppliers and customers, and the technology and workforce that make efficient logistics possible. The Center understands all segments of the industry and can share the knowledge and resources to help companies address logistics challenges and grow their business.

COI-Logistics offers a range of resources including:

• Logistics support for cargo owners and customized analysis and insight.
• Monthly Market Snapshot - A one-stop shop for global and national industry data, with info on trends affecting supply chains and key news clips about logistics in Georgia.
• Logistics Reports - The Center makes a number of industry reports covering topics including economic impact, workforce and education.

Other Centers in Aerospace, Energy Technology, and Information Technology, as well as the International Trade Team, are also available to assist businesses as they adjust to the changes brought on by the current crisis and prepare for the next. Georgia has the right resources to help companies continue to connect, compete and grow.

Author: R. Steven Justice
Executive Director, Georgia Centers of Innovation

May 7, 2020