COVID-19

Supply chains are being pulled to the limit

Sabri Ben-Achour Apr 17, 2020
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Cranes stand idle at the Port of Los Angeles — the nation's busiest container port — as supply chains shift during COVID-19. Mario Tama/Getty Images
COVID-19

Supply chains are being pulled to the limit

Sabri Ben-Achour Apr 17, 2020
Cranes stand idle at the Port of Los Angeles — the nation's busiest container port — as supply chains shift during COVID-19. Mario Tama/Getty Images
HTML EMBED:
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For the businesses still trying to make products in this new world — whether it’s a lifesaving treatment or a bag you use for carry out — just functioning as normal is a huge challenge.

Take MilliporeSigma, a life sciences company that makes materials that can be used to make antibodies and vaccines that might one day help treat COVID-19, among other things; things like a type of filter for bioreactors.

“This filter’s membrane was developed in Massachusetts, it is now cast in Cork, Ireland. The polymers that are used are sourced from a variety of different countries, including China and India. The solvents come from Darmstadt, Germany,” said chief exective Udit Batra.

The frames for the filters are made in Mexico. All of that to make one product… that is used to make. … another product

“We rely on a well functioning global supply chain,” Batra said.

When one small supplier in France was about to shut down due to a lockdown, Batra’s company had to step in to get permission for them to keep working. When a plane loaded with components couldn’t take off in India, they sought help from the Swiss ambassador and the Indian government.

“Supply chains across industries are going through a lot of disruption,” said Susan Lund, a leader of the McKinsey Global Institute.

What once was shipped by plane may now have to go by boat or rail, and breakdowns way up a supply chain are catching some companies by surprise.

“Very few companies have good visibility into the suppliers of their suppliers and the suppliers of the tier 2 and so on,” Lund said, adding that a lot of manufacturers had inventories and stockpiles when the pandemic began and are only now drawing them down.

That means the shutdowns that began months ago in China, where so many items come from, are only just now starting to show up in some supply chains. For some industries, this is the worst possible moment for supply chains to break.

“Starting in the middle of March, we saw huge spikes in sales as consumers were looking for ways to protect themselves and their families from the virus,” said Kelly Vlahakis-Hanks, head of cleaning supply company Earth Friendly Products. To lower its carbon footprint, her company long ago decided to produce locally.

“The way our business is set up right now, we have four manufacturing facilities around the nation,” she said, adding that it’s that very structure that saved the business; when one part of the country shut down, others could take over.

As the pandemic calls into question traditional supply strategies, this is a strategy more manufacturers are following, according to Jeff Pratt, supply chain leader at BDO.

“It’s causing a lot of supply chain leaders to really look at the footprint of their supply chains,” Pratt said. “It’s been an easy decision for some time to say: ‘I’m gonna be supplied from a low-cost country, low-cost environment,’ and that’s been a predictable decision up until now. And we’ve seen … many clients being really dependent on certain geographies and suppliers, and I think both the tariffs and pandemic and downturn have really raised the focus on what the footprint of that extended supply chain should be, and whether there should be alternatives baked in.”

Companies are thinking about finding suppliers who are close to their market, geographically diverse, and who can serve as good backups. Simply being the cheapest won’t cut it.

COVID-19 Economy FAQs

Are people still waiting for unemployment payments?

Yes. There is no way to know exactly how many people have been waiting for months and are still not getting unemployment, because states do not have a good system in place for tracking that kind of data, according to Andrew Stettner of The Century Foundation. But by his own calculations, only about 60% of people who have applied for benefits are currently receiving them. That means there are millions still waiting. Read more here on what they are doing about it.

Are we going to see another wave of grocery store shortages?

Well, public health officials are warning that we could see a second wave of the virus before the end of the year. And this time retailers want to be prepared if there’s high demand for certain products. But they can’t rely totally on predictive modeling. People’s shopping habits have ebbed and flowed depending on the state of COVID-19 cases or lockdowns. So, grocers are going to have to trust their guts.

What’s going to happen to retailers, especially with the holiday shopping season approaching?

A report out Tuesday from the accounting consultancy BDO USA said 29 big retailers filed for bankruptcy protection through August. And if bankruptcies continue at that pace, the number could rival the bankruptcies of 2010, after the Great Recession. For retailers, the last three months of this year will be even more critical than usual for their survival as they look for some hope around the holidays.

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