The lessons and forced pivots of the pandemic may have actually helped global corporations better prepare their supply chains for any future calamities that may come
It may be unsettling to think of 2020 as merely the first in a string of supply chain-relevant calamities. The COVID-19 pandemic, after all, was a massive global event which has caused almost universal trauma. That being said, there are further crises on the horizon with at least two more expected to arrive within the decade, not to mention the continued cycle of global disruptions that seems to once again be restarting with the ongoing Chinese lockdowns.
The key to surviving these challenges, (some old and some new) may lie in the lessons learned over the last couple of years.
To better understand the challenges that the global supply chain is facing, we spoke to Brian Wenck, CEO of Flat World Global Solutions, a global supply chain (GSC) logistics and technology company, to get a viewpoint from someone on the inside.
Before the pandemic, the global supply chain was primarily optimized to provide efficiency in line with the demands of just-in-time manufacturing; but during the course of the pandemic, this approach has been hamstrung by disruption. The pandemic caused port delays, transport aircraft shortages, and halts in component manufacturing which have resulted in extreme uncertainty in delivery times, which in turn caused further disruptions. GSC companies like Flat World have had to rapidly adapt from providing not only efficient transportation, but flexible resilience as well.
“We have clients who, because of the pandemic, couldn’t move the raw materials needed when they were needed, and when they did move it, they couldn’t manufacture due to labor issues — so, they got backlogged,” Wenck says, adding that to fix this, the company needed to figure out how to bring in the product and process it within two weeks. “Well, that’s not a ship, that’s a plane, and this is going to take up more cargo space then most planes can handle,” he explains.
For example, the Antonov is the largest cargo plane in the world, and Flat World needed this plane multiple times to do this job, Wenck says, adding that led to lots of questions. “What is its availability? How much is this going to cost?”
Normally, the client would probably pay somewhere between $100,000 and $200,000 to have all of this product brought in over a three-month period, he explains. “Now, it has to happen in two weeks, and we had to talk to them about $1.2 million dollars in transportation costs.”
Navigating the learning period
The early days of the pandemic were a crucible for creating the capabilities on which the global supply chain is now reliant for survival. This is because 2020 benefited from both decreased demand and a greater tolerance for disruption, factors which gave firms the opportunity to learn.
Within this learning period, GSC companies have mastered a variety of new transportation methods, overcome initial coordination problems, and now regularly provide these extraordinary measures with greatly reduced costs. Imagine for a moment what the current situation would look like if these companies didn’t have 2020 as a learning environment. The current situation would almost certainly be far worse as greater shipping costs and shortages would supercharge inflation globally.
The stressful part, however, is that this is unlikely to be the only major crisis for the supply chain industry within the next few years.
One crisis that is slowly but inevitably looming strikes at the foundation of modern logistics. A combination of factors including long-run macroeconomics, low population growth, generational shifts in working preferences, and the pandemic have resulted in an ongoing shortage of truckdrivers in the United States as well as other highly developed economies such as the United Kingdom and Japan.
Simply put, older drivers are retiring, and the industry cannot entice enough young drivers to replace them. Even as driver pay and signing bonuses reach unprecedented levels (with Walmart offering drivers a starting annual salary of $100,000), the shortage remains acute and is only getting worse. In many cases, supply chain disruptions are being caused not because operations at a port are keeping cargo ships from being unloaded, but because there are no drivers to transport the crates to their final destinations. As shortages of drivers in other countries show, such disruptions can severely hamper not just the supply chain but even the operations of the entire economy.
The early days of the pandemic were a crucible for creating the capabilities on which the global supply chain is now reliant for survival.
The obvious solution to this driver shortage — self-driving trucks which could supplement or even outright replace drivers — seems tantalizingly close given the progress major car manufacturers have been making in this area. Despite that apparent progress however, the technology is simply not at the point where it can be implemented on a large scale, and even some of the sunniest predictions make this option a non-factor until the latter end of the decade. Yet, automation and artificial intelligence may still be solution — rather than replacing drivers, however, their greatest aid may be in enhancing the flexibility of the system itself.
For example, Flat World already is using artificial intelligence’s predictive capabilities to model future demand, Wenck says. By using both historical and real time data, the company could look at multiple routes and select the ones least likely to foresee disruption given not just current conditions, but those likely to form based on the directional volume of the market.
In other words, rather than act as a replacement for drivers, GSCs can utilizing AI’s clerical and analytical skills as a force multiplier. This type of solution could buy time for the arrival of larger types of automation, allowing GSCs to manage the driver shortage crisis before its worst effects are realized. It’s also a demonstration of how the type of flexibility born from the pandemic is likely to be highly relevant in future crises.
Yet, some crises are easier to predict than others. Numerous potential pitfalls lie beneath the umbrella of environmental, social, and governance (ESG) issues, some of them forecastable, others less so. (Indeed, our interview with Wenck took place just before the current events in Ukraine, but we did discuss how theoretical conflicts and long-term concerns could impact the supply chain.) Wenck’s conclusion was that the supply chain was going to have to act like water, finding its level as the terrain changed around it.
While the future impacts of the lingering COVID-19 pandemic and labor supply shortages are somewhat predictable, the future of ESG is certainly less so. In such a world, fluidity reigns as king.