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The occurrence of COVID-19 pandemic and the impact on the future supply chains?

Igor Jakomin, Ph.D. · 6. May 2020 · 5 min read

The occurrence of COVID-19 will change business models in most industries and will change consumer habits. As a result, supply chains will also change.

New business models will require, in particular, the largest possible volume of contactless operations, automation of all processes to avoid human errors and acceptance of joint appearances on the market, or the increased emergence of consortium models. This will be a new approach to maximize synergies between companies. We can also say that companies will carry out their ‘upgrade’ through digitalization.

In a few years, we will face a complete digital transformation of our businesses. This trend was announced years ago, and the crisis has only accelerated it. The cruel rule will be: “accept digitalization or become uncompetitive”. The main focus will be on automation, AI deployment, business on IoT platforms, Big data processes …

Be aware that in a few days, the crisis has also taught uneducated masses to start shopping online for their safety. This sales channel has given people confidence because reduces the risk of getting sick by going to classic stores. As contactless business is introduced, and especially the delivery of ordered goods to the door, promotes and increasing an individual’s comfort zone. Up to now, the growth rate of online sales channels has already been high, and it is predicted that after the crisis, growth will reach multiples of the annual growth rate used to date. The consequences will also be seen in the gradual closure of smaller merchandise (FMCG) and specialized stores.

A group of new suppliers will be selected to avoid risks arising in the supply chain. It is anticipated that a compromise situation will be created to minimize supply risks and the choice of local suppliers and those in nearby/neighboring markets will occur. The question is where to find suppliers that are competitive in price and quality, that they have sufficient capacity to supply all demanding customers, that they are reliable, that they are close enough to make transportation costs acceptable … but be aware, that customers will be willing to pay a little more just to reduce the risks in their supply chain.

The fact that we are witnessing today, that due to disruption and failure of the supply chain, there is an accumulation of goods at one of the hubs or intermodal nodes, means delays in delivery and increase of costs since this accumulation also needs to be “digested” from the logistical point of view. At the same time, the production plants experiencing a lack of supply of raw materials and/or spare parts, and consequent downtime in production with an increase in their operating costs.

To reduce the supply chain risks and avoid increasing inventory in manufacturing facilities, in all probability, will increase the use of 3D printers as an alternative.

The »post-COVID-19« situation will undoubtedly lead to the acceleration of digitalization and complete automation of logistics processes while accelerating the introduction of other elements of Industry 4.0 into everyday business processes.

After the crisis elements have subsided, companies, production plants, and corporations will have to come up with a completely new business strategy that includes crisis scenarios of the same or larger dimensions than we see today. A completely reshaped and alternative supply chain strategy will be a vital part of it. However, in the short term, governments will have to come up with new procurement strategies primarily for medicines, medical equipment and food to provide the national self-supply and sustainability.

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