Covid-19 Impact: Slowbalization of Supply Chain

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Written by Melissa Harari

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As someone who lived in three continents and has an Instagram dedicated to pictures related to my travels, connecting with people and cultures around the world has always been my passion. That’s why I’m a bit disappointed to share that the pandemic is already reducing globalization.

I believe that most of us from business school would agree that the last 30 years of free-trade has lifted millions of people out of poverty – and while not perfect – is a good thing.

The signs of slowbalization

The slowdown of globalization, or “slowbalization” as it is called in the Economist, manifests itself in the reduced flow of three key parts of our global economy: capital, people, and goods.

Multinational firms may cut their investment in foreign countries by up to a third this year. Even more shocking is the fact that Chinese venture capital investment in the United States has already dropped 60 percent over the past two years. Some statistics from the Economist this week:

  • Estimated % of people living in countries with closed borders: 90%
  • Forecasted change in global trade of goods: drop of 10-30%
  • Percentage of TransPacific container shipments cancelled in May: 21%

Travel has taken one of the largest blows, as my Monday-Thursday business trips were replaced by the virtual beach background on Zoom.

There is no doubt that the activities that stimulate the global economy are temporarily at a halt. The most important consideration is how we can emerge stronger from this challenge and ensure that this is only a temporary barrier to international trade.

Take the time to invest in supply chain resiliency

The global supply chain was not perfect and perhaps this is the time to improve local processes and systems.  Just as people are becoming more introspective and focusing on self-care, regional economies should do the same by investing in a more robust supply chain. There are countless supply chain considerations, but one framework that I’ve used recently is called SCOR.

So, if we think about supply chain considerations, we could divide them into relationships (customer & supplier) , and time frame (short & long-term). The trusty consultant’s 2×2.

  • Short-term customer: may involve pricing strategies that encourage customers to buy more product that was produced above demand levels.
  • Long-term customer: consider partnerships with certain retailers to have a more diverse and channel for distribution.
  • Long-term supplier: may include vertical integration to gain a stronger competitive advantage by being able to produce more goods at a higher efficiency.

In the current situation, however, shorter-term supplier considerations might be the most relevant. This involves making decisions about packaging, contract negotiations, and any other process between the manufacture and delivery of the good to the consumer.

Packaging flexibility. For example, businesses can use this time to improve packaging to be adaptable between various channels. Recently, there was a dip in demand for milk from restaurants due to the shutdowns, and milk packaged for restaurants had to be dumped because suppliers were not able to convert it to packaging for grocery stores.

Sustainability. If companies take a focused approach by partnering with suppliers and food packaging companies, they can create more sustainable solutions for flexible packaging that reduce waste. Another example is contract negotiations. As businesses invest less abroad and aim to keep their productions more regional, they can renegotiate contracts with suppliers that involve more long-term relationships at optimal costs for both parties.

Supply chain mapping. Similarly, companies can invest in a concept called supply chain mapping to address future crises by immediately shifting production, creating promotions, and reevaluating pricing. Since there may be future waves of the virus, businesses can be more prepared for spikes in demand for personal protective equipment or shifts in distribution channels as restaurants and school cafeterias close.

Customer data. A crucial component to supply chain mapping is gathering consumer data to inform future demand models and optimize product warehousing accordingly. This allows companies to better control where they keep inventory and which areas need products the most. As the CEO of a top supply chain mapping firm writes in the Harvard Business Review, “When companies have advance knowledge of where the disruption will come from and which products will be impacted, they have lead time to execute avoidance and mitigation strategies immediately — like shaping demand by offering discounts on substitutes, buying up inventory, booking capacity at alternate sites, and controlling inventory allocations.”

SCOR Model. To be most effective, businesses should use supply chain mapping by integrating it into the SCOR model. The main parts of the SCOR model are plan, source, make, and deliver.

  • Planning involves determining which product to manufacture and which quantity is needed. Using the data gathered through supply chain mapping, businesses can better forecast demand to inform the optimal production quantity.
  • Next, companies source the inputs for their product through multiple vendors.
  • They are then ready to make their product while ensuring that customer demand is met.
  • The final step is delivering the finished product within a planned time frame through logistics and fulfillment.

As described above, supply chain has many moving parts but they are all integral especially during these disruptive situations. The pandemic is a crisis mode that is testing the effectiveness of relying on outsourcing supply chain processes, and this can be mitigated by using a more agile response through supply chain mapping and using the above frameworks to reevaluate one’s supply chain strategy.

A global solution needs a global approach

As supply chains contract and fragment, how will we effectively distribute a future Covid-19 vaccine to 7 billion people?  Cross-border cooperation is needed to develop, manufacture, and distribute a vaccine globally.  It will take lots of resources and coordination.

Globalization, or the collaboration between people, resources, and ideas, is necessary to develop and distribute vaccines more efficiently. There are daily reports of different countries, companies, and research labs developing potentially effective vaccines.

This only becomes a problem if each country decides to fend for itself. Our greatest supply chain power is not ships, planes, and trucks – it is international collaboration. While individuals are told to stay home and isolate themselves from the world, the exact opposite should be told to governments and countries: aggressively work together to fight and beat this pandemic.

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How else has slowbalization changed your work?