Tradeshift’s Q1 Index of Global Trade Health shows recovery in our sights, but it’s doubtful the post-COVID-19 supply chain will look the same as it was.
We spoke with supply chain expert Alexander Malaket about what will be different in a post-pandemic business world and how buyers and sellers can ready themselves for whatever sea conditions lie ahead.
Q&A with Alexander Malaket, President of OPUS Advisory Services International.
What changes do you expect buyers to make to their supply chains now that the unthinkable has happened?
There’s a lot we can learn from the past year, but when it comes to learning from history, we tend not to have a great track record. For every business that is looking to make changes, there will be others that put the blinders on and go right back to the way they were operating prior to the pandemic. I think certain organizations regard COVID as an anomaly, something that no business could have adequately prepared for. And to a certain extent they are right.
I’m skeptical as to whether we’re likely to see large buyers completely ripping up the playbook on supply chains post-COVID. I’ve heard a lot of people framing COVID as being a precursor to the end of globalization. It’s popular to talk about a move towards reshoring and localization. Some of that is already happening and it will continue to happen, primarily because of political reasons. But the math is still the math. It’s not easy to reshore a multi-billion dollar semiconductor facility. There will be some reconfiguring and diversification of supply chains post-COVID, but not on the grand scale that some are claiming.
That doesn’t mean that any supply chain operator can afford to stand still. The reality is that supply chains were already changing prior to COVID. What we are already seeing is an acceleration of those changes. It’s been said that the pandemic accelerated digitalization by at least five years. I expect organizations to continue down a path to digitalization to make their organizations more resilient to future bumps in the road. Organizations that hadn’t yet begun this work before lockdowns experienced significantly more disruption to their operations.
Beyond the ability to manage supply chain activities remotely, digitalization also gives organizations visibility and transparency across the supply chain – which is incredibly important for risk mitigation and financing efforts – and RFID tracking technology will become much more commonplace post-recovery.
How else might increased transparency between buyers and suppliers bring about positive changes?
The pandemic has put more of a spotlight on the impact that extended global supply chains have on our planet. According to a report by the International Energy Agency, 2020 on the whole saw a total drop-off in global CO2 emissions of 6%—the largest annual decline since World War II and nearly equivalent to eliminating the entirety of the European Union’s annual CO2 output.
I think the time has passed when businesses can afford to ignore this. Pre-pandemic, we saw a lot of virtue signalling from large organizations in terms of their commitments to the environment. Companies operating global supply chains are going to find themselves coming under increased scrutiny to deliver data that supports their claims. I think that’s where you’ll see the relationship with buyers and suppliers continue to evolve post-COVID.
Buyers that want to make claims about their environmental commitment and benefit will need to provide proof that their entire supply chain is honouring the same commitment. Digitizing the relationship between buyers and their suppliers is the only effective way to do this.
Do you expect to see sellers make changes to the way they do business following the pandemic?
The imbalance in market power between buyers and sellers will make it difficult for sellers to make any real changes in most cases. However, I expect there may be a push for policy changes to provide the muscle sellers need to help level the playing field.
Policy change aside, it would be prudent of suppliers to take a serious look at ways to diversity their client base to spread risk. Additionally, the pandemic has likely motivated suppliers to become more educated about their financing and payment options. Both are a sound investment in strategic planning to become more resilient.
Given the imbalance of power, do you believe that buyers have a moral obligation to support suppliers in times of crisis?
A legal obligation? No. A moral obligation? Perhaps.
There will be times it makes commercial sense for a buyer to support a strategic supplier for the health of their supply chain. Beyond that, a case could be made that supporting a supplier in need is an example of taking action to uphold the “S,” social, in ESG. Progressive companies are creating supplier wellness programs that support liquidity and payment terms that are beneficial to their supply chain.
On a smaller scale, buyers can take a look at the links on their supply chain and identify areas where they can make the most impact. For example, it doesn’t take much to ensure a small supplier in Africa avoids financial disaster vs. a large supplier in North America. Doing the right by suppliers can build resilience in the supply chain and reputational equity.
There were a lot of external factors outside of companies’ control that influenced how they fared during the pandemic, but what are some business decisions you saw that contributed to greater resilience?
An ability to pivot, and pivot quickly, has been a big difference maker for companies of all sizes. Across the board, companies that overcommitted to process vs. outcome struggled. For example, brick and mortar retailers who shifted operations online were able to retain a stronger customer base than those that focused more on ways to keep their physical storefronts still their marquee channel.
This also lends back to the digitalization acceleration point I mentioned earlier. Digitalization promotes agility. Those that resist moving processes online and haven’t embraced a path to full digital transformation will continue to lag behind in the course of normal operations and certainly when the next crisis hits.
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