How COVID-19 impacted supply chains and what comes next

Big changes are on the horizon for supply chains and greater supply chain visibility, efficiency and resilience are top of mind.

The executive supply chain surveys indicate that visibility, efficiency and reskilling supply chain workers are top priorities. These findings are not surprising as cost-optimization in the supply chain will always be a focus, even in the face of building out additional resiliency. Cost reduction has in the past been achieved through lean operations, longer lead times and low-cost labor. But in the future, agility, visibility, automation and upskilled people will be key, which together drive not only cost reductions but better decision-making, and process standardization and excellence across the supply chain and clients ecosystem partners.

The surveys show that supply chain visibility was a top-three priority in all years the research surveys were conducted. While increased broad supply chain visibility is a continuous top priority, it remains a work in progress, especially as supply chains continue to increase in complexity. Modernizing the supply chain at scale through technology and digital solutions such as generative artificial intelligence GenAI can certainly help improve visibility; however, these are enablers for a bigger challenge — Integrated Business Planning with process and organizational discipline to drive integration across the enterprise among commercial, supply chain and finance, and then beyond into the supplier network.

With the need for increased visibility across typically hundreds or thousands of suppliers, we are already seeing a shift from linear supply chains to more integrated networks connecting many players. Enabling this sea change are technologies such as Internet of Things (IoT) devices or sensors that provide valuable data on where goods are in the chain and their condition — for example, products for which temperature monitoring may be critical (i.e., frozen foods, vaccines or other medicines). Cloud-based platforms for collaboration among suppliers and supply chain orchestration (i.e., control tower) also increased in terms of piloting and adoption.

Our 2022 survey found that 61% of respondents said they will retrain and reskill their workforce. And going forward there will be efforts to help workers use digital technologies, adapt to changing company strategies and ways of working like increased virtual collaboration, and assist people in operating equipment with health and safety in mind. Top workforce measures identified in the 2022 survey include increased automation (63%) and investments in AI and machine learning, with 37% of respondents already deploying these technologies and another 36% planning to use them soon.

It may be safe to assume that because of COVID-19 pandemic, companies put their sustainability goals on hold in order to manage through the pandemic. The 2022 survey found just the opposite — 80% were more focused on environmental and sustainability goals (ESG). Cost savings, compliance and pressure from the workforce and suppliers were the top motivators for improving supply chain sustainability. With investors seeking information on a company’s ESG performance, employees wanting to work for companies with sustainability built into their mission statements, increased customer expectations for sustainability and increasing regulation from various countries, sustainable supply chain practices no doubt are here to stay.

The journey to digitized and lights-out operations have begun in earnest.

The pandemic has indeed accelerated many preexisting trends, and the supply chain is no exception: Our 2020 survey found that 64% of surveyed supply chain executives said that digital transformation will accelerate due to the pandemic. And in 2024, 39% of supply chain executives anticipate their organization’s supply chain will be mostly autonomous by 2030 with automated or exception-based planning and procurement decision-making, dynamic production scheduling against refined demands and constraints and autonomous vehicles such as trucks, forklifts, drones playing a heavy role in logistics and inventory control.

However, simply utilizing digital technologies does not equate to creating a digitized, autonomous supply chain — it also needs connected supply chain technologies across planning, procurement, manufacturing and logistics that work beyond the organization’s four walls. It’s the difference between “doing digital” and “being digital.”

We can think about autonomous operations in terms of “lights-out,” “hands-free” and “self-driving,” where organizations use AI technologies across the end-to-end supply chain to help make predictive and prescriptive decisions. An example is responding to a change in customer demand, seen instantly by the entire value chain (the organizations, its suppliers and their suppliers’ suppliers) so they can collectively adjust supply plans and production schedules immediately. Ultimately, digital and autonomous technologies will help make people’s jobs easier and the supply chain more efficient and optimized.

What comes next?

As we look ahead to the next five years, supply chains are entering a new frontier of opportunity. Despite geopolitical and other disruptions, the future remains bright. Back in 2020, our survey found that 60% of executives said the pandemic increased their supply chain’s strategic importance. This growing recognition has only intensified, especially as inflationary pressures limit how much more enterprises can raise prices. With supply chain costs top of mind for CEOs and boards, our 2024 research shows that 90% of supply chain executives believe their organization’s CEO appreciates the impact of the supply chain on financial performance. To sustain this favorable trend, enterprises urgently need to design a supply chain organization that is efficient, resilient and digitally networked. Organizations, therefore, should focus on five priorities:

1. Continue to reimagine and optimize the strategic architecture of your supply chain

• Continue to invest upfront in your supply chain strategy, process, architecture and operating model to increase flexibility and effectiveness.
• Rapidly redefine your supply chain strategy and alter global trade flows, considering new trade agreements, country incentives and omnichannel acceleration, especially considering US tariffs in 2025.
• Reimagine your supply chain operating model — what work should get done locally, regionally and globally, including warehouses and manufacturing sites. Consider when to invest in your network and when and where to take an “asset lite” strategy leveraging co-manufacturing and third-party logistics. There are considerable tax implications here, and a new model can also help you prepare for future disruption.

2. Drive agility and opportunities for growth through a digital supply chain

• Harness demand-sensing signals from consumer sentiment to influence production, enabled by fast changeovers for smaller batches and true collaboration with suppliers for real-time decision-making.
• Work toward digitizing across the end-to-end supply chain including planning, procurement, manufacturing and logistics. This can drive efficiencies and also open new revenue streams.
• Realize that companies are using supply chains as an engine for growth and a key differentiator vs. competitors.

3. Build transparency and resiliency

• Improve disruption response with real-time visibility and monitoring of your end-to-end supply chain, as well as performing scenario planning and simulations.
• Deploy technological capabilities that enable Tier-n transparency and communicate with stakeholders through broader data-sharing agreements.
• Review your supply chain footprint. Do you have alternate sources of supply established? Are you confirming you do not have vendor or geographic concentration? Considering factors including geopolitical risk and cyber threats, should you reshore or reposition parts of your supply chain?

4. Extract cash and cost from your supply chain

• Achieve cost reductions strategically by reinvigorating and rethinking your overall ecosystem to better leverage suppliers and pursuing more dynamic network optimization.
• Drive a step change in your supply chain cost structure and working capital profile by focusing on SKU segmentation and rationalization, procurement spend reduction, logistics and warehouse optimization, and manufacturing productivity.
• Reduce working capital via supply chain segmentation, refreshed inventory planning parameters and changes in payment terms.

5. Create a competitive advantage with sustainability

• The future is a circular economy where there is no waste in your products or manufacturing.
• Explore ways to redesign and engineer new products to achieve this circular economy and monitor third-party risk with supplier sustainability assessments across tiers 1–3.

Many executives hope that the COVID-19 pandemic was a once-in-a-lifetime event. However, as the adage goes, “hope is not a strategy.” There are ways to stand out and better navigate the storms of the next inevitable disruption. These include reimaging your supply chain strategies for risk and resilience and finding ways to include operational excellence and standard work to help enable continual supply chain cost reduction. Invest in digital technologies such as cloud-based collaboration platforms, automation, and data analytics, and AI and GenAI at speed. It also is important to continually put humans at the center of your efforts and empower them to do extraordinary things. For example, in digital manufacturing, it’s essential to invest in both process excellence and the culture on the shopfloor for organizations to get the most from new digital capabilities. And with scarcity in truly skilled resources, think carefully about where to leverage expertise and where to automate the tactical. In the past, supply chain leaders did not always have a seat at the table to provide input to the overall strategy, and our 2024 research shows (Via EY US) that is important supply chain leaders do not become complacent with their hard-fought gains. So instilling supply chain employees with empowerment, ownership and accountability can incentivize them to achieve more capabilities than they, or the organization, ever thought possible.

Finally, innovate with customers in mind through a truly sustainable supply chain — one that is designed with circularity and the environment in mind. Following this path, your enterprise will be better prepared to manage whatever crises come next — turning potential disruptions into tremendous opportunities.

This article was originally published on 6 January 2023.

Summary

EY research shows that the COVID-19 pandemic accelerated preexisting issues in the supply chain and brought priorities such as visibility, resilience and digitization to the fore. While some sectors were hit hard by disruption, there were some winners, notably life sciences. But across the board, protecting, retraining and reskilling the workforce is an ongoing priority, along with investing to make the autonomous supply chain a reality.