COVID-19’s Effects Throughout the Supply Chain
After COVID-19 temporarily halted business operations, companies shifted their focus to employee safety and maintaining operational capacity. Once simple business activities became infinitely more complex as the virus caused unforeseen disruptions to supply chains all over the world. On February 21, 2020, 94% of Fortune 500 companies reported impairments in their supply chains due to COVID-19. Of these corporations, approximately 40% have a supply chain presence in Wuhan, China, where the virus originated. Consequently, China—the largest exporter in the world—delayed the production and delivery of products globally. Moreover, consumer behaviour quickly changed from predictable purchase patterns to panic-induced stockpiling, leaving shelves empty and businesses unable to cope with the pandemic's volatility.
Natural catastrophes, labour strikes, and deadly viruses have all previously halted trade around the world. For example, when H1N1 first appeared in 2009, companies that produced crucial medical supplies and pharmaceuticals faced extensive distribution issues. Comparatively, COVID-19 is one of the most disruptive virus outbreaks in modern history, bringing new logistical challenges to light. Due to the rapid spread of COVID-19, countless distributors worldwide were forced to shut down operations due to exposure risks resulting in lost revenues, mass layoffs, and widespread concern about infection.
Amongst the affected firms was Cargill Incorporated, one of the world’s largest meat processors that distributes products to over 70 countries annually. Usually processing over 4000 animals a day, Cargill had to shut down their plant in High River, Alberta, after 900 employees tested positive for the virus. The effects of the plant closure were significant, with experts projecting an industry loss of over $500M CAD in only two weeks. The tremendous losses Cargill incurred during their shutdown demonstrates the risks involved when supply chains are not well diversified. Additionally, for Cargill employees being called back to work, concerns about safety and potential risks associated with COVID-19 exposure on the job increased.
Why Supply Chains Struggle
Prior to COVID-19, businesses focused on supply chain strategies with the primary objective of saving costs. For firms that manage costs tightly, investing in greater supply chain transparency, resilience, and risk-prevention is not a priority. Steps in a traditional supply chain include acquiring materials from producers, assembling the product, and then selling it to an intermediary before finally reaching the end-consumer. This process involves excessive amounts of paperwork and complex relationships between multiple partners. Thus, it reduces speed and undermines the quality of service.
In addition to these shortcomings, Dr. Harish Krishnan, a Supply Chain Management and Blockchain expert at the University of British Columbia, identifies two major problems with pre-COVID supply chains. Firstly, they are not transparent enough. Second, they are often too lean, meaning they hold too little inventory to be able to react to unforeseen spikes in demand.
These measures exist to eliminate waste. After the pandemic, he expects that consumers will be willing to pay more for the security of storing excess inventory. Today, these outdated business practices compromise the readiness of firms for supply chain disruptions caused by natural catastrophes, conflicts, or in this case, a global pandemic. The structural complexity of distribution networks leaves companies unable to quickly identify and retrace vulnerabilities within their supply chain. As a result, stakeholders have limited knowledge of product origin and manufacturing conditions. As demonstrated through recent outbreaks such as H1N1 and COVID-19, these inefficiencies cause products to reach consumers in an untimely manner, and sometimes not at all.
Globalization and technological advancements have created a demand for more elaborate networks and alternative consumer channels. However, many industries have been slow to adapt. Firms often have too many communication channels with suppliers and partners, making it difficult to resolve conflicts that arise from the competing interests between supply chain stakeholders. This ultimately limits control over their supply chain.
Supply chains in the food industry have experienced increased pressure for transparency in their sourcing and business practices. Companies in this industry tend to be ‘first-movers’ in evolving their supply chains and adopting new technologies. As seen during COVID-19, industries with less responsive inventory models have struggled. The virus has been a wake-up call for companies to re-evaluate their existing supply chain structures. Can current supply chains models meet future consumer demands in times of crisis?
The Way Forward
As the issue of climate change has gained urgency amongst consumers, demand for sustainable supply chains has also grown. Sustainability in supply chains entails higher standards for accountability, reducing a company’s carbon footprint and delivering products with social and environmental risks in mind. Other benefits of effective supply chain management include increased customer satisfaction, supplier bargaining power, and higher profits. Companies selling business to business (B2B) are prioritizing suppliers and distributors that focus on sustainable supply chains and hence the triple bottom line. This is because end consumers are demanding higher ethical standards, thus all parties in the supply chain must act responsibly in order to meet evolving customer demands. Transparent supply chain models cut waste, and allow corporations to be more aware of their financial and economic implications. The phenomenon of ‘Sustainability’ in the context of supply chain management also insinuates that consumers want honesty and transparency. Companies will be prompted to transform their supply chain activities into readable and quickly accessible data to consumers. Corporate social responsibility is an effective way to capture consumers' attention and is an essential part of modern businesses.
With its origins in Bitcoin, blockchain is a new way of distributing data through shared records. It initially enabled users to safely perform currency transactions without the involvement of banks as intermediaries. Now, blockchain is increasingly being applied to various sectors, including supply chain management. Blockchain for supply chain management promises more transparency, sustainability, and data safety, as well as streamlined processes and lower risk. According to Dr. Krishnan, blockchain has the potential to transform supply chains as we know them.
In blockchain, every transaction is added to the chain in a new 'block,’ similar to entries in a ledger. This way, changes don't delete the system previously in place. Instead, steps are recorded and distributed in real-time. Here, participating companies have an equal share of rights, meaning changes to a process can only be made if most partners agree. Decentralization allows participants to have access to the data-storing 'blocks.’ Blockchain enables firms to trace products from their origin to their final destination. Every party within the supply chain can see a product’s exact location and thus react to the chain's failures or disruptions more effectively. By sharing the infrastructure and having an open communication flow, supply chains are better protected from infringements. Further, it reduces paperwork and licensing requirements, saving costs and eliminating the need for conventional banks to act as middlemen. Therefore, companies that use blockchain improve not only efficiency but also safety of data.
Blockchain in Action
OpenSC, a joint venture between BCG Digital Ventures and the World Wildlife Foundation (WWF), is a trendsetter embracing new technologies to address issues associated with old-fashioned supply chain management. They emphasize the use of blockchain technology to trace a product through its individual supply chain and improve communication.
OpenSC’s client Austral Fisheries, the world's only verified carbon-neutral fishing company, introduced blockchain to verify, trace, and share information about their products and partners. Fishing vessels at Austral are tracked via GPS, verifying operations only occur in legal areas. The catch's location is then linked to an information tag and attached to the fresh fish immediately. The data gathered can be communicated to consumers quickly and easily; packaging for grocery stores includes a QR code that summarizes information for consumers.
For Austral fisheries, sustainable practices and innovative technology have empowered partners and customers to make better purchase decisions. In the eyes of consumers, companies like Austral can achieve legitimacy through transparent business practices. As Thomas Vellacott, CEO of WWF Switzerland describes it: "What's good for the planet, can also be good for business."
Nestlé, the world's largest food company, is another early investor in Blockchain technology. Nestlé committed to increasing honesty and legitimacy in its operations by entering into a partnership with OpenSC, fortifying its commitment to responsible business. Raising inventory levels proactively when COVID-19 first affected Chinese operations enabled Nestlé to better navigate the crisis. They were able to uphold supply and are now prepared for future disruptions. By using blockchain, Nestlé can authenticate where their products are from and how they were sourced. This transparency will improve validity and limit the exploitation of workers.
What Does the Future Hold?
The COVID-19 pandemic caused companies and consumers to re-think their expectations of supply chains. Shortages experienced during this pandemic have led to a discussion about the need to revolutionize the way products are delivered. Old management methods aren't adapting fast enough and have to be replaced with business models catered towards modern trade networks. Consumers are now more vigilant towards the availability of products and the source from which they are retrieved.
The risks supply chain management is facing are amplified due to job-loss and supply shortages worldwide. In the future, the scale at which a single disruption affects whole industries can be reduced through modern technologies and investments in sustainable practices. Blockchain could be part of this revolution and address many of the questions consumers and partners have about the transparent and safe delivery of products. What was once a unidirectional process is now a collaboration between companies and their supply partners. The pandemic acts as an incentive to build a new supply chain that is transparent, resilient, and sustainable to avoid similar disruptions and provide stability in the future.