Business as usual will never be the same. As the Covid-19 pandemic has unfolded there has been a lot of speculation about what the ‘new normal’ will look like. Here are some themes emerging as supply chain operations adjust to the new ‘pandemic setting’.
Shorter supply chains. Manufacturing will be on-shored or near-shored to reduce reliance on long, potentially breakable, global supply lines. A whopping 64 percent of manufacturers reported in April they are likely to bring manufacturing production and sourcing back to North America – a 10 percent increase from a month earlier, says a survey of 1,000 North American manufacturers produced by Thomas.
According to Rich Thompson, JLL’s international director, supply chain and logistics solutions, there will be a big move away from manufacturing in China. With every Fortune 500 company dependent on either a Tier One or Tier Two plant there, they were strongly affected by the pandemic-caused shutdown. Now, he says, they will be looking to diversify away, intensifying a trend that has been underway for several years.
Inventory will increase as companies build emergency stocks. The just-in-time, Toyota production model (TPPM) will be less popular, and companies will keep larger safety stocks on hand to smooth out supply disruptions. According to Paul Larson, whose full analysis appears on page 13, “logisticians should build safety stock equal to demand during lead-time for the important items.”
Warehouses will get bigger. As a result of rising inventories and the need to ensure social distance between workers, warehouses will need to become bigger to accommodate larger safety stocks. This may put even more pressure on the overheated large–DC market. E-commerce will increase demand for supersize fulfillment centres, over 500,000 square feet, says Craig Meyer, JLL’s president, industrial brokerage.
Martin McVicar, CEO of Irish narrow-aisle forklift manufacturer Combilift says inquiries for quotes doubled in the four weeks up to the third week of May. “Some customers are screaming for a quick fix,” McVicar said. “Demand for space has never been at such a high level, as Covid-19 is driving space constraints.”
Manufacturers are looking for ways to increase their production space in order to comply with social distancing rules as economies around the world begin to reopen after pandemic-forced shutdowns. McVicar says manufacturers with typical production facilities are looking for ways to reduce the space allocated to storage both pre- and post-production, and those who might have been considering a narrow-aisle solution suddenly see that it could be the answer to maintaining production levels.
Automation and digitization will become even more interesting to larger companies, to militate against labour shortages. A new survey shows one in four North American manufacturers is considering expanding industrial automation as a result of Covid-19, while an additional 20 percent report they already have systems in place.
“The Covid-19 pandemic will fundamentally redefine how industrial companies approach their supply chains and will further advance the digital transformation of manufacturing,” says Tony Uphoff, president and CEO of Thomas, which commissioned the study.
E-commerce will continue to boom, with more attention paid to scalability to meet fluctuations in demand. Driven to new heights thanks to pandemic lockdowns, “online market share will be more like 20 percent in 2020, instead of the projected 13 percent,” says JLL’s Meyer. “It’s an inexorable, long-term trend. E-commerce is here to stay.”
Network re-design. With re-shoring, more inventory, and changing demand for space alongside growth in e-commerce, and the growing trend to use of automation in warehousing, it is inevitable that existing networks will have to be reconsidered. “Most corporate occupiers expect major changes in their domestic networks over the next 18 months,” says JLL’s Thompson. “Companies need more facilities and closer to their customers.” This will drive changes in transportation patterns, real estate demand and labour uptake as companies seek to optimize cost and service while minimizing risk, he says.
Risk management will be a hot topic again. In the U.S., a bill has been proposed that would allow the federal government to help businesses obtain insurance coverage against pandemic risk. The new measure would require insurance companies to offer policies that cover pandemics but would create a federal backstop program.