When times are tough, people stop buying luxuries and focus on necessities. This seems logical enough but changes in consumer behaviour have a pretty dramatic impact on global supply chains, says Andrew Dawson, managing director at MACMobile, a South African supply chain solution business with offices in Kenya and Mauritius.
Something like mealie pap, a popular and affordable breakfast dish of milled white maize enjoyed across South Africa, is a low-margin good for suppliers. When you aren’t selling your higher margin goods – those at the top of the pyramid – and there’s a drastic rise in demand for goods with smaller margins, at the bottom of the pyramid, your costs are likely to skyrocket, he explains.
When the pandemic really got serious, there were widespread backlogs due to the shutdown of transportation into and out of major global cities, notes Kavitha Prag, digital supply network and operations lead at Deloitte Consulting Africa. Now, we’re focussing less on a lack of capacity and supply and more on a lack of demand because the economic crisis is deepening. This trend is especially concerning for smaller, less liquid suppliers.
Pandemic disrupts supply chain
Traditionally, contingency and supply redundancy strategies are built around “predictable” disruption. But none of the data we had to make these predictions could prepare us for the level of disruption the world experienced thanks to COVID-19. Many of the measures put in place to mitigate interuptions have proven to be powerless in creating supply chain resilience when tested under true “black swan” circumstances like a global pandemic, Prag says. “The absolute state of paralysis that still exists across supply chains months after the start of the pandemic is forcing organisations to not only rethink how they’re managing their supply chains, but also to reassess the skills and data sets needed to effectively handle disruptions going forward.”
If anything, the COVID-19 pandemic has forced global supplier chains to examine their different friction points and use technologies to bring as many efficiencies into their delivery processes as possible, Dawson says. “Hopefully we can already delve into some of changes in consumer buying behaviour that we’ve seen in recent months and use this information to better handle the difficult times that lie ahead.”
Unfortunately, some businesses weren’t able to operate at all, and businesses integral to their supply chains felt the pinch.
As part of local lockdown regulations, the South African government implemented various restrictions on the sale and distribution of alcohol. This had a massive effect on Consol Glass, sub-Saharan Africa’s largest glass manufacturer. The alcohol ban seriously impacted a myriad of businesses within the industry’s supply chain – from the suppliers of raw materials (silica sand, limestone, soda ash, feldspar, iron slag and cullet), equipment and production inputs (energy), to providers of transport, telecommunications and other services, says Johan du Plessis, the senior executive for information systems and technology at Consol Glass.
“The glass packaging industry needs to operate at run rates of at least 75% or higher to pay staff and key suppliers within the glass manufacturing supply chain,” he explains. While Consol were able to produce containers used for essential products and services, this only makes up a very small percentage of their sales. And, unfortunately, the glass industry technically can’t just turn off their furnaces to reduce costs in times of limited operation. During Levels 4 and 5 of lockdown, which ran from the end of March to the beginning of May, the glass container industry was spending in the region of R8 million per day to keep furnaces and other assets safe, with only a very limited income.
Similarly, the South African clothing retail sector was also severely disrupted, Prag says. China is the largest trading partner for South Africa, with an excess of 60% of our clothing and textile imports originating in China. Production has picked up in China but the knock-on effects of these supply chain disruptions mean that many retailers run the risk of experiencing shortages of supply into summer. But here’s where technology can help.
AI optimises supply chain
Artificial intelligence (AI) makes it easier for retailers to monitor daily changes in sales and track new patterns and trends given the fact that much of the data from last year is basically irrelevant, according to Dawson. By identifying daily retail sales patterns and analysing these patterns to understand how sales rates have shifted, AI enables dynamic resource allocation so it is possible to fill shelves as they empty and adjust shelf mix to match current buying behaviour, he continues. This also mitigates returns and dead stock.
The linear supply chain was dying a slow death prior to COVID-19, adds Prag. Fortunately, new supply chain technologies can dramatically improve transparency from end-to-end and create a digital supply network (DSN) with near real-time visibility of supply and demand across multiple layers of both suppliers and customers. This breaks down functional silos, enabling greater visibility, collaboration, agility and optimisation. “By leveraging advanced technologies such as the Internet of Things, AI, robotics, and 5G, DSNs are designed to anticipate and meet future challenges. Whether it is a ‘black swan’ event like COVID-19, a trade war, an act of war or terrorism, sudden spikes in demand or supplier bankruptcy,” Prag says.
One can only hope that COVID-19 will open up the supply chain industry to new industry players, suggests Gert Pretorius, managing director for MiX Telematics (Africa), a South African fleet management, driver safety and vehicle tracking solutions business. But given the uncertainty and disruption that the industry has experienced in recent months, suppliers want to have total control, and visibility, over the whole process. Integrated fleet management solutions make use of advanced telematics to help operators track driver behaviour and reduce fuel and maintenance costs in the process. For example, explains Pretorius, fleet camera solutions offer live video streaming so that a team of professional video analysts can review footage and monitor how drivers are behaving on the road.
The pandemic has forced companies to review every aspect of their supply chain, which has never really happened before, concludes Dawson. “I honestly don’t think we’ll ever go back to the ways things were. This crisis has given all of us an opportunity to explore better, cheaper and smarter ways of doing business. And that’s a good thing.”