Driving sustainability into supply chains is a complex and challenging business at the best of times. Now, as the COVID-19 continues to grip the world, these complexities and challenges are only set to increase further. In this blog, we examine how the management of global supply chains is changing in the era of COVID-19:
Supply Chain Disruption
Supply chain management is the management of the flow of goods and services and includes all processes that transform raw materials into final products. It involves the active streamlining of a business's supply-side activities to maximize customer value and gain a competitive advantage in the marketplace.
Managing a supply chain has never been an easy task especially when it comes to its sustainability. The recent COVID-19 outbreak has had unprecedented, rapid and sometimes devastating effects on supply chains that literally keep society functioning. For example, around 95% of the most powerful American companies have reported significant disruption to their supply chains due to the coronavirus pandemic.
“More than 90 per cent of Fortune 1000 companies have second-tier suppliers in Wuhan, the central Chinese city where the virus was first detected. Many had little or no interaction with them. This risk to the global supply chain is phenomenal,” says Roberto Battistoni, consumer products solutions lead at IBM Global Markets.
Domestic supply chains rely on nation-wide processes, suppliers and manufacturing; while global supply chains tend to be much more exposed to disruptions, due to having relocated key manufacturing process to overseas sites, and relying on international suppliers of raw materials and components. The sustainability of supply chains depends on how supply chain management simultaneously the three dimensions of organizational sustainability- people, planet and profit.
The most visible effects of the disruptions to supply chains being caused by COVID-19 tend to be easily seen on the financial side of supply chains: lack of available consumer goods in stock; the price of essentials going up; increased demand for essentials as a consequence of panic buying; difficulties for companies which have off-shored their operations in obtaining the necessary raw materials and components in time to face the crisis. For example, shortages of medical protective equipment, and potentially medicines, are the most visible aspect of a lack of economic sustainability in modern supply chains.
“Right now, cash management is a priority, especially during a large-scale economic downturn,” says Tim Burt, customer insights manager at Procurement Leaders. “Going forwards though, there is definitely a need for more visibility in supply chains.”
Environmental & Social Impact
At the same time, COVID-19 is not only hindering the delivery of economic benefits from supply chains, but is also affecting their environmental and social performance. They might be less visible but the environmental and social dimensions of the effects of this pandemic are worth noting. In terms of the social dimension of supply chains, it is of paramount importance that supply chains ensure the safety and protection of their key workers, especially those that are under pressure – such as health, pharma, and food & drink chains –. Also, it is essential that supply chains around the world maintain high social and human rights standards, avoiding the use of the crisis as an excuse for reducing human and labour rights within supply chains, particularly as COVID-19 is gaining significant attention from the media and law enforcement bodies.
Having suppliers located in multiple nations is a key aspect of global supply chains therefore it is important for the strongest and most central companies in a supply chain to support smaller suppliers, who may be struggling financially, putting jobs at risk. Needless to say that gig economy supply chains may face labour-related social challenges regarding the protection of key workers’ – such as deliverers – income and safety during the pandemic. Social issues may also emerge when the central companies in a supply chain are considered by the government to be ‘non-essential businesses’, which generates significant job insecurity for many employees, particularly in the case of large companies in small towns, as these companies tend to have a massive impact on their local economies.
The COVID-19 pandemic may also affect how green supply chains are. While sustainable supply chains of excellence embrace green best practices, such as the distribution of greener consumer goods, less polluting logistics practices, recycling and circularity of items, the current pandemic has forced supply chains to attempt to keep higher inventory levels of raw materials and final products, which can of course lead to waste and loss of items due to damage and products going out of date. More specifically, hospital supply chains are expected to generate increasing levels of medical waste. Panic buying and stockpiling can cause significant difficulties for supply chain managers in forecasting demand, and can also contribute to unprecedented levels of household waste. Finally, green supply chain practices, such as recycling, have been disrupted as city-level governments around the world consider these services to be non-essential.
Ethical Business Practices
Beneath all the headlines about the impact on business and the economy there are countless stories about workers and smaller suppliers that struggle with demand and supply shocks. The way that companies treat people and suppliers in this crisis matters, and it will be remembered. It can be tempting to cut corners or compromise standards in supply chains to prioritise trading and cash flow at the moment, but the businesses that emerge strongest from this turmoil will be those that protect their brands and supply chains by acting ethically. Recently, investors with $4.5 trillion of assets wrote to 95 well-known brands urging them to uphold human rights and take care of people in their supply chains during the crisis.
Although COVID-19 has uncovered the vulnerability of supply chains in delivering business goals to their consumers, it is important to also consider the hidden effects it can have on the social and environmental performance of supply chain management.
ASL Global is committed to conducting our business in a responsible & sustainable way. Acting with passion and integrity, our people work with customers, suppliers and other stakeholders to make a positive contribution to social responsibility and environmental sustainability in communities around the world.
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