Originally posted by Patrick Socha on Linkedin
The world of today is one of tragedy and great economic strain. Nations across the developed and developing world are doing their best to cope with what can hopefully be described as a once-in-a-lifetime event and loss of life. However dramatic the situation seems now, these dire times will pass and a new normal will emerge.
Already, the shifts in consumer habits and the realities of business have been massive. Those with significant leverage have had reality come crashing down on them. Liquidity is now more important than ever to ensure survival. In the start-up space, we’ve seen the rise of the camel over the unicorn as firms with unstable cash-flows relying heavily on investment rounds are forced to close offices and lay-off individuals. The shift towards telecommuting as the way of tomorrow is unavoidable. As alarming as these trends are for those on the losing edge of this disruption, the world of tomorrow will be filled with opportunity for those who can capitalize on these shifts, as has been the case throughout history.
In the context of supply chains, I believe that we will see significant shifts in the ways that companies find success in how they do business. At the start of the Covid-19 pandemic, many massive suppliers across China were shut down due to the lockdown. Many globalized supply chains, with limited inventory thanks to the adoption of just-in-time practices, feared supply shortages due to these closures. Apple is one example, as many of its products rely on massive plants across China for final assembly. Now with the virus spreading, we are seeing the same concerns at plants across the world. Here in Canada, we’re facing plant closures in beef processing plants in Alberta due to the spread of Covid-19 between workers. Many fear this will spike the price of beef, leading to global food shortages as many US producers are facing similar situations not to mention the situation also unfolding in many European countries.
Needless to say, there are many questions that remain unanswered due to the ever-changing nature of the spread of Covid-19. Until we see a vaccine in production and distribution, the supply chains of today face challenges unlike ever before. However, the future as I mentioned before, will bring great opportunity to those that can capitalize on the shifts due to what is unfolding. Below, I outline three of the most promising and exciting trends in a supply chain context that I believe will occur in a post-Covid world below.
The Shift of Supply Chains Towards Geographic Dispersion to Ensure Security
Many companies today, especially in the consumer goods space, rely heavily on a single country for much of their sourcing and assembly. Consumers across North America, Europe, and Asia have become accustomed to ever-falling prices on goods such as electronics, housewares, fast fashion, and many other products that they frequently purchased. Walmart and other discount retailers have further increased the pace of this adoption, placing massive orders with suppliers that manufacture at massive plants in China. The cost of each individual product cannot be matched by producers anywhere else in the world due to the sheer scale of production and relatively lax employment and environmental standards.
This trend over the past thirty or so years has filled much of our homes with products at costs the generation before us couldn’t imagine. On the flip side, the job losses in manufacturing, especially across North America and Europe, have been immense causing great hardship and unemployment for those in the working class. Automation, dematerialization, in conjunction with outsourcing, have resulted in labor markets that place an ever-greater emphasis on services instead of products.
In today’s environment, the ongoing pandemic has brought to light the reliance on foreign suppliers for many of the goods that a countries citizens rely on. PPE being a prime example here in Canada. As the virus spread, the country and its provinces scrambled to develop the ability to produce their own equipment in the face of shortages and export restrictions by China, Europe, and the US. Many manufacturers in Ontario were able to capitalize on this opportunity by quickly adjusting their production. From the GM plant in Oshawa being retasked to produce facemasks to Inksmith in Waterloo 3D printing PPE. The rapid shifts towards domestic production away from consumer goods to PPE have been unlike anything we’ve seen since World War 2.
When this pandemic is finally over and the dust begins to settle, I believe that many countries and companies will question their reliance on foreign suppliers to be able to provide them with all the goods they need. This, in combination with the trend towards populism to restore domestic manufacturing in the US and Europe through tariffs, may lead us into a supply chain landscape that is very different in a decade. Furthermore, many companies looking to diversify their plant locations may turn to other regions, such as other countries in Asia or Africa to reduce their reliance on China. I believe this will be an exciting time for the other emerging economies that are able to best attract foreign direct investment to bolster their growth.
The Rapid Adoption of E-Commerce
With your average customer not being able to or willing to shop at retail locations across much of the world due to the fear of spreading Covid-19, we’ve seen a significant uptick in e-commerce purchases. Canada Post has seen Christmas season-like levels of parcels being delivered through its network in the most recent weeks. Many traditional mom and pop shops have been forced to shut their physical doors and transition into online delivery at a frantic pace or face a complete drop in sales. Companies already in the space, such as Shopify, Amazon, and Wayfair are benefiting from this rapid increase in adoption rates. Certain industries have seen demand for their products evaporate overnight, however, those retailers that focus on staples and other winning products have seen the opposite.
While there will be many retailers that are crushed during these times of uncertainty, I believe those that were already on the winning edge of the e-commerce trend will see the odds continue to tip in their favor. From meal box kit providers to breweries that deliver directly to your home, those businesses with an established e-commerce platform may see their revenues grow in these difficult times thanks to this disruption.
The Growth of the Legal Cannabis Space in Canada, Europe, and the US
During a recent fireside chat with Fuckup Nights Toronto, Ex-Canopy CEO Bruce Linton broke down why the Covid-19 triggered recession will lead to a surge in the adoption of legal Cannabis across both states in the US and countries in Europe. He boiled it down to three key points. The first, the vacancy of many retail store-fronts and industrial spaces that would be utilized with Cannabis legalization. Second, the number of jobs that would be created to target those areas with now high unemployment. And lastly, the amount of tax revenue that would be generated would help alleviate pressure on newly underfunded states and municipalities in the US.
Overall, I believe those governments hard hit by the current downturn will be unable to resist utilizing this new and emerging industry to help their jurisdictions recover. Furthermore, as many Canadian companies are already leading in the industry, it will create a great opportunity for them to supercharge their growth and global expansions.
From the supply chain side of this everchanging industry, unique questions for distribution need to be answered. How will new suppliers ensure consistent quality? How will the transportation and distribution of the product function, being mindful of its high value and untraceable nature? Entire new supply chains will have to be developed across the globe to enable the production and consumption of this product.
In Conclusion – An Exciting New World on the Horizon?
In this time of great uncertainty, thoughts of what the future may bring keep me optimistic from a professional perspective. Once economies across the world are able to restart economic growth, the questions facing many supply chains across the world will have to be answered. Only time will tell what reality will bring, but I believe there will be both many winners and losers as a result of this unparalleled global shakeup once the dust has settled.