Supply Chains Need Long-Term Resilience
Before COVID-19 struck, supply chains were praised for their just-in-time capabilities. Now entirely new levels of supply chain resilience are needed, according to the Council of Supply Chain Management Professionals' (CSCMP) 2020 State of Logistics Report.
In 2019, the U.S. economy achieved 2.3% growth, and the logistics sector grew to $1.65 trillion in expenditures. Productivity improved, bringing its cost to 7.6% of gross domestic product, an improvement from 7.9% in 2018, says CSCMP.
Road freight, the largest segment of U.S. logistics spend, was already slowing down in 2019 after years of low capacity and increasing rates reversed in favor of shippers. COVID-19 has been more economically damaging than a standard recession; the current recession ended 126 months of growth, the longest economic expansion in U.S. history, the report says.
When economic recovery starts, it will likely be staggered. The consumer confidence index dropped 18.1 points in early April 2020, and March saw an 11.9-point decline, the report says. Among the steps needed to build long-term supply chain resilience, according to the report:
- Support demand for surges in areas such as groceries and e-commerce.
- Reconfigure supply chains for other sectors that have plummeted, such as heavy industry.
- Adapt to the ripple effects of social distancing as the industry feeds a larger consumer appetite for home delivery.
- Redirect idle trucks and distribution center capacity to booming sectors.
- Recognize that even with superior agility, logistics providers cannot reconfigure all capabilities and relationships on the fly.
- Be more flexible when coping with uncertainty, emphasizing optionality and inventory rather than lean operations.
"It is abundantly clear logistics have a driving role in assuring resilient supply chains," says Michael Zimmerman, partner with Kearney and co-author of the report. "Logistics practitioners will need to become even more agile as they navigate recovery in the second half of 2020 and into 2021."