There is an entertaining book by the Italian writer Alessandro Baricco (Next: essay on globalization and the world to come), in which he tries to offer a definition of globalization. Trying to “understand” the concept – in quotation marks because the author deliberately plays naive – he asks different people about it, without anyone knowing what it is. Of course, they give you a few examples:
1. You go anywhere in the world and there you find Coca-Cola or Nike or Marlboro.
2. We can buy shares in all stock exchanges in the world by investing in companies in any country.
3. Tibetan monks are connected to the Internet.
4. The fact that my car is built in parts, some in South America, some in Asia, some in Europe, and some perhaps in the United States.
5. I sit in front of the computer and I can buy whatever I want online.
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Baricco published this essay in 2002. No time to give you this example: a virus that arises in Wuhan, a very small region of China, begins by infecting local people with what specialists call ‘atypical pneumonia’; shortly after, it ends up unleashing a global pandemic unprecedented in modern history, infecting and killing millions of human beings around the world, causing border closures in countries and collapsing entire services and industries such as airlines, hotels and restaurants.
In business terms, it has generated one of the greatest supply and supply disruptions, and has shown us, on the one hand, how integrated and global the corporate world and business operations are, while demonstrating the level of vulnerability, rigidity and null responsiveness that many businesses have today.
If you are one of those who think that in a few months things will go back to the way they were before the pandemic, this article is for you. Undoubtedly, we are faced with the need to understand the new operating context that responds to the changing needs of the consumer, and that have transformed supply and demand. Perhaps definitively.
1) Echoes of the pandemic on demand
Covid-19 meant a major disruption to global supply chains. “As the pandemic hampered factory operations and wreaked havoc on global shipping, many economies around the world were hit by shortages of a wide range of products, from electronics to lumber to clothing. ”, Says an article published by the newspaper The New York Times last June.
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Come on, this is not the first time that some supply chains have faced disruptions and a region on the other side of the world suffers from a shortage of a product. We may still have the issue of the earthquake and tsunami in Fukushima and the impact it had on the automotive, auto parts and electronics industries. But Covid-19 is a long way from being a hurricane that affects Texas refineries and drives up crude prices. The outbreak that we lived in 2020 affected all countries and all industries without discrimination, but even after that great disruption we continue to see small echoes and smaller and constant interruptions.
The first scenario that global experts anticipated was a return to normality once vaccination in the world advanced and the risk of contagion decreased, but what we see right now is that there is a new normal other than the pre-pandemic. Perhaps that lifestyle and consumption today is nothing more than a longing and it is most likely that we are witnessing changes that are here to stay, even after the infections are completely controlled.
Examples? Remote work or home office it is a norm that will remain in great proportions, as companies and individuals have seen the enormous advantages it has in terms of productivity, sustainability and people’s well-being. True, in some companies and industries it will be higher than in others; everything will depend on the spirit and operation of the business, but let’s understand that it is an echo of the pandemic that will not go away.
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The same happens with respect to the emergence and relevance of new sales channels. In terms of supply and demand, the major disruption altered consumption in different channels, bringing collapse in some and giving relevance to others. For example, companies that concentrated their sales to retail they suffered the most from the impact, while e-commerce was one of the big winners from this historic event.
We may see a slight decrease in the e-commerce regarding the spikes in demand that we saw in the most critical parts of the pandemic – sales online in Mexico they grew 81% in 2020—, but they will remain stable even when we see a remission of Covid-19.
2) The echoes in the offer
Border closures in many countries, coupled with disruptions in manufacturing processes as a result of Covid-19 outbreaks in factories, have been combined with panic buying, pressurized deliveries and high spikes in demand for certain products.
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We understand that demand dictates everything. If consumption changes, so does the supply, and this involves the entire chain, from the supply of inputs and raw materials to the way we deliver the product to our consumer.
Many companies had to stop their chain for whatever reason during the pandemic, and today they are still struggling to finish reactivating it. If it happened to you, you should know that getting that chain back up and running is more complex than before for the simple reason that now you must consider a greater number of operational parameters: under what demand, under what conditions should you rehire personnel in the different points of your logistics and distribution, how to reactivate supplies, intermediate suppliers, ports, shipping companies or airlines and trucks, etc.
We must consider that they broke complete chains that had been refining their timing for years or decades. And everything was affected. Add to that the new demand signals.
By far, stopping a global operation will always be easier than restarting it. There were really few industries that stopped cutting people due to the decrease in demand, which ended up affecting productive activity. Just the fact of rehiring these people to integrate them into a process, train them and generate value takes time.
3) Uncertainty may be the new normal
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It is now clearer to us that the demand for products and services does not resemble what it was before the pandemic, nor does it resemble what it was during the pandemic. In fact, no one knows with which consumer signals it should reactivate its chain. Today there is a variability in demand that complicates any prediction.
The supply chain, which was previously continuous, is being divided into small chains that are much more agile and flexible, as it is the only way to deal with different consumption scenarios.
How variable are these scenarios? It depends on the industry and the region. For instance,
segments like food trucks Y vending machines they almost completely collapsed in the United States. Restaurants, fast food outlets, coffee shops and other food outlets posted 27% drops in sales (McKinsey). Something very similar happened in tourism with airlines, hotels and cruises.
But others adapted quickly. This was the case of the consumer products, food and beverage industries, which acted in an agile way to change their distribution channels and, in some cases, even the packaging of their products – consumption changes according to the moment and time. place-. Now we are among a consumer who is confined most of the time, but who sometimes goes out on the streets.
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Again, there is high variability because the situation in each country is different. In the United States, we have seen greater pressure from people to return to their old normality, even though the pandemic is far from ending and vaccination has not been completed. In that country, people want to go out again and that generates a pattern of consumption and demand different from what we see in other places, such as Mexico, where there is a hybrid between local consumption and home delivery, something that could be the new normality in this region.
For those responsible for managing supply chains in companies, in an environment of uncertainty, such as the one we live in, it may make more sense and efficiency to use tools such as a control tower and demand sensing to try to increase the precision of its demand forecasts and to carry out corrective actions derived from these variations.
These are very useful tools to deal with certain uncertainty scenarios, but we must not forget that almost no company is ready to deal with extreme uncertainty like the one we experienced between March and August of last year. To what extent can a business ‘cope’ with this? It will always be necessary to have a reference plan and see, step by step, how it is being fulfilled.
In the next installment we will address the rest of the trends that will dictate the new consumption patterns and the tools that you can have to transform and adapt your business.
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Jorge Deutsch is a Supply Chain professional and has held various roles in logistics and supply chain at Arca Continental, where he is currently the Corporate Director of Logistics. *
LinkedIn: Jorge Deutsch
Jaime Ortega is a partner of Exertus Consulting Group, a consulting firm focused on creating commercial, operational and technological solutions with strategic and economic impact for companies. *
LinkedIn: Jaime Ortega
The opinions expressed are solely the responsibility of their authors and are completely independent of the position and editorial line of Forbes Mexico.