Concerns around the impact of COVID-19 on supply chains have grown as the virus spreads around the world, forcing factories and businesses to shut their doors for an undetermined length of time. Non-essential employees are safe at home, finished goods plants have been closed for an extended period, travel is stalled, and health experts are increasingly warning against physical contact. With this, the wholesale distribution industry has felt massive disruptions demand either surging or drying-up. The net outcome is a reduction in the supply of finished goods capacity and the disruption of shipping to major markets. Sub-segments of wholesale distributors that are especially vulnerable to virus-related disruption, such as food distributors to restaurants, will likely continue to feel the impact through Quarter 2 and to have challenges with product availability through the summer.
As a result, wholesalers must keep a close eye on the disposition of their stock across store and distribution center networks. We can expect companies placing orders for new or repeat materials to be seeking new sources outside the affected regions and to place commitments earlier as global production lead times are extended. We also foresee a rise in dual sourcing of materials to mitigate against shipping and post-manufacture logistics disruption. In summary, wholesalers will place extra focus on developing alternative supply sources, monitoring deliveries more closely, and becoming more conservative with volume projections.
As COVID-19 expanded across the world, the majority countries have closed every social environment with human interaction. The economy has been stepped down to the minimum essential operations, adding to the crisis a road block to demand whereas a roadblock to offers was already there.
For wholesale distributors who are the middlemen in the supply chain, this is dual punishment; business partners are failing and for the rest of the business the supply is uncertain and they have hard time in some countries to find a truck available to deliver their RDC ( Regional Distribution Center ).
In this disruptive time, wholesale distributors are focusing on three urgent business areas:
- The value of e-commerce is being reinforced, as sometimes the only viable channel available. This pushes all business partners still running to pivot to a digital buying channel to ensure the safety of employees and deliveries. This event has provided the most compelling reason the industry has seen for moving to the digital channel. Negative factors that previously made companies reluctant to change are suddenly disappearing in place of the urgency to deliver products when needed.
- Supply sources are being reassessed, as the former best practice to have one supplier acting as back up proved to not be sufficient to cope with such a crisis. The current situation has shown more than one backup supplier is needed, but also that they should be in a completely different geographical zone than the primary supplier.
- Financial executives’ heads are spinning with inventory turn numbers reaching levels never seen before. In addition, they need to asses government financial support that may help their economic survival. Thoughtful and repeated simulations are run every day to help companies take the right tactical path in this new and unfriendly desert. Wholesaler distirbutors require accurate and real-time simulation tools for their data IT management.
Unfortunately, we don’t know the full extent of the crisis today. But we see the clear trend that wholesaler distributors are adapting their business models to better serve customers and keep the economy flowing with vital goods. In 2022, we will certainly look at this situation as a defining moment in the steady and growing digital age. Nevertheless, this crisis will cause businesses to change their processes in the everywhere, omnichannel, supply chain and to implement simulation tools that will insure they are survivors of the next one.
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