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Are you ready for the great supply chain crash of 2020?

As the world’s economies are left reeling by the Covid-19 coronavirus and global shutdowns designed to contain the pandemic, a worrying leading indicator has emerged in the data networking industry; a flashing red light that demands immediate attention from international industry leaders.

US-based NetworkTigers has compiled first-hand research which points to a sector-spanning supply chain crash which is already underway — and could have reached the world’s food supply systems.

The prices of used network equipment have increased throughout the Covid-19 coronavirus pandemic. At first glance, this might make little sense, explains Network Tigers President Mike Syiek. “Historically, the average price decline across all equipment is close to two per cent per week. Some items do not lose value, some lose more. But that number was almost set in stone.”

Mike Syiek, President of NetworkTigers

Nevertheless, the past few months have seen prices on the used equipment market go up, not down. “You would only see this when the manufacturers can’t keep up with the demand by making new products or there is no new product in the market and firms have to buy used equipment,” explained Syiek.

In a normal year – pre-2020, when the world seemed to make more sense, perhaps – the usual flow of used equipment starts with the larger, more established firms. These companies would pass on their hardware to the recyclers or network equipment suppliers, who would then supply small and mid-size firms, healthcare organizations and governmental agencies.

This year is different. Syiek is seeing more Fortune 500 firms buy used equipment and the prices on used equipment is going up. “Large firms like to do a spring upgrade and to remove older data center equipment before the summer starts. This year we did not see the normal volume of upgrades. If the normal flow of data center equipment upgrades does not happen, then most used network equipment vendors will be selling from current stock. When those stocks are gone, and with the manufacturers having supply issues and disruptions, the prices will go even higher.”

But it’s not just the data connectivity market that has seen supply chains crumble, and it is this broader, global impact that NetworkTigers urges businesses to address immediately.

Across the world and in multiple industry sectors, the effect of such a sudden lockdown has exposed weaknesses, with some worrying indicators of deeper cracks to appear, possibly even in global food supply chains.

The first signs of such a fundamental problem may have seemed relatively trivial. In New York during its first lockdown, fitness equipment became almost impossible to get hold of without paying enormous mark-ups, something GQ magazine dubbed The Great Kettlebell Shortage of 2020.

kettlebell“The kettlebell is the most obvious flashpoint of our great weight shortage,” wrote Alex Shultz. “They’re appealingly simple—just a hunk of iron with a handle, and useful for working out your entire body.

“But kettlebells are part of a complicated and fragile supply chain, one that’s a microcosm of a global economy currently in crisis.”

US citizens have even seen the money in their pockets become more scarce — the pandemic “has significantly disrupted the supply chain and normal circulation patterns for US coin,” including pennies, nickels, dimes and quarters, reported the Washington Post.

“The places where you go to give your coins, and get credit at the store and get cash — you know, folding money — those have not been working. Stores have been closed,” said Fed Chair Jerome H. Powell in a June hearing before the House Financial Services Committee. “So the whole system has kind of, had come to a stop.”

The pandemic’s global impact extended beyond factory-built products. Prompting new fears of future disruption, industry observers noted the effect had been felt by the global food supply industry. A more fundamental threat to societal safety is hard to imagine, and yet US companies were forced to face the unthinkable.

“When America’s industrial meat supply chain started to break down, consumers and retailers alike ran into shortages of ground beef, chicken breasts and other cuts,” wrote the Post in an article headlined The meat industry’s supply chain is failing. “They also encountered higher prices. Some retailers started to limit meat purchases to keep supply available.”

The commodity meat supply chain was designed to be efficient, fast and cheap, explained Bluffton, GA-based farmer Will Harris. It wasn’t designed to be shock resilient.

The pandemic created a gigantic disruption in supply chains, says Vishal Patel, VP of Product Marketing at Ivalua, a provider of cloud-based procurement products. “Manufacturing companies with supplier arrangements for critical parts and materials, including those with longstanding overseas partners, suddenly found themselves cut off from essential goods,” wrote Patel in EPS News.

“Just-in-time delivery meant they had no inventory of certain essential components on hand – items which they expected to arrive only as needed. On top of that, with just modest amounts of data flowing between suppliers and their customers, there was little visibility into the pipeline of incoming goods and even less into alternative vendors.”

The financial crisis of 2008 changed and reshaped the financial world, say industry experts at Michigan State University’s Department of Supply Chain Management, and Maine Pointe, a global supply chain and operations implementation firm. A dozen years after that crash, the pandemic has exposed an extreme vulnerability that will create fundamental shifts in global supply chains.

“It’s a sobering fact every executive will need to re-evaluate their supply chain and rebalance it to manage supply chain and operations risk and uncertainty while driving EBITDA, cash and growth”, wrote Steven A. Melnyk, professor of supply chain management at Michigan State University, in his white paper, Is today’s supply chain model dead?

“The current pandemic is just the latest in a series of global risk events which have exposed vulnerabilities in the supply chain. It will be the catalyst to rethinking how organizations are led, organized and operated, which will lead to a fundamental rebalancing of the supply chain and business operations.”

Companies around the world have had little time to prepare. Joey Bergstein, the chief executive of Vermont-based Seventh Generation, a US producer of household cleaning products, saw demand for his company’s products soar as the coronavirus lockdowns came into force.

“The week of March 8 we saw a surge in demand of somewhere between 600 and 750 per cent,” he told the New York Times as part of a series of live calls discussing business during the pandemic. “When you build a supply chain and package, you normally have about a 30 per cent buffer to be able to meet a surge in demand. Nobody built a supply chain to be able to respond to that kind of surge in demand. So the team has been in a constant state of triage ever since, and we’re still in that.”

In Europe, Olaf Berlien, chief executive of Germany’s global lighting heavyweight Osram, told the New York Times in June that things had been different in the economic crash of 2008. At that time he had focused his company’s sales development on markets in China and the Middle East.

“China is still a market,” said Berlien, “but it’s not a growth market.” In fact, the reality is even more of a wake-up call — Berlien also told the Times: “China is no longer the workbench of the world.”

Osram, and other German companies, had learned to anticipate supply chain disruptions and take appropriate preemptive steps, such as having at least two suppliers for its products.

“What we are all learning, and I talk to a lot of managers and CEOs in Germany, is that we all have to rethink our logistics and supply chains,” he said.

Osram’s diminished expectations for China reflect a deepening scepticism across Europe about the benefits of turning to the Asian superpower in times of need, concluded the Times, and the coronavirus crisis would prompt companies to look harder for suppliers closer to home.

Caught off-guard, industries have been slow to react. The World Economic Forum (WEF) issued a report, The Impact of COVID-19 on the Future of Advanced Manufacturing and Production, in which the authors say: “The magnitude of this unprecedented crisis has yet to be fully realized or manifested. And yet, we must struggle through it and think beyond it.”

Companies are now looking at new technologies as each region’s experience with COVID-19 causes fractures in supply chains to emerge, the WEF report revealed. “From rapidly redeploying underutilized factories to learning new ways to secure and build local, regional, national and global supply chains, manufacturing must help today while planning for tomorrow.

“With the arrival of the coronavirus pandemic, we see a need to move faster than ever as this international health crisis affects manufacturers and their respective supply chain networks around the globe.”

Other News of Interest:
Ed Cape
Ed Cape
Ed Cape is a UK-based business journalist who focuses on the impact of new technologies on the workplace (wherever that might be in in the post-Covid world of lockdowns and remote teams).

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Are you ready for the great supply chain crash of 2020?