Coronavirus Pandemic Hastens Digital Supply Chain and Industry 4.0 Efforts

Stephen DeAngelis

May 13, 2020

Numerous reports confirm the coronavirus pandemic has motivated business leaders to consider new ways to leverage technology and automation to lessen their company’s exposure to human-related crises. Jennifer Smith (@jensmithWSJ) reports, “Decisions are taking place across scores of loading docks, warehouses and logistics management offices as companies of all sizes take a new look at technology that can help them adapt their operations to a changing business landscape under coronavirus restrictions. Supply-chain upheaval from the pandemic is presenting the tech world with a sudden and unexpected proving ground for automation, digital platforms and other tools that had been low on the priority lists for companies’ logistics operations. From delivery software to mobile robots that help workers fulfill e-commerce orders, those offerings are drawing attention in industries where thin margins have often left companies clinging to older, highly manual operations.”[1]

In the manufacturing sector, efforts to embrace Industry 4.0 technologies are also gaining momentum. Adnan Seric, a Research and Industrial Policy Officer at UNIDO, and Deborah Winkler, a Senior Consultant and Principal at Global Economic Policy LLC, explain, “Industry 4.0 unlocks new labor-saving technologies which could potentially reduce reliance on low-skill, low-cost labor in manufacturing. This has implications for the global geography of production, as value chains can be expected to become more regional in nature, moving closer to key final consumer markets (in China, the EU, Japan and the US). Industry 4.0 is also likely to have an impact on the length of value chains, as automation could consolidate various steps of the value chain. And Industry 4.0 could influence the reshoring decisions of lead firms in light of the growing importance of supportive and flexible business ecosystems.”[2] Blake Moret, chairman, president and chief executive officer of Rockwell Automation, predicts, “This pandemic will change how we live our lives and how we operate our businesses in the future.”[3] Although Moret agrees “this event is going to cause people to make some changes in their supply chain,” he doesn’t necessarily agree companies will bring all their production back to the United States.

Digital Supply Chain

One of the most notable areas where automation is being applied is in warehouses. Smith notes, “The warehouse automation market had been accelerating before the pandemic.” That trend will likely accelerate since e-commerce spiked as a result of lockdowned consumers making most of their purchases online. Smith reports, “Some companies looking to boost output during lockdown are turning to so-called collaborative robots that navigate warehouses to help human workers fulfill orders. Unlike conveyor belts or other fixed equipment, the autonomous mobile units can be added quickly to existing distribution operations to help cope with swings in volume.” Beyond the rise in e-commerce and its impact on logistics, experts believe the pandemic will affect almost all areas of supply chain operations. George Bailey, Executive Director & Chief Research Officer of CGE’s Digital Supply Chain Institute, suggests “[Companies should] treat the Coronavirus supply chain impact not as an abnormal exception, but as an expected occurrence given a world where political disruptions, health issues, technology advances, and climate change are all happening at the same time.”[4] Among the actions he believes companies should take is implementing “a Digital Supply Chain plan that calls for increased automation, 3D manufacturing and other technologies that speed execution.”

Accelerating the move to a digital and more automated supply chain won’t be a simple matter. Richard Wilding (@SupplyChainProf), Professor of Supply Chain Strategy at Cranfield School of Management, explains, “There will be no pain-free separation between the old and new ways of running supply chains. … It’s a messy, people-filled environment that means a tangle for technology in terms of implications for corporate strategy, risks and reputation. So companies will need to be ready to be part of the wider conversation on the future of societies and the role of business.”[5] Most businesses, however, are having a hard time concentrating on long-term objectives. Bloomberg reporters insist, “Battered and bruised, supply chains [are shifting] to recover-and-survive mode.”[6] Wilding believes focusing on near-term recovery is important. He asserts, “The medium-term priority for businesses across sectors will be adaptability. Companies that understand their capabilities and are able to be flexible will survive in the best shape.” He goes on to note, “An idea that’s gaining increasing traction in logistics is bimodal supply chains, where ‘mode one’ is all about the traditional approach — lean efficiency, mitigating risks — based on there being a good level of predictability; and ‘mode two’ is the need for agility, speed and exploring new opportunities.”

Industry 4.0

Seric and Winkler observe, “Long before the COVID-19 pandemic, in an effort to mitigate supply chain risks, increase flexibility and improve product standards, global lead firms have relied on Industry 4.0 technologies and occasionally reshored parts of their production.” Like Seric and Winkler, Bryan Walsh (@bryanrwalsh) believes reshoring could increase in the aftermath of the pandemic. He predicts, “The massive disruption caused by COVID-19 could lead companies to tap automation to manufacture products much closer to home. … The pandemic is revealing that the globalized supply chain that brings us many of our products is shockingly fragile. Easily programmable industrial robots could make it simpler to produce what we use here in the U.S., reducing that vulnerability.”[7]

According to Jan Zhang, a research director at Interact Analysis, “The COVID-19 outbreak is becoming a global stress test.”[8] She believes the stress test will push “manufacturers to rely more on automation and digitalization for long-term operations to reduce the financial impact from epidemics and other potential economic challenges.” Although Zhang believes there is a potential for some companies to relocate manufacturing plants in the wake of the pandemic, she believes the more likely outcome will be a strengthening of risk management processes. “In the long run,” she writes, “the establishment of information chains will further enhance the resilience of supply networks. Key information about materials, logistics, inventory, production and capital in the supply chain can easily be grasped, analyzed and shared to improve overall supply chain management. At the same time, market demand can be tracked and predicted more dynamically, and production rhythms can be adjusted accordingly. All this needs to be part of a wider digitalization push from the manufacturing industry to deal with the next crisis. For manufacturing enterprises, the epidemic has simply exposed problems and risks that already existed. As such, it might force industry to undertake much needed reforms to automation, digitalization and logistics processes and systems.”

Concluding thoughts

McKinsey and Company analysts conclude, “While the coronavirus pandemic is the most wide-reaching crisis to affect supply chains in recent memory, it is not the only incident that will have an impact: Brexit, international trade disputes, natural disasters, and other events are all affecting today’s complex supply chains to varying degrees. Additionally, the COVID-19 situation is continuing to evolve on a daily basis. While recovering from this current crisis is crucial, it is more important that organizations act now to mitigate against future shocks. Companies should design and build their future supply chains with risk management firmly in mind.”[9] Bailey adds, “The Coronavirus might be the unfortunate crisis that forces companies to accelerate the adoption of a true Digital Supply Chain.” And, I might add, provide motivation to accelerate Industry 4.0 efforts.

Footnotes
[1] Jennifer Smith, “Coronavirus Upheaval Triggers Corporate Search for Supply-Chain Technology,” The Wall Street Journal, 29 April 2020.
[2] Adnan Seric and Deborah Winkler, “Managing COVID-19: Could the coronavirus spur automation and reverse globalization?UNIDO Industrial Analytics Platform, April 2020.
[3] Arthur Thomas, “Rockwell Automation CEO Blake Moret sees coronavirus altering global supply chains,” BizTimes, 28 April 2020.
[4] George Bailey, “Coronavirus And The Remaking Of Global Supply Chains,” Forbes, 6 March 2020.
[5] Richard Wilding, “Coronavirus Is Changing Global Supply Chains in Unexpected Ways,” Brink, 19 April 2020.
[6] Bloomberg, “Battered and Bruised, Supply Chains Shift to Recover-and-Survive Mode,” Yahoo Finance, 27 April 2020.
[7] Bryan Walsh, “Robotic supply chains for a post-pandemic world, Axios, 21 March 2020.
[8] Jan Zhang, “Coronavirus will force manufacturers to enhance automation, digitalization,” Control Engineering, 18 March 2020.
[9] Didier Chenneveau, Karel Eloot, Jean-Frederic Kuentz, and Martin Lehnich, “Coronavirus and technology supply chains: How to restart and rebuild,” McKinsey & Company, April 2020.