Post-COVID-19 Implications for Global Supply Chain Management: Part I

Editor’s Note, Hans Dau is CEO, Mitchell Madison Group (MMG).

Most product adoption curves follow S-Curve patterns of various diffusion shapes, driven by enabling technology, relative utility vs. cost, availability and supporting ecosystems. Occasionally however, real shocks accelerate the process dramatically, leading to a steep change, squeezing years of adoption into mere months.

A great example is the rapid substitution of magnetic video tapes for TV post production, after the 2011 Japanese Tsunami wiped out a key Sony factory with file-based workflow. Video file transfer had been available for many years, but commercial producers, broadcasters and post production houses were used to the “good enough” physical tape workflow, hindering adoption of the new technology.

When such tapes simply became unavailable after March 2011, the industry shifted practically overnight to the cloud, and while Sony resumed production in late 2011, the industry had moved on and tape had become obsolete. Sony eventually ceased production of all betamax tapes in March of 2016, ending a 40-year era [3].

COVID so too provided a shock to almost all aspects of the global economy, with drastic consequences that we are all living with today. With immunizations rolling out as early as December 2020, it is appropriate to ponder the post-COVID world and delineate which behavior changes are temporary, transitory, or permanent or in nature. I will examine the key trends briefly and the focus on the supply chain implications

Key COVID structural impacts

Forced adoption of e-commerce: E-commerce penetration into late adopter segments was drastically accelerated during COVID and the lockdowns. Consumers who did not shop online were forced to do so and now prefer it. US Census numbers indicate that five years of projected online shopping adoption were compressed into a single quarter.

This forced adoption is likely to back off only slightly with the trend continuing at the historical slope but from a 5% points stepped up curve. Combining this with the effects of key metro areas losing residents and office workers, will spell real trouble for traditional retailers.

Location irrelevance of knowledge labor: During the lockdowns, all non-essential service labor that could be performed remotely was done so, and it largely worked quite well. Fast network access speeds, low-cost video conferencing options, and sheer necessity finally made video conferencing common and socially acceptable. While the impact on certain real estate markets, business travel and commuting is severely negative, the macro economic impact is obviously highly positive, creating huge gains in economic welfare for consumers from reduced commuting time, lower cost housing, to child care.

Excess commercial real estate capacity:  By some estimates, real estate costs should go down by 30%, but that could be conservative. Working with clients, I anecdotally see very aggressive targets utilizing as little as 50% of the pre-COVID office space, with continued anticipated declines in rent. While obviously net positive for the economy, this transition will be quite jarring, as the $4.6 trillion in commercial mortgages will lose significant and possibly permanent value severely damaging banks’ balance sheets. This may trigger a financial crisis similar to 2008, but if the Federal Reserve Bank and the Federal Government apply the lessons learned in 2008 proactively, the worst might be avoided.

Rise of the boredom economy:  Prior to the pandemic, TikTok was a product aimed at bored teenagers but it is now also widely used by adults, with almost a billion users who spend about an hour a day on it. The time spent on TikTok thus exceeds the work hours of the entire US labor force. As home and work become less clearly delineated, these trends need to be considered by managers.

Supply chain diversity: Prior to the pandemic, many companies paid lip service to true supply chain diversity and instead focused on lowest-cost sourcing, depending heavily on China.

President Trump’s China tariffs were the first test and many companies responded by diversifying to other Asian countries as best they could. When the pandemic hit, China initially shut down and prioritized their domestic needs, but came back surprisingly quickly. Companies are now scrambling to enhance diversity and increase non-China and U.S. domestic sources.

Next installment examines more implications for supply chain management

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