Following the seemingly endless disruptions to the country’s supply chain over the past 2-year period, signs are showing more pain before things get better.
The COVID-19 pandemic was the primary catalyst that disrupted supply chains, which caused a ripple effect globally that was further amplified by additional economic and geo-political events, explained Michael Zimmerman, a partner at Kearney, during a session at the 2022 National Association of Chain Drug Stores Total Store Expo.
“At the initial phase of the pandemic, everything shut down and companies stopped investing in people, resources, and capacity. The first half of 2020 saw a major shutting down and batting down of the hatches,” Zimmerman said. “Then we got stimulus and the belief that we were going to get out of this. There was a lot of enthusiasm, but people were still in home confinement, so they stopped using services such as restaurants, hospitality, and travel, and shifted to buying things.”
This unprecedented surge in demand during periods in which much of the country’s population were in home confinement led to an asteroid of sorts hitting the ocean and reverberating throughout supply chains all over the world.
“As providers scrambled to provide capacity and supply chains were disrupted, this further destroyed capacity,” Zimmerman said. “So ship movements, port operations, trucking networks—those were all disrupted.”
For those paying for these services, pricing also skyrocketed, which made its way back to the pockets of consumers, Zimmerman explained. Additionally, the COVID-19 pandemic was not the only source of disruption during this approximate 2-year period. Inflationary pressure, labor shortages, natural disasters, trade conflicts, and the Russian invasion of Ukraine all occurred around the same time, leading to unprecedented headwinds.
Because of the extent of damage caused to supply chains globally, Zimmerman noted that he is now often asked when things are going to get better. He noted that his answer is they’re not going to.
“Are things going to get better? The short answer is ‘no.’ [Although] I’m a bit of a harbinger of bad news, it’s much better to plan for disruption and understand that your supply chains are vulnerable then to hope that things are going to get better,” Zimmerman said. “So yes, we have seen a period of relative calm, but when you look at all of these causes of disruptions in your supply chains—things aren’t going to go back to ‘normal.’”
When looking back at the years right before the pandemic when logistics capacity was abundant and prices were quite low, Zimmerman explained that such a period should not be expected to return anytime soon.
“It could happen, but if you look at what’s happening now, the [Federal Reserve System] is tightening, the market dropped a thousand points on Friday—the message is that we’re going to be in for more pain before things get better,” Zimmerman said. “You’ve probably heard the expression ‘Hope is not a strategy.’ This is a perfect example of that. Get your supply chains ready.”
Zimmerman M, Huseby T. Troubled Water or Smooth Sailing – What’s Ahead for the CPG and Pharma Supply Chains. Boston, MA: 2022 National Association of Chain Drug Stores Total Store Expo; August 27, 2022.