Global outsourcing has become increasingly popular in recent decades as companies pursued lower production and logistics costs. China, in particular, became a hotbed for contract manufacturing and supplier sourcing thanks to their large and affordable labor pools. As communication technologies improved, working with businesses anywhere in the world became easier than ever before.
When the COVID-19 pandemic shut down factories in China, the global supply chain was woefully unprepared and ground to a halt. As the initial wave of the pandemic begins to subside, supply chain managers across the United States and the world are tasked with retooling their supply chains to mitigate the risk of further disruption from the pandemic and other threats. This article will discuss the impacts of the coronavirus pandemic on the field of industrial supply chain management.
Distributors, manufacturers, logistics providers, and other industrial businesses perform essential functions that must continue even in the midst of a pandemic. As such, much of the short-term response to COVID-19 has involved the implementation of policies and processes that help to minimize the risk of infection in industrial facilities. Some of the practices being implemented in warehouses, distribution centers, factories, and other industrial businesses include:
- Social distancing requirements
- Temperature checks prior to entering the facility
- Mandatory mask/PPE rules
- Additional cleaning/disinfection procedures
- Improved sick leave policies
- Increased use of robotics and/or automation
Regionalization and Reshoring
Industrial business leaders quickly realized how dependent they were on foreign suppliers and contractors as facility closures followed the coronavirus, eventually impacting every major manufacturing hub in the world. U.S. manufacturers were suddenly cut off from critical raw materials and components only available overseas. This had a domino effect on the supply chain, leaving retailers and e-commerce sellers faced with stockouts and no alternatives.
As a result, U.S. companies are seeking to build redundancies into their supply chains. Some of the methods for achieving this goal include:
- Fully reshoring manufacturing operations onto U.S. soil
- Nearshoring operations to Mexico or Canada
- Identifying and engaging alternative suppliers/contractors in multiple regions
- Dividing and regionalizing supply chain and/or manufacturing assets into strategic pockets to mitigate the risk of a full shutdown
Lean and Just-in-Time inventory management practices have dominated supply chain management for years. Within the first weeks of the pandemic, retailers of all types ran out of essential inventory, such as medical supplies, personal protective gear, toilet paper, hand sanitizer, and cleaning supplies. The supply chains for these items couldn’t fulfill requests for additional inventory because they had run out of key ingredients and raw materials to make them. As the pandemic dragged into months, most industries began to see notable inventory shortages.
Reshoring or regionalizing operations will take years for most businesses as they seek out appropriate sites, build or lease new facilities, and sell off or relocate foreign assets. More immediately, however, most industrial businesses and their retail customers are seeking to increase their held inventory to provide a response buffer in the event of additional waves of COVID-19. A CBRE survey showed that most respondents were planning at least a 5 percent increase in business inventories equating to a need for an additional 500 million square feet of warehouse space. Given the timeline to construct new space, existing under-utilized buildings are providing an attractive and cost effective option.
Demand for warehousing and distribution space is already climbing due to the e-commerce boom. A trend toward holding more inventory will only further increase the need for additional storage space in a sector of commercial real estate that is already experiencing strained capacity.
Let Phoenix Investors Help You Adjust to the New Supply Chain Normal
Founded by Frank P. Crivello, Phoenix Investors is a national commercial real estate firm that combines strong Midwestern values with sophisticated investment tools to positively transform and reinvigorate the economic engine of the communities we serve.
Phoenix’s affiliate companies hold interests in approximately 35 million square feet of industrial, retail, and office properties across 21 states. NREI’s most recent survey ranked Phoenix Investors as having the 28th largest total industrial real estate portfolio. Today, Phoenix principally specializes in the renovation and repositioning of large, former single tenant industrial facilities throughout the United States that were previously owned by major corporate clients, REITs, or financial institutions.
Our highly trained staff is adept at helping industrial businesses find the space they need for reshoring, expansion, and more. To see how our team can help your operation handle the challenges presented by COVID-19, please contact us.