The novel coronavirus, also known as COVID-19, has contributed to what might be described as the biggest supply chain shipping disruption of the century. According to the CDC, the total number of cases in the U.S. had jumped to 44,183 as of noon Tuesday, March 24, 2020, and even since, the totals in New York and other hotspots had already triggered massive changes in public life. In central Texas, multiple cities, including New Braunfels, San Antonio, Austin, and Dallas, had issued orders advising residents to avoid all non-essential travel. Businesses are shutting down, and the public is approaching the point of hysteria. As the country prepares for a long-held battle against COVID-19, the current administration is working on a solution. Last week, President Trump invoked the Defense Production Act, DPA or the Act, which as a precautionary measure, would grant added powers to the government to impact manufacturing and shipping. As a result, shippers need to understand a few things about the Act and what it means for the continuance of operations.
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What Is the Defense Production Act
The Defense Production Act grants power to the U.S. president to force companies to produce goods for the U.S. during times of war or other crises, explains Tech Crunch. On the surface, the Act looks to force manufacturers to start producing materials needed to meet demand, such as hospital masks, other personal protective equipment (PPE), and ventilators. However, that is not the way the Act functions. Instead, it focuses on changing the way companies fulfill orders—putting the government at the highest authority and prioritizing needs for the government over others.
For example, ventilator manufacturers could be required to produce more units for the government first before fulfilling orders for individual facilities.
With that in mind, it is important to note that while the current administration has invoked the 20th-century law, it has not yet placed any known, public orders for items. In other words, the current state of the industry is operations as normal, unless otherwise specified by local or state governments that might limit operations. Businesses and those involved in “essential” supply chain operations, including grocers, pet stores, adult beverage sales, and financial institutions, can continue operating. The goal is to reduce panic and still maintain a degree of normalcy for the foreseeable future.
Which Shippers Will Have Challenges in Meeting Requirements Under the DPA
The requirements under the Act are simple; fulfill government orders first. Now, that might not be a problem for some shippers, but for those that have made the mistake of forgoing e-commerce fulfillment will pay the highest price. Without e-commerce, traditional, non-essential businesses will be faced with a complete halt of operations. Customers will go unserved, and the supply chain will take a major hit. Moreover, shippers with limited visibility into operations and the inability to prioritize orders across multi-site locations will have an additional problem with fulfilling orders—assuming they are placed by the federal government—in a timely manner and keeping up with consumer demand. As explained by Warren Shoulbery of Forbes:
“That irrefutable outcome of the pandemic will make retailers that have never truly developed e-commerce capabilities—or, worse, walked away from the channel—do a 180-degree turn and put a massive push behind getting their online operations into competitive shape.
Although most national retailers have been in the e-commerce game for decades, it’s fair to say that few of them have their acts totally together. While Walmart and Target on the discount side, Macy’s in department stores and specialty retailers like Best Buy, Williams Sonoma, RH and the Gap brands have healthy online businesses, other sectors are far behind in building their e-commerce sales. Amazon’s expanded business over the past few weeks is one more piece of proof.”
How to Continue Operating Throughout Shipping Disruption
Today’s businesses can quickly mobilize and enact crisis-management mechanisms. According to McKinsey & Company, companies must take these steps now to prepare for a possible future under the Defense Production Act, as well as changes to fundamental fulfillment and shipping:
- Create transparency on multi-tier supply chains.
- Estimate available inventory.
- Assess realistic demand.
- Optimize production and distribution.
- Identify and secure more capacity.
- Manage working capital and cash to reduce financial impact.
- Use data to make informed decisions.
- Increase inventory management capabilities through optimized, self-guided ordering systems.
- Connect with customers to create a level of trust beyond the traditional standard.
- Diversify carrier relationships to secure more capacity as trucking takes its place in this shipping disruption.
- Increase available supplier relationships to avoid out-of-stock problems amid COVID-19 panic buying and government orders.
The DPA Isn’t Going to Change Much About How You Resell Products Right Now
There is good news. The president has yet to place orders or directives for agencies to order additional items under the Act. So, the time being remains business at the pace of fulfillment based on in-store demand for essential businesses and those that fall into similar categories. However, this current situation is an opportunity to learn an invaluable lesson; the next supply chain shipping disruption will come. Those that prepare now will be in the best position to avoid failures in the future.