With the first sliver of pandemic recovery light breaking on the horizon, many companies are coming to grips with the past eighteen months and looking ahead to the next few years. Bridget McCrea (@BridgetMcCrea), a Contributing Editor for Logistics Management, explains, “With the pandemic entering year two, companies are retracing the steps they took in 2020 and finding more enduring ways to shore up their supply chains not only for the pandemic, but also with a longer-term view in mind.”[1] After providing a brief overview of the economic devastation created by the pandemic, international banker Joseph Moss observes, “What has been perhaps less visible but just as impactful has been the damage the virus has inflicted on the world’s supply infrastructure and, in particular, global supply chains. From the moment a certain resource is mined or created to the time the consumer receives the final product, COVID-19 has affected every stage of the supply chain in a way few industry leaders will have ever experienced before or anticipated 18 months ago, with most of the world’s manufacturers, wholesalers and retailers being significantly touched in one way or another.”[1] Moss reports that a survey published last November by Capgemini found more than four out of every five organizations reported that COVID-19 had negatively affected their supply chains. According to the survey, “Organizations have struggled to respond rapidly to disruptions and to restore operations to a steady state (for instance, restoring inventory levels and the availability of manufacturing and logistics capacity), which further highlights the lack of resilience in supply chains today.” The point is, almost every company is considering how its supply chain must transform to meet future requirements.
Where to Start
As business leaders strive to make their supply chains more resilient, Jean-Pierre Krause (@KrauseJP), the global head of risk engineering at Zurich Insurance Group, suggests they should ask themselves four questions about their supply chains.[2] Those questions are:
1. Is it time to further diversify my supply chain? “When Chinese factories closed in early 2020,” Krause observes, “manufacturers struggled to switch to other suppliers. Diversifying your supply chain needs to be a major consideration. Instead of relying only on China, consider manufacturing hubs such as Vietnam, Mexico and India which are likely to gain greater prominence.” McCrea reports some companies are adopting “a strategy now known as China Plus One by maintaining their presences in China while also diversifying into at least one additional country.”
2. Do I need to localize manufacturing? McCrea notes, “Along with the China Plus One approach, companies are reshoring and near-shoring their operations in order to get more control over their supply chain operations.” Krause believes such moves make sense. He explains, “Localized supply chains can be more resilient and are not as susceptible to trade wars or other global events. This strategy only works if your suppliers are local and their materials are sourced locally too, otherwise global risks will remain in your supply chain.”
3. Should I invest in digitizing my supply chain? Accenture analysts encourage supply chains to become more digital. They explain, “Organizations should look to accelerating digital transformation plans and adjusting the operational model that is asset light, driven by data.”[4] According to Krause, “Many supply chains still rely on outdated processes. This is an opportunity to build interconnected digital supply networks that can anticipate and respond to future shocks in the supply chain and minimize their impact. Digitizing the supply chain, by investing in artificial intelligence and intelligent automation, can create smart and nimble supply chains able to quickly shift production strategies.” McCrea agrees. She writes, “By combining now-historical data … with artificial intelligence (AI), companies can design their supply chains to withstand future shocks and disruptions, all in the name of creating more resilient networks.”
4. Can I make my supply chain more customer-focused? Krause writes, “The demand shocks caused by the pandemic left warehouses full of unwanted or outdated products. Align your marketing strategy with your supply chain so you push items that are in stock and reroute goods to where there is demand (e.g., from retail outlets toward ecommerce fulfillment centers). It is also an opportunity to use your supply chain to increase brand value. Consumers care about responsible sourcing, including labor standards and sustainable practices. Turn this potential reputational risk into a marketing opportunity by learning about your suppliers and taking advantage of any positive narratives.”
Supply Chains Need to Be More Agile
Jonathan Wright (@jjwright101), a Managing Partner and Service Line Leader at IBM Services, insists, “2020 taught us that supply chains needed to be more dynamic, responsive and resilient. They must focus on increasing their interconnectivity between external ecosystems and internal processes. Investments in AI, cloud and automation allow for quicker responses from enterprises to manage disruptive environments and conditions.”[5] Many analysts insist supply chains need to become more agile; and, according to Moss, supply chain professionals are responding. He writes, “It would seem that companies are now well aware of the need to address their supply-chain vulnerabilities. … Capgemini research found that the pandemic had forced organizations to prioritize supply-chain resilience, with 66 percent stating that their supply-chain strategies would have to change significantly to adapt to the new normal and just 14 percent indicating that they were expecting a return to normal. And a recent survey by Gartner of more than 1,300 supply-chain professionals revealed that 87 percent of respondents plan to invest in supply-chain resiliency within the next two years.”
Geraint John (@geraint_john), Vice President analyst with the Gartner Supply Chain practice, states, “Supply chain executives overwhelmingly recognize the necessity to make their networks more resilient and agile. At the same time, 60 percent admit that their supply chains have not been designed for resilience, but cost-efficiency. The challenge will be to create an operating model for supply chains that combines the best of both worlds and also delivers supreme customer service.”[6] Wright adds, “Smarter supply chains will better understand demand signals and rapid changes based on many factors, like current consumer behavior and seasonal surges. Beyond this, they must remain tuned-in to patterns and changes in stock keeping units (SKUs) to better manage risk and prevent unnecessary shortages. For this, supply chains must base decision-making on insights from aggregated data generated by sourcing, planning, manufacturing and fulfillment processes. This level of visibility paired with, what I call, ‘intelligent workflows,’ enables better end-to-end coordination and orchestration.”
Concluding Thoughts
Accenture analysts assert, “The COVID-19 pandemic is not just a short-term crisis. It has long-lasting implications for how people work and how supply chains function. There is a pressing need for businesses to build long-term resilience in their value chains for managing future challenges.” They are not alone in that assessment. Henrik Smedberg (@henrik_smedberg), Head of Intelligent Spend Management, UKI, at SAP, writes, “It’s important to remind ourselves that the Covid-19 outbreak isn’t an isolated event. While undeniably the most impactful we have experienced in recent years, disruptions are increasing in frequency and magnitude, including geopolitical events, climate-related disasters and public health crises. It’s imperative then that we reflect on the supply chain vulnerabilities from 2020 to prepare for inevitable future shocks.”[7] The best way to prepare for that volatile future is to become agile today.
Footnotes
[1] Bridget McCrea, “Supply Chain Redesign: Expecting the unexpected,” Supply Chain Management Review, 1 March 2021.
[2] Joseph Moss, “Can Supply Chains Adapt to a Post-Covid-19 Reality?” International Banker, 6 April 2021.
[3] Jean-Pierre Krause, “4 questions you need to ask of your post-COVID-19 supply chain,” World Economic Forum, 12 March 2021.
[4] Rhys Thomas, “Accenture: holistic actions to strengthen supply chains,” Supply Chain Digital, 8 February 2021.
[5] Jonathan Wright, “IBM Perspective on The Future of Supply Chains,” Supply Chain Management Review, 4 February 2021.
[6] Moss, op. cit.
[7] Henrik Smedberg, “Why Adaptive Supply Chains Are Vital for Future-Proofing,” Supply Chain Digital, 2 April 2021.
