“We cannot solve our problems with the same thinking we used when we created them”
~ Albert Einstein
We are facing uncertain times across the world as the COVID-19 crisis continues to evolve. Top business priority is keeping employees and their families safe; however, equal attention is required to continue business activities as each country reacts to protect the economic downturn.
Global supply chains are shaken and disrupted. Growing frequency of disruptions along with shifting government policies towards protectionism are posing serious supply chain challenges to all the major industries. An increasing number of countries are advocating domestic manufacturing and providing subsidies to encourage manufacturing inside the country of origin (source: ‘asia.nikkei.com’).
As the COVID-19 situation unravels, Supply chain leaders are stressed to adjust and position for fast occurring global uncertainties which opens the question; “How prepared are countries and industries when dealing with unchartered disruptions?”
The global economy is uncertain, and industry leaders are faced with many new challenges:
- Re-examine material flow to adjust operational strategies
- Reevaluating global interdependencies
- Preventative actions to protect from future outbreaks
- Globalization vs domestic
- Supplier consolidation vs diversification
To be successful, supply chain leaders need to adopt a combination of both tactical and strategic approaches as this crisis evolves. Immediate actions should focus on working closely with suppliers to identify key critical parts in support of immediate customer needs. However, companies should start reevaluating and investing in long-term strategies to reinforce supply chain resilience and guard from future supply chain disruptions.
Recommended combined supplier sourcing and purchasing strategies are:
- Create an internal task team comprised of purchasing and operations to coordinate supply chain efforts
- Understand material criticality across the supply chain and deep dive into the tiers to anticipate risks due to part shortages
- Work with suppliers to co-develop plans, resolve bottlenecks, support liquidity issues, and achieve supply stabilization, include extended supply chain as required
- Act swiftly to identify and build relationships with alternate suppliers especially in less impacted regions to secure additional inventory and capacity
- Update and monitor supplier health indicators continuously to trigger mitigation plans as needed
- Identify alternate modes of transport to cut lead times and replenish critical inventory items
- Analyze current inventory levels and allocate strategically while deciding on the production schedules
Resourcing: Multiple economic factors over past several years have eroded the cost benefits from offshoring. Total costs rise dramatically during disruptions and are often not accounted in current piece price. Companies would be wise to base decisions on risk-adjusted total cost of ownership and reevaluate sourcing strategies.
Supplier Alternatives: Alternative suppliers (plan B) will provide greater confidence and increase your benchmarking activities to provide a well-balanced supply base portfolio. “Cost vs Benefit” analysis should enable decisions on strengthening the right supply base balance for the business.
Supply Chain Visibility: Manufacturers should continue to map their supply chain network (including Tier 1 and 2) to gain better visibility. Consider a supply base dashboard outlining supplier risks and increase metrics updating frequency as programs are launched and sunset. This will enable quick risks identification to support gaps in the supply chain, as they arise.
Supplier Risk Analysis and Monitoring: Many companies have already instituted environment risks like earthquakes, cyclones, etc. in their supplier risk management dashboard. With growing frequencies of supply chain disruptions, several geo-political risks need to be reevaluated and adjusted for their metric criteria.
Product Re-Design: Many companies are dependent on raw material concentrated in specific regions. An example: automotive companies could not produce vehicles with a specific paint supplied by a Japanese lower tier supplier damaged by the 2011 Japan Tsunami. Design, product, and functional changes would need to be studied to ensure supply chain robustness. Consumer demand must be protected to prevent dependencies on external factors.
Digitalization: Automated tools utilizing big data analytics sense the sensitivities of the markets, perform real-time scenario analysis, and inform best suited allocation and replenishment strategies. Companies with such capabilities are already realizing the benefits during current crisis. Investing and deploying automation capabilities will be instrumental in providing agility and insulation to future supply chain disruptions.
To conclude, supply chain risks will continue to be on the forefront with immediate focus on stabilizing operations and fulfilling customer demands. Companies should reassess their internal processes to identify and mitigate their exposure to growing supply chain risks. The same will be reflected in recalibrating global supply chain strategies to bring more operational flexibility and resilience. A risk-adjusted and thoughtful 'Cost vs Benefit' analysis should inform the balanced supply chain strategies that may drive resourcing, supplier diversification, product redesigns, and technology deployment.