With the COVID-19 pandemic affecting countries around the world, the disruption has been widespread and severe. When I say widespread, I don’t mean just by geographical area, but also by the breadth of impact. From the economy and healthcare to employment indexes and business health, the crisis has had an unprecedented impact on every aspect of modern society. For organizations, the pandemic has had a far-reaching effect on every stage of the supply chain, with restricted movement, labor shortages, and unfamiliar buying patterns, each posing a unique challenge.
According to a recent survey by the Institute of Supply Management, 75% of companies reported a supply chain disruption because of COVID-19-related transportation issues with 80% set to face some impact due to the crisis. The survey also reveals that one in six respondents will revise revenue targets downwards by an average of 5.6%.
Several experts have weighed in on the issue in recent times, offering astute ideas on both mitigation and innovation. It is evident that companies need to manage the current situation while building future-proof solutions that offer resilience in a crisis. A PwC report analyzing finance leader sentiment in the US and Mexico revealed that over a third of all respondents see supply chain issues as a top-three concern right now. Here, it is important to note that a short-term focus is crucial, but a long-term vision is critical. For organizations operating at any level of scale, a complete overhaul may not be viable and, while agility is key, it is important to take measured decisions capable of creating results at speed. Broadly, we could divide the areas of focus on four categories of assessment:
Let’s look at each of these individually. From a risk perspective, organizations must get used to a new normal. In line with recommendations from a McKinsey paper on supply chain recovery during the coronavirus pandemic, companies must look to build transparency into multi-tier supply chains by determining critical components and developing a risk index for BOM commodities, prioritizing each aspect by the level of risk. Visibility and understanding are essential to this process and the companies able to integrate these into their management model through digitization are likely to earn a significant competitive advantage not just during but beyond this phase. While other options exist, such as triangulating from a various range of data sources, a single source of truth for all internal information remains vital to effective decision-making at speed.
Another substantial change is in consumer demand with both spikes and troughs driven by a combination of scarcity, panic, and lack of access. Far too often, companies base their production volumes on what goes into wholesale and retail instead of actual or predicted consumer demand. With resources – operational, financial, and labor – at a premium, it may be prudent to gain as accurate a picture of actual demand as possible, because stoppages in manufacturing are causing severe disruptions in the supply side. Companies must look to harness data, actual if not real-time, to understand the changes in ordering patterns and consumer behavior. As expected, at the consumer level there is likely to be a heavy skew towards online channels and essential items, which may require organizations to revisit their logistics model along with their product mix. Since the situation is unpredictable and complex, agility and contextual understanding are of utmost importance.
Operations are easily the most affected and most effective area at this point in time. Companies able to enhance collaboration and information sharing with suppliers and distributors can create a more responsive operational model. A clear view of all existing supplier relationships, production capacity, and pricing will allow companies to stress-test current arrangements and negotiate better terms wherever possible. Based on the nature of their vertical, organizations may need to revisit the location of their manufacturing centers or at least diversify their manufacturing base. Concentrating manufacturing outfits in low-cost areas may have once been a valuable strategy. Even if you ignore the diminishing returns of this strategy, in a crisis, it exponentially increases an organization’s risk exposure given the detrimental effect of a defunct centralized manufacturing operation.
Now onto that most integral component of business operations – capital. As the lifeblood of business, fast becoming a scarce resource, given the drop in revenue, conserving capital will be imperative at every stage of the value chain. Organizations must look to build up dry gunpowder for when the opportunity arises instead of sinking valuable resources into piecemeal interventions that promise quick wins, often falsely. Resilience and endurance should be prerogatives over competition and growth, at least until the curve flattens and a return to stability is in sight. Organizations should also assess their cash flows and capital reserves with the expectation of a sustained disruption. Those without enough resources may wish to find immediate resolutions that can preserve revenue in the short term. Alternatively, a quick pivot may be in order, either by changing existing working models or revisiting them from the ground up.
Digitization will be a driver of growth and innovation. As a first step, organizations need to build a digital supply chain twin that allows them to gather information faster, make better decisions, and evaluate hypotheses instead of relying on speculation masquerading as boardroom analyses. The digital twin will sit on top of existing enterprise systems while providing the interconnectedness and reliability vital to effective decision-making and execution.
To help customers across our product lines benefit from our experience of digitizing supply chains for large enterprises the world over, we are offering access to TradeEdge Market Connect–our data-as-a-service supply chain and demand planning platform—until 30th June 2020. To learn more about the platform and its features, click here.