Navigating the new normal of supply chain management
In the wake of a global health crisis, how can we manage our supply chains so we can constantly adapt to our ever-changing world?
Decision-making under uncertainty has been business-critical for most companies for many years. But as uncertainty grows, it’s our decision-making and scalability that makes the difference between coping and suffering during a crisis.
Global supply chains are complex, unconsolidated, and financial optimisation has led to high efficiency, focus on reducing short-term costs, creating less agility and embedding less robustness towards risk in the supply chain.
Changes in market dynamics and governmental requirements in supply chains are impacting the need for availability and reliability of product deliveries, not just to combat daily volatility in businesses but also for high risk scenarios, especially for the healthcare and life science sector.
Going forward, increased flexibility and resilience in supply chains is the new normal which will require supply chains that are designed for uncertainty, increased online business, virtual collaboration, regional setups, risk averseness and minimising the bullwhip effect.
In the short term, many companies will need to focus on liquidity to ensure their survival.
End-to-end work on risk exposure, risk transparency and proactive risk management
Make/Buy, (dual) sourcing, manufacturing and distribution footprints.
An overview of inventory and order promises across the external supply chain and demand sensing.
Shorter planning cycles, agile decision-making and execution, scalability.
Moving from silos to a value stream focus and vertical integration.
The sustainability agenda will be accelerated and green practices will gain significant ground.
In June 2020, we have conducted 34 interviews with supply chain executives across industries with the purpose of creating a better picture of the consequences of COVID-19.
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Many organisations focus on identifying problems rather than risks, which is problematic as larger changes imply larger and more dynamic risks and it impact to the supply chain is not factored in. With a proactive and structured approach to supply chain risk management, contingency plans and structures for agile decision-making are always on standby.
Companies that handled crises smoothly are well-prepared – not for events like COVID-19, but for times of uncertainty.
Risk perspectives should be integrated throughout your organisation, from strategy development and execution to financial and operational processes.
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Companies need to re-evaluate their global footprint and consider a “glocal” setup – a global footprint as the base to secure an efficient setup supported by local solutions to ensure reliability in extreme situations. Most companies have dual sourcing on their most critical components. This will also be needed for less critical components, while vertical integration will provide more control of the supply chain.
When considering dual sourcing as a strategy remember to consider system support, split rules and processes for handling primary and secondary suppliers. While this is all doable, it requires proper implementation. When the go-to-market strategy relies on product uniqueness, a single supplier is sometimes the right choice as investments and close partnerships are needed.
Some companies cope well with the a single supplier. They handle supply issues rapidly by selecting and shifting suppliers within a couple of weeks due to agile processes and decision-making.
Even before COVID-19, there was a trend towards local-for-local (or regional-for-regional) strategies, bringing production closer to home markets to get shorter lead times and more responsiveness. However, moving a factory means moving an entire supply chain but does not means removing the risk to your supply chain in crisis situation.
Safety stocks are not enough anymore. Local stock with emergency stock levels above normal safety stock will be required for cases of extreme risk exposure. Not because the likelihood of extreme risk is bigger than before, but because globalisation has caused complex dependencies in all supply chains, meaning that the consequences of extreme events hit us much harder. Local governments also need to install requirements and central coordination that involves a local presence and higher emergency readiness.
Companies need more transparency and visibility throughout the supply chain in order to adjust to consumer shifts and disruptions. A prominent theme prior to COVID-19, the crisis has shown the importance of transparency for creating rapid responses.
Increased demand sensing, supply and inventory monitoring, scalability and data-sharing across the supply chain to manage the rapid consumer shifts.
Mapping the upstream supply chain is essential to create transparency of each component’s origin. In this way, the company can quickly evaluate how a disruption will impact the supply chain in the coming days, weeks and months in case of a crisis. Transparent scalability of ramping up or down is equally important to rapidly change product mixes in production and in sourcing.
Transparency on inventory movements and order promises across the external supply chain is needed. Not just for first tier suppliers but also further upstream towards second and third tier suppliers. Blockchain technologies have proven valid for this kind of data-sharing across companies. Supplier collaboration is a well-proven framework that can also help with visibility and data-sharing. And this is needed in real time data – not four weeks down the road.
Ongoing and rapid sensing on what goes on in the market is crucial for being able to respond fast. Demand sensing that uses advanced algorithms and machine learning can be helpful for the rapid supply response. Moreover, intelligent forecast cleaning of extraordinary events, such as crises, is needed to create accurate forecasts in the future.
This means that investments are needed to create a more digitised supply chain and more visibility.
Companies that cope well during a crisis have high agility in decision-making and execution. These companies have shorter planning cycles (linking S&OP and S&OE) and smarter and more antifragile decision-making, meaning decisions are chopped up into smaller bites.
The shift of consumers towards online purchases has a huge impact on demand patterns and stock levels which have to be incorporated into the planning processes of S&OP (with a horizon of 3-24 months) and S&OE (a horizon of 1-3 weeks).
Most markets were in growth prior to the Covid-19 crisis. But the business world has been hit in various way: some industries are experiencing highly increased demand, others have unchanged demand levels and many industries have been hit hard.
Most governments have now set up support packages to help companies from bankruptcy, but many mid-size companies will need to focus on liquidity in the short term in order to survive.
This means that preserving cash and securing liquidity will still be a top priority in the short run to ensure antifragility and “old themes” will still receive a lot of focus, such as:
Cross-functional alignment between the commercial organisation, operations and finance is needed now more than ever. Too many functions are still working with a silo mindset – without focus on end-to-end goals.
Many organisations have put price performance at the core of their supplier performance reporting and selection criteria rather than using supplier reliability, scalability and innovation.
A true supply chain mindset is required that extends past the internal organisation and moves into more vertical integration, partnerships and supplier collaboration. Involving investors, customers and other stakeholders is key. This means that we become open towards collaborative planning and forecasting, sharing data, shared value stream mapping for optimisation, extended S&OP and transparent scalability.
Supplier collaboration should be high on the agenda. When you select strategic suppliers, you should select them based on the potential to implement joint improvement initiatives such as;
In the aftermath of COVID-19, focus on the sustainable agenda will strengthen. Therefore, companies need to act now to accelerate or kick-start their transformation towards a sustainable supply chain.
Organisations will need increased flexibility and resilience while also enhancing sustainability. This requires you to rethink your supply chain and focus on five transformation areas: structure, transparency, alignment, agility and antifragility and risk management.
Read our article on supply chain sustainability and the five transformation areas
Read our article on how to include sustainability targets in your company’s supply chain planning
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