The ISM (Institute for Supply Management) has gathered input from U.S. based businesses between March 17th and March 30th and released their research results on the state of supply chain management and business supply chains during the crisis. As the impact of COVID-19 solidified and became clear within more companies, the response to the crisis is expected to significantly diminish capital expenditures and organizational revenue. According to the survey, about 47% of respondents report reduced revenue targets (22% on average). With some reporting the opposite, such as the food, beverage, and tobacco industries’ expectation of an +8.8% revenue increase.
There is no doubt that global and domestic companies are in the midst of responding to rapid changes in their supply chains. Supply chain operations, supplier networks, inventory management, and risk management have all been affected by the pandemic and require retooling. As companies adjust to these disruptions and even anticipate normalizing conditions by the third quarter, they’re also expecting lower demand this year.
Is COVID-19 the catalyst that will force entire industries to rethink their business models and supply chains? We know for sure that the crisis has exposed the vulnerabilities of many companies and highlights the importance of contingency planning. Let’s take a closer look at how you could adjust your supply chain to adapt to the current disruption.
How to Adapt Your Supply Chain
- More transparency
To improve the transparency within the company and with external partners, you should determine the most critical aspects of your operations. Then you need to identify which ones lack existing substitutes and those that are sourced from high-risk areas. Once that is clear, your organization can assess risk from tier-two suppliers. According to the results of that assessment, you might continue with some of the following steps:
- Establish a recovery plan for critical suppliers.
- Use the established system as an alarm for supply chain interruption.
- Enter a series of joint agreements to monitor inventory levels and lead times.
- Engage with all suppliers (across all tiers).
- Measure the risks
Measuring risks and performing supplier audits regularly should be an integral part of your general business practice. However, not many companies have made much of an effort to do this. Regardless of the type of business or industry, it is essential for any company to identify its real risks and to redesign business processes to mitigate them. Consider using smart software procurement solutions in areas such as data management, risk assessment, and business intelligence. It will allow you to devise predictive models for supply and demand in times of uncertainty. When building resilient supply chains, you must rely on more effective supply-demand models.
- More agile network
A company with an agile network operates within a flexible ecosystem of partners and suppliers that can handle sudden shortfalls. That allows it to react quickly to disruption. To build a more agile network, companies should set up alternative manufacturing sites or supply sources, assembly nodes, and use Industry 4.0 solutions to improve visibility across their network. This also helps to optimize costs and accelerate reaction times. The solutions should be tailored specifically for each segment of the supply chain.
- Source locally
According to the WEF, many OEM manufacturers across the globe had problems finding secondary, or even tertiary suppliers, due to the disruption to their primary supply caused by the COVID-19 pandemic. Also, they had issues with some of their core functions, at times, tracing all the way back to their factories. The marginal benefits of geographically-concentrated production are decreasing. Running multiple plans in different locations improves supply chain resilience (but again, it makes a company less lean and efficient). The chances of all plants or product suppliers being disrupted at the same time are drastically reduced.
Establishing production or assembly facilities with local supply sources in each of the major markets is a good way to adapt your supply chain and make it more resilient during the coronavirus outbreak. This will also lower your transportation costs and spread the supply chain risk. However, many business leaders need to study their company’s finances and determine whether such a move would improve their ability to serve customers (while remaining competitive).
Local sourcing will bring many benefits, including:
- Building better relationships with suppliers through frequent face-to-face visits. That way, your suppliers are more likely to remember you during tough times when your needs rapidly change.
- Significantly decreased transport costs
- Distant suppliers are typically less responsive than local ones. Better responsiveness from a supplier’s end can speed up product delivery when required.
- Giving an economic boost to your community by buying local will also improve your reputation and standing with customers. In the wake of the COVID-19 crisis, many global movements and governmental bodies are emphasizing the importance of boosting local businesses.
- Digital collaboration
Collaborative tools and cloud-based logistics management platforms enhance information management and sharing. Also, they improve the speed and quality of decision-making within a company and with external partners in a secure environment. Amid the pandemic, manufacturers have started demanding better visibility into the supply chains of their suppliers. That is a practice worth continuing, and leaders can apply artificial intelligence and automation to make their supply chain more autonomous. Also, they should add suppliers in their home market to ensure business continuity.
Empowering your teams and making them autonomous can help your company navigate smoothly in times of disruptions such as these. Decentralized teams can react more quickly to insights they get from advanced analytics tools by creating rapid-recovery solutions.
- Flexible workforce management
The coronavirus outbreak has created significant workforce productivity, availability, and safety challenges. Worker absenteeism may rise due to reluctance or illness, and companies may require remote support from quarantined workers. All those factors have been causing a decline in productivity since many companies’ processes need to be re-established and new, multi-role coverages introduced.
To support both contractor partners and employees by addressing their mental and physical wellbeing, companies can consider:
- Implementing new safety practices on site
- Implementing a remote working policy
- Optimizing schedules
- Re-engaging underutilized employees
- Developing flexible staffing levels
- Creating redundancy
In this context, redundancy means keeping backup or excess capacity across the entire supply chain to be prepared for unpredictable events, such as epidemics or natural disasters. Today’s trend is striving for leaner production processes, and as such, keeping excess capacity hasn’t been a popular supply chain strategy as it requires hiring extra workers and carrying more inventory than necessary. The truth is that companies with backup inventory are weathering this storm better than most. The trick is to strike the right balance between an ultra-resilient supply chain that’s sluggish and expensive to maintain, and a lean supply chain that’s hyper-efficient but is less insulated from the risk of unforeseen shortages.
- Rapid analysis of internal and external data
Logistics and supply chain teams that can improve their ability to collect and rapidly analyze both internal and external big data sources can better adapt to global supply chain disruptions. And how can they achieve that? They can do it by harnessing the power of AI (Artificial Intelligence) and ML (Machine Learning) for prescriptive and predictive analytics. These technologies can deploy early-warning solutions, model risk scenarios, and develop pre-programmed situation responses. Furthermore, increased risk of disruption requires updating objectives and parameters because old ones are no longer valid in the face of unexpected disruptions.
- Diversifying company operations
Desperately seeking components in the face of your company’s supply chain grinding to a halt is no way to handle business amidst crisis. Organizations can take steps to diversify their operations and focus on maximizing the deployment of still-available resources. The organizations most likely to emerge stronger from the crisis are the ones that had implemented multi-sourcing strategies and diversified their operations.
The intensity and frequency of unexpected shocks to the global economy are on the increase. The coronavirus pandemic has shown us how vulnerable regional and global supply chains have become. Supply chain models that were considered adequately flexible two months ago are rigid today. Organizations that begin investing in a resilient supply chain will be better positioned to handle the next unexpected event that obstructs global trade routes and the flow of goods.
Whether it’s facing natural disasters caused by climate change, the changing demand of supplier relationships and the public sector, or the current crisis due to a global pandemic, get your resiliency planning right the first time. Don’t hesitate to get some help. To move forward and protect future supply chain operations, embrace the value of a digital transformation. Third-party logistics (3PL) companies can provide both the expertise and technology that can help you build and maintain a more resilient end-to-end supply chain that will help you overcome any future disruptive situations.