2020 has been quite a year for global businesses and especially for supply chains.
Just in the first six months of the year, the world has already witnessed some defining moments. Looming trade wars between the U.S. and China, preparations for the post-Brexit economy in the Euro zone, and an increasing focus on sustainability and environmental consciousness are all ongoing.
Though one can argue that none of these moments took the world by surprise, they did push global supply chains to review and re-engineer their operating models.
But none of these events have had as significant of an impact as COVID19. Where the other events affected specific geographies more than others, COVID swept across the world, knowing no boundaries and borders. This meant that every node in global supply chains was simultaneously being challenged, exposing any vulnerabilities for flexibility and resilience.
Assessing Supply Chain Complexity
As a result of the ongoing crisis, global GDP for 2020 is expected to average close to 0%, which would be a faster contraction versus the 2008 crisis. However, some of the hardest-hit sectors like manufacturing are expected to have a sharp rebound in 2021, as the demand and supply recovers.
Though most of the research available online is based on economic models, a lot can also be inferred by assessing the complexity of supply chains. It can be argued that the length of supply chains has a considerable effect on the ability of a sector to be resilient to any such shocks to the system. It is also easier for shorter supply chains to recover faster, as there are fewer moving parts and environmental complexities.
This may prove to be the first truly global catastrophe for a few hundred years now, but research suggests that this certainly will not be the last. One can definitely use this “shock” as an opportunity to review assumptions and operating models that run our global supply chains. This worldwide event has also highlighted the importance of risk management and continuity planning, once again.
What Should Companies Start Doing and What Not to Do
Though most of Covid’s effects on businesses can be seen as inevitable, the overall impact could have been softened by being proactive and better prepared. In our experience, the following five steps can prepare companies better to deal with similar situations:
Know Your Supply Chain – CIPS reported in 2016 that only 4% of U.K. companies actually know their tier 2 and tier 3 suppliers. This situation hasn’t improved over the last four years and poses a key risk to supply chains. It is important to map process, information and cash flows to gain an end-to-end view of your supply chain.
Go Digital to be More Proactive – Though knowing your supply chain gives you the right level of visibility, it is also important to have internal systems to speed up information flows. This would help implement any fall-back plans as quickly as possible and allow firms invaluable days to take corrective actions.
Look Beyond Cost Competitiveness – Commercial costs will always form an important part of the supply chain equation. However, consider other elements like continuity, operational complexities, resilience and sustainability to fully appreciate the real cost of your supply chain.
Rejuvenate Business Continuity Planning – Companies generally revisit their business continuity plans every four to five years. Though this may have been good a few decades ago, when the demand and supply were not very volatile, in today's scenario it can be referred to with the Japanese word “Harakiri.” It is important to continuously monitor and plan for business continuity in today’s working environment
Bring Down Functional Walls – Last but not least, it is vital to bring down those functional silos and let the organization operate as a single value system. Some of the more successful firms during times of crisis, like Amazon and Spar, are known for their operations based on their multiple supply chains, rather than the other way around.
How to Survive Another Lockdown?
Over the last three months, lockdowns have been seen as an effective way to deal with the COVID-19 crisis. Despite a varying degree of success, this delay strategy has had its positives and negatives for different sectors. But with a second (and third in some countries) lockdown being discussed, how can companies prepare better and decrease disruption to their operations?
Our research suggests a three-step approach to deal with this situation:
Instill Confidence in Employees, Customers, Suppliers and Stakeholders
With safety taking a paramount position on everyone’s minds, companies need to assure their employees and customers that it is safe to operate and shop in the company premises or avail services remotely. They also need to review their business plans and relay realistic messages to their suppliers and stakeholders.
This helps instill confidence across their operations. Given the volatility of the situation, this messaging cannot be one-off and will need to be reviewed on a timely basis to keep people abreast of any changes.
Review Operations for Nimbleness
It is crucial for companies to draw out a detailed relaunch map, updating all parties involved of their responsibilities and why it is safe to do so. This should also include plans for any short-term speed breakers, with the right people involved who can quickly review plans if needed. Further work will be required to revive demand and reboot operations, with a close look out for any signals and red flags.
Reshape Strategy to Maintain Business Continuity and Build Resilience
While the cautious approach discussed in the first two steps is a great start, it is vital to start investing in building resilience and continuity in the system. However, this is not possible until and unless firms are able to know their supply chains like the back of their palms.
Once firms achieve a good understanding of all the flows, relationships and data in the system, it is important to carry out a full risk review from an end to end supply chain view.
It is also important to regularly stress test the operations not only from a commercial cost perspective, but from an operational stability and demand fulfillment view. It may be a good idea to involve a dynamic group of your customers and suppliers in this exercise to gather an unbiased opinion to your resilience.
Last but not least, it is essential to invest in a scenario modeling tool that allows you to assess your supply chain dynamically and to plan better.
The New Normal
The new normal is probably the most overused term in reference to COVID researches available online, and rightly so. Not only is the pandemic leading to changes in the working environment, but also influencing planning mechanisms, with supply chains not left untouched.
While the COVID-19 crisis is likely to accelerate fundamental and structural changes that were inevitable, we can expect to see some additional changes evolving from changes in consumer behavior and a need to create more resilient supply chains.
But it is vital for companies to fully assess the impact of any such changes on their end to end supply chains; from both – cost and benefit lenses.
If the first six months of this year were a roller coaster of a ride, one cannot expect the next six months to mellow down much. Having said that, the next few months are going to see some very interesting changes and may well pave the way for the next phase in supply chain development.