How to create a Winning Supply Chain in a Post-Pandemic WorldBy Alberto Robles | Wed, 06/16/2021 - 12:53
COVID-19 disrupted our lives at all levels. We have witnessed a terrible health crisis, we have lost our freedom, and millions of people around the world have lost their jobs due to the severe shock in the global economy.
The global supply chains were also severely impacted by the pandemic. Most of the world’s industrial sectors experienced disruptions that affected the global market dynamics. Many companies around the world were challenged with supply shortages that prevented them from delivering to their customers and honoring their commitments.
The question is, what have we learned from the pandemic or any of the highly disruptive events of the past? Apparently not much, or maybe we have been seduced by the attractive cost savings that come from bad sourcing practices like relying on a single source and/or a single region. The supply chain managers know the risks of single sourcing but they do it anyway to secure their supply and cost targets.
This risky scenario is even more common in highly sophisticated industries such as aerospace. When we talk about the aerospace industry, the options are limited, and increasingly those options are located in Asia.
So, what can we do to achieve supply chain de-risking and how can we win in the post-pandemic world? Here are my thoughts and recommendations.
- Take care of your supply chain as you take care of your sales: The competition in the marketplace goes beyond our products or services. An effectively managed supply chain can be a great source of competitive advantage.
- Stay vigilant and do not miss the signals: It is extremely important that the supply chain manager stays alert and aware of potential threats or new trends that might disrupt global supply chains. That may make it easier to anticipate risks and mitigate them effectively.
- Build resilience in the supply chain: Resilience is like having an insurance policy, it comes at a cost, but it will pay off in the future. Nowadays, the focus of supply chain managers is to get the lowest-cost supplier or region. The focus must be on creating a robust supply base by engaging in supplier development to avoid overreliance on a single source.
- Simplify product design and make it more flexible: The design of products and the resulting supply chain define the level of flexibility that exists to deal with unexpected events. It is important to make sure Bill of Materials (BOMs) are deeply analyzed to look for opportunities to use more commoditized materials and multiply the options for procurement. Redundancy increases our options and creates greater contingency when highly disruptive events occur.
- Create decoupling points in the supply chain: Having inventory at strategic decoupling points creates a safety buffer to cover any unexpected situation such as supply disruptions or changes in demand.
- Have a robust Business Continuity Plan (BCP): Every business must have a Business Continuity Plan. A BCP creates response and recovery capabilities for companies under pressure and stress due to a disruptive event or a disaster of some kind. Worst-case scenario planning, audits and drills are strongly recommended to further improve and make sure the BCP is robust.
- Manage sourcing risk: Apply risk management principles at a minimum to Tier 1 and Tier 2. Beyond Tier 2, risks must at least be understood. A practical approach to manage sourcing risk could be using the impact on revenue and the risk of supply disruption to prioritize strategic measures.
- Assess and monitor the supply chain: Build solid relationships with suppliers. The relationship should be treated as partners rather than supplier-customer. In a partnership, buyers can easily engage suppliers to better understand the source of potential disruptions and which product lines will be impacted.
- Invest in digital technologies: Digital tools allow supply chain managers to have real-time data at their fingertips. Digital technologies will provide accurate information about what it is going on anywhere in the supply chain. With technologies such as blockchain, IoT, analytics, big data and artificial intelligence, supply chain managers can make instantaneous decisions to deal with any situation that may arise.
- Invest in talent development: Companies are investing in new supply chain technologies at a fast rate but it is also extremely important to invest in the people who will be managing the new technology. There is enough evidence to believe that there is a mismatch between the required and available skills. We need to close the gap.
The costs of disruption can be extremely high. They can also make companies disappear from the marketplace, as we all know. It is time to start acting on our lessons learned so we can be in a better position to deal with any type of highly disruptive events in the future.
Many of the recommendations above will cost more in terms of resources; however, I am pretty sure that in the long term these costs will be negligible when we consider all the benefits and the cost of going out of business.