STORY INLINE POST
In Mexico’s culture, it is common to make jokes about adverse situations. The pandemic is no exception. We say that somebody must be playing Jumanji somewhere and we need them to win so all this can finally be over. In the meantime, we will remain in a crisis where demand is uncertain and products are hard to obtain due to raw material shortages (microchips, chemicals, etc.) or logistical problems (as containers remain delayed in ports) that have put up a roadblock in front of the supply chain.
Because of this, all the areas of a company are being tested and all the structures are being stressed to the limit to keep up company results and sustainability. In the current context, a payment to a supplier in a shorter term may become critical to secure material; negotiations with customers to approve an alternative raw material may be critical to avoid stopping a customer’s line; approving alternative transport options could help get a material on time; or buying more inventory at a time may help to reduce production delays. These examples may be contrary to finance policies or manufacturing philosophies, such as Lean, but just-in-time supply is no longer a valid concept in the current scenario. Flexibility needs to be achieved quickly and support areas need to focus on helping the operation to adapt rapidly to the new environment.
Because of this need, corporate areas such as engineering, purchasing, logistics or finance, are required to improve support to the operations by quickly rethinking policies, assume a different sense of urgency and be open to revising any bureaucratic control that may be preventing the company from adapting quickly enough to reduce impact or minimize risks to the operation. It is important that these areas understand their new role in this environment of flexibility to survive in this situation. Of course, it is in the best interest of the company to base decisions on financial assessments but it cannot take the past practices as the baseline for comparison and make decisions now. These areas need to change their mindset and compare actual versus future (not past) scenarios to consider the consequences of not acting differently.
But there are also cost-reduction opportunities in this environment. For example, a supplier or material defined in a specification had been untouchable previously; however, today’s materials crisis has created a need that represents an opportunity to revise those requirements and if a good business case is presented to a customer, you may get approval for a cheaper one. If the validation process is well done, the customer can agree to make that change permanent.
Now, even the big concepts, such as globalized markets, are being questioned. Any risk assessment must include a situation like the one we are experiencing, and the question arises: Is it still valid to consider a single production location to protect our customers? Transportation, raw materials and small batches might not be considered a given as a result of our recent experiences. Geopolitical issues were already providing a hint before the pandemic era, but this lesson has been reinforced and now regionalization strategies are back on the table for many companies that found their distribution channels jeopardized because of transportation issues or geopolitical affairs.
There is no simple answer to this crisis, and more adaptation needs will arise as a consequence. Costs are up and some will remain up. Reduced capacities will be hard to recover; some market changes will remain, such as those related to business trips; and culture changes will evolve as a need to adapt (electronic commerce, for example).
Bottom line: Companies need to be more flexible than ever to adapt faster to the upcoming times. Are you ready?