Jorge de Lara
Vice President and General Manager for GCS
American Express Mexico and Latin America
Expert Contributor

Supply Chain Optimization To Go Beyond Recovery

By Jorge de Lara | Wed, 06/09/2021 - 12:50

2021 will be a landmark year for Mexican SMEs as companies look for and pursue new strategies to recover and drive growth. As with any challenging periods, the past year has the potential of yielding transformational lessons for any enterprise. This is reflected by the Study on SME Online Sales carried out by the Mexican Association of Online Sales, which revealed that six out of every 10 SMEs are engaging in e-commerce, representing an incredible 94 percent growth when compared to 2019. The pandemic led businesses to completely rethink their operations and approach to a socially distanced market.

While the increase of e-commerce stategies provides a clear benchmark on the transformation of a market, these strategies are only the consumer-facing element of deeper industrial shifts. In many cases, the manufacturing process itself had to be modified to accommodate closures and shortages. Entire supply chains were redrawn to ensure at least partial operational continuity.   

As different industries begin to slowly reactivate their normal operations, SMEs should evaluate whether changes adopted in response to this very specific situation should become part of the fundamental fabric of a business instead of simply being abandoned once the market normalizes. This is crucial given that, while the detonator of the transformation might have been extraordinary, the resulting innovations have the potential to build business resilience and perhaps even pave the way for the future of the company. These are a couple of elements I believe should be considered:

Outsourcing Logistics

For many SMEs, tapping into the logistics capability of third parties was the only viable option when faced with constricted manufacturing partners and limited points of sale. Leaving distribution to dedicated vendors can enable businesses to achieve leaner operations and focus on indispensible activities, increasing nimbleness and resilience. The infrastructure and expertise of professional transport services, which can often accommodate the needs of specialized transportation such as food or other perishable products, can help a company ensure the continued availability of its product.

According to the COVID-19: from survival to recovery KPMG study, 34 percent of Mexican businesses declared having increased their expenditure on logistics services due to the pandemic, in many cases in direct response to the shutting down of physical retail stores and the widespread increase of online sales. While it is expected that at some point retail stores will get back to their usual business, the shift in consumer behavior will likely require companies to sustain a wide, and likely hybrid, array of retail business models to remain relevant in the post-pandemic world.

Local Supplies

Limited global mobility led companies to look into local producers and suppliers that could more reliably continue operating. While it’s important to evaluate whether such providers are adequate within the budget and requirements of each company, the trend to work with local products is being increasingly supported by consumers as shown by the Amex Trendex 2020 study, where 73 percent of Mexican respondants showed interest in supporting small businesses and said it was more likely for them to shop there.

The potential to strengthen local industries and feed into the overall economic ecosystem can ultimately benefit the profitability of one’s business. While an entirely local supply chain is probably unfeasible for every industry, looking to integrate local links in that chain can lead consumers to prefer a certain brand while helping the company plant the seeds of a more robust market in which to operate.

Toward A New Market Reality

As the pandemic is increasingly controlled, many companies will welcome being able to reactivate established activities, and they likely should. But it’s crucial not to become obsessed with bringing back older processes if they no longer respond to current times.

Supply chains should be defined in a way that ensures each link adds value to the overall operation, with an end result that is truly more than the sum of its parts. Most providers are initially chosen with this in mind but, as years go by, a company needs to evolve and adapt to new demands. Force of habit is sometimes too strong for businesses to move away from their usual models, and yet the past year has shown that those most willing to innovate are more likely not only to survive, but to thrive in this new commercial environment.

Photo by:   Jorge de Lara