It is safe to say that 2020 was an extremely disruptive year for the global supply chain. Now, as countries begin to roll out vaccines and an end to the pandemic appears in sight, manufacturers are looking to incorporate many of the lessons they learned from the last year into strengthening their supply chain resilience.
As we step back and review the impact of the Coronavirus disease (COVID-19) on the flow of goods and services, we see how organizations and supply chains have responded. There are several observations, best practices and lessons learned that many organizations are working to put in place.
Global supply chains are here to stay
At the start of the pandemic, many voices were calling for the shortening of supply chains and an equal number calling for the reshoring of products. While this strategy appears to be a viable solution, as there will be some shortening of supply chains moving forward, it is not realistic to expect that a vast global supply chain network will not continue to exist. It has become obvious why the supply chain strategies have evolved in this fashion. When it comes to factors like access to labor, it becomes an improbable task to reproduce a labor market the size of say China or India. The skills developed and the sheer size of the labor pool makes it improbable.
In addition to labor, access to key materials is concentrated in key areas. Materials like rare earth elements have a high concentration in Asia. For example, China and the United States are ranked 1 and 2 respectively for the production of rare earth elements, but this is deceiving as China is producing five times the amount of the United States. Closing this gap may not even be feasible, nor would the environmental impact be something the United States would want to undertake.
Supply chain resilience vs. low-cost supply chain
With the prospect of reshoring or nearshoring limited in scope, many organizations are pivoting their supply strategies to mitigate the impact of another disruption. This is apparent in the transformation from a low-cost strategy to a resilience model. This is demonstrated in some places by the employment of “plus one” strategies. While organizations continue to utilize low-cost regions like Asia, they are also employing strategies like “Asia plus one” or “China plus one” where they develop secondary sources in another region or another country to provide some insurance against regional or geopolitical disruption. Reallocating their volumes and splitting between regions means increasing production costs for the security of supply.
Stalwarts of business planning showing cracks
Efficiency concepts like using lean initiatives and just-in-time delivery to manage inventory have become commonplace for many years. However, during the pandemic, these concepts have “hamstrung” many organizations causing them to re-evaluate many of these strategies. We are now redefining the concept and levels of safety stock and strategic inventory within warehouses and at suppliers to ensure a bulwark against future disruptions.
Managing risk across the supply chain remains challenging
A clear recommendation at the start of the pandemic was for organizations to map their supply chains, so they know where their suppliers and key logistic hubs are located. But, the pandemic showed us that this is easier said than done. It became obvious that many organizations could only identify their Tier 1 suppliers and lack the visibility and the tools to quickly identify, track and manage suppliers below the first level. This made it impossible for organizations to foresee disruptions or even adequately identify mitigation strategies as they had difficulty identifying the source of the disruption as it cascaded through their supply chain.
Moving forward in 2021
While many of these lessons learned may not seem surprising, they do have a definite impact on an organization’s strategy, response, processes and tools. As many organizations move forward, it is important to keep these key points in mind.
- Know where your supply chain is located. This recommendation continues to hold and has become more essential. Organizations must team with their Tier 1 suppliers to understand suppliers deeper within the supply chain and collect key data points on them. This includes information like locations, financial stability and key logistics strategies. Based on the difficulty experienced to date, organizations should implement systems and processes to effectively map the supply chain at scale.
- Continuously monitor changes. Organizations should continue to monitor and analyze events around the world and develop a risk management process to gather risk signals and information to alert stakeholders to potential disruptions. They should develop, deploy and track strategic response and mitigation plans based on the identified risks. As mentioned above, supplier information will be the key to implementing.
- Diversify the supply base. Supplier discovery and diversification should be key tenets of supplier management plans moving forward. This strategy should have a geographical focus to deliver a resilient supply chain that can respond to geopolitical risks or cascading risks like how COVID-19 spread across the globe. This recommendation also places a premium on the ability to discover and onboard suppliers effectively. Organizations should look at discovery solutions that go beyond the limitations of closed supplier networks to identify as many suppliers as possible. These solutions need to be able to curate information on new suppliers quickly, and efficiently update information into supplier management systems to qualify and onboard suppliers.
The lessons learned and challenges from this pandemic continue to underscore the need for organizations to continue to establish and enhance supplier risk and performance management, as well as discovery and the qualification of new suppliers. The effects of this pandemic are likely to last many more months, if not years. It is imperative to develop the processes and tools to map this information correctly and accurately now to build resiliency for the future.