Rebuilding Our Broken Supply Chains
Our supply chains, it seems, have snapped—or have come perilously close to it. Why? Some might blame COVID-19… and while the virus has hastened much disruption, it’s not the only reason.
Let’s look at history. Increasingly, since the late 70s, when manufacturers the world over started to compete more globally, business supply chains have focused on optimizing for cost, efficiency and perhaps geopolitical considerations—with an overwhelming focus on cost. Companies sought to bring the most inexpensive goods to market, with little regard to how far flung their supply chains may have become. In doing so, they largely discounted essential supply chain components, like resilience, flexibility and adaptability, and subsequently increased their riskiness. In the drive to design supply chains to be as cost efficient as possible, they were inadvertently made brittle and inflexible. This, combined with the advent of the COVID-19 era, has left most in a state of disarray and some shattered and scattered.
In the midst of this adversity, we’re also faced with an opportunity to rethink our supply chains and our attitude towards them. Let’s make the most of it. In the post-COVID-19 world, companies should consider, in a holistic manner, the robustness of their supply chains and determine how to de-risk them—not just be driven by their cost efficiency. Below are some thoughts on how to rebuild them.
In the Short-term
- Cultivate a deep awareness of the components of your supply chain, their sources and potential or viable alternatives. Focus on the bill of materials (BOMs) for your products and understand which are the highest-risk components (perhaps those that issue from challenging geographies or lack suitable alternatives). Ensure that your awareness extends throughout your various tiers of suppliers. Any supplier that is unable or unwilling to provide this level of awareness should be closely monitored and potentially considered for replacement.
- Perform a thorough assessment of the availability of components in your supply chain. Organizations can sometimes be surprised to learn how much inventory is available for their needs at multiple tiers of or stages in their supply chain. Tracking these elements—from raw inputs to finished goods, including categories like spare parts and items in transit or those with dealers or distributors—will give you an understanding of your ability to respond quickly to client needs.
- Be agile in responding to customer demands and needs. This is critical to navigating supply chain challenges in the short term. Focus on demand forecasting, for the short- and medium-term, from your customers. Analyze how much of this demand is real, given current market conditions, and how much might be shortage-demand or excessive-demand, designed to secure goods in scarcity. Understanding the true demand curve for your market and customers will enable your organization to address real market demand and prevent it from over-reacting to false market conditions or signals.
In the Mid-Term
- Streamline organizational and operational capabilities by zeroing in on manufacturing, production and distribution. In light of the COVID-19 era, with respect to manufacturing, consider the security and safety concerns of your associates. Pay attention to opportunities to create remote or WFH scenarios to enable effective operations by decentralizing production, particularly where you might have digital goods or services. And insist that there is rapid and fluid communication in your distribution channels, to ensure goods make it through these channels to your end-customers.
- Accelerate your supply chain’s adaptability to meet near-future needs. Consider all of your supply chain logistical options, even perhaps those you might have previously dismissed due to cost, especially if they offer an element of increased robustness to your supply chain. Consider new partnerships and co-teaming models to enable flexible and efficient new logistical channels for your business.
- Optimize your business operations to ensure ongoing success. Managing the unassuming but critical components of operating your business, like cash-flow and working capital, are especially critical in high-stress and dynamic times, such as our present moment. Due to the rapidly evolving market conditions, potential for long payment cycles, reduced margins, unanticipated customer returns or cancelled orders, increased fulfillment or component costs or other factors can result in financial and operational challenges. Ensuring your organization optimizes for these and takes precautions to ensure that deviations from business as usual won’t cause a catastrophic failure is mission critical.
In the Long-Term
Think about how to de-risk your supply chain by establishing a risk-assessment function and capability. In last week’s post we talked about a future-proofing team. Your future-proof team should focus on the supply chain and how it might affect your business in the future.
Consider this future-proofing team: a supply chain nerve center that brings together in one place all of the critical elements—such as sales, operations, parts, logistics, suppliers—with the goal of ensuring that future operations run smoothly. This nerve center will act as a singular body, informed by the latest market and customer data, empowered to resolve any intra-organizational disagreements to streamline decision making. It will serve a silo busting function, enabling every part of the organization to work seamlessly together and ensure the longitudinal success of your enterprise.
Let’s Get Rolling
Change won’t happen all at once. Given the huge disruption of today’s globally diverse supply chains and the “rolling” nature of the COVID-19 threat across regions, supply chains will likely need a rolling restart. Companies need to plan for changing needs, demands and market conditions in each region as they sequentially stabilize. For instance, China experienced COVID-19 first and so, even though orders spiked from markets all over the world in the middle of the first quarter of 2020, it was unable to satisfy the incoming demand. Now, as Europe and the Americas experience COVID-19 themselves, China has seen a dramatic demand drop-off for its goods and services in the early months of the second quarter, which were high in demand a few weeks ago. This rapid oscillation in demand, and the likelihood it will continue well into the next few quarters for some markets and goods, means that organizations have to become even more adroit. They must handle and rebuild their own supply chains with care to anticipate these dynamics as they seek to ramp back up, produce and sell their goods into market.
Is your organization ready to roll?