The COVID-19 pandemic has forced us to reexamine so much of what society took for granted before the virus outbreak. What lessons have we learned to date that will prepare us when the next crisis hits?
It’s a critical question for those of us in the industry. The pandemic completely exposed the world’s dependence upon a highly complex, fragmented and inefficient global supply chain. As we look past the current pandemic, it’s clear that we need a more resilient supply chain – one that can easily flex and adapt during future times of crisis and stress (which, invariably, will come). How do we go about turning that into a reality?
There’s plenty of talk of dramatically restructuring how we move goods around the world. Many predict that companies will move away from Chinese goods, diversifying their sourcing to other locales or even bringing everything back within their own national borders. Much of what’s being discussed are drastic measures of this sort. I’d like to propose a different approach. The opportunity for those of us in the industry is to take a more measured, collaborative and data-driven approach to supply chain restructuring. Here are my recommendations.
In order to make sound decisions about potential shifts in suppliers, companies need to understand their supply chains at a much deeper level. The overarching question you should ask yourself is, “What do my suppliers’ supply chains look like?” and then map out the details at a granular level.
For example, a large American manufacturer might have 10 different plants in the US. They might then have 20 different suppliers headquartered in various locations around the world. That’s the first level of detail. The next – and more critical – step is to map out all of the locations of every supplier’s plants and distribution centers. This is the foundation for gaining a better understanding of all of your supply sources.
Once you have a thorough mapping of your suppliers’ supply chains – down to the location of every factory your business depends upon – you can begin to get a baseline of performance during the pandemic. For example, one of your suppliers might have 10 factories throughout China. It may be that seven of those 10 continued to perform to expectations even during the recent disruptions, but three underperformed or failed outright.
A much clearer picture begins to emerge based on this kind of deep analysis. Now you can begin to understand and stack rank the risk profile not just of any given supplier, but also of the individual factories of that supplier. Other key criteria to analyze include cycle times, e.g., how long does it take a given factory to produce your raw materials? Also lead times, such as, what’s the average time between placing an order and shipment? What are the average transit times, by factory? And for all of these criteria, what did they look like pre-COVID, then during the crisis?
With this kind of granular, inbound supply chain mapping and analysis, you will be much more well-equipped to make sound restructuring decisions. Your analysis may indicate that one of your suppliers is performing well overall, but two facilities failed or underperformed during the crisis. Now you know where to focus. Instead of making a wholesale change of suppliers – typically a time-consuming and costly process that carries its own set of risks – the right next step may be a discussion with your supplier about shifting sourcing from the two underperforming facilities to new locations.
It’s also wise to avoid a “one-way street” mentality, where the tendency can be to focus too narrowly on your own business interests. Instead, think broadly about the health, performance and financial soundness of your inbound suppliers. Ask yourself what you can do to help them run lean operations. For example, can you share “demand signals” with them so they can operate smarter? Can you shorten payment cycles?
Additionally, it’s time to question the conventional wisdom around inventory. You might be working with a smaller supplier who needs you to hold some inventory on their behalf. But another supplier might be a well-resourced global company, in which case it might make sense for them to share the responsibility of holding inventory. The point is, “one-size-fits-all” solutions are rarely the best path, and we shouldn’t hesitate to question the conventional wisdom and customize our approach based on the analysis.
From a technology perspective, COVID-19 has made supply chain visibility and real-time data mission-critical. With real-time data – data that can be shared with every department within a company and with every supplier outside of the organization – we can collectively conduct this kind of thorough supply chain analysis (leveraging AI and other key technologies), gain insights, collaborate on solutions and take action that benefit all.
The other critical ingredient is widespread, earnest collaboration between customers, partners and even competitors. The “we’re in this together” mentality – which shone through so brightly even during the worst parts of this crisis – must continue. That’s how we will build a more resilient supply chain that benefits all constituents.
Originally posted in Logistics Viewpoints.