|School:||Cranfield School of Management|
|Date:||Nov 09 2020|
“In the new normal, if your supply chain is the same as the one that you had pre-coronavirus, you’re probably doing something wrong.” – Professor Richard Wilding OBE, Professor of Supply Chain Strategy at Cranfield School of Management.
From stalls in supply and transportation capabilities, to empty supermarket shelves – the Covid-19 outbreak has exposed vulnerabilities and weak spots in our supply chains, and highlighted the need to change and adapt in order to meet the requirements of an ever-changing ‘new normal’.
The outbreak has brought into sharp relief the impact that overdependence on one location or a lack of visibility over the entire supply chain can have – for example the discovery early into the pandemic that key active ingredients for important pharmaceutical products were manufactured in China, where factories were under lockdown– as well as the impact that customer trust, and therefore customer behaviour, can have on demand and ability to maintain a steady supply of goods.
Every single part of the supply chain is potentially vulnerable to disruption – whether that’s social distancing regulations impacting manufacturing capability, border closures altering the amount of time it takes to transport goods, or sudden and unprecedented spikes in demand from consumers which create a bullwhip effect. Each element of the supply chain is all part of a whole and if one falters the whole thing can be impacted. What this crisis has made clear is that going forward supply chains must have an increased level of resilience built in, so that businesses can ensure they are robust and responsive in the face of challenges.
In a white paper published by DHL, Post-coronavirus supply chain recovery – the journey towards the new normal, co-authored by Dr Klaus Dohrmann and Dr Malcolm Wheatley, Professor Richard Wilding highlights a fundamental change to supply chain strategy – in which resilience may be favoured over cost-efficiency, and outlines the key actions businesses should consider taking.
According to Professor Wilding, “we are moving from an era marked by an emphasis on procurement for cost, to an era marked by an emphasis on procurement for resilience”, and while this may lead to an increase in costs for businesses – many will decide it’s worthwhile to have the peace of mind that they can continue to be operational and provide for their customers in the face of future challenges.
Going forward, businesses can expect increased pressures (both regulatory and on a society-wide level) to ensure they are more resilient to disruption and that stocks of critical products are maintained. Alongside stitching resilience into the fabric of their supply chains, building trust with their customers through transparency may also play a key role in avoiding further panic-buying behaviour that fuels volatility – further helping to stabilise supply chains.
Previously, organisations focused their resiliency planning around securing first-tier suppliers. Now, they might extend their resiliency planning further upstream to second and third-tier suppliers when making decisions around sourcing, inventory buffers and transportation routes. There is a strategic element to resilience, that shouldn’t be overlooked.
“In these volatile times, supply chain visibility and control have never been more important.” – Alexander Gunde, President DHL Technology Sector.
Even prior to the disruption of Covid-19, events such as natural disasters were already acting as an impetus to diversify supply chains for resilience. The DHL report cites the example of the flooding in Thailand in 2011 which submerged several industrial zones and six months later, of the 227 factories impacted only 15% had been able to restart production. Trade tensions and the need for businesses to be able to respond to changes in trade tariffs and import quotas have also fuelled the start of the move toward Supply Chain 4.0, with more diversified supply chains.
Knowing where your suppliers are and being able to track impending disruptions – such as developing economic situations or natural events such as extreme weather – could help businesses to plan alternative options and minimise disruption. Diversifying supply chains makes this more feasible.
The Covid-19 lockdowns across the globe have highlighted the benefits of having this flexibility within the supply chain, with more widely dispersed warehouses that are closer to consumers, rather than large central facilities.
The cost of prioritising resilience by diversifying supply chains may be higher, but arguably this is outweighed by the greater speed to market and the ability to remain robust and responsive in the face of future disruption. In an environment where providing customers with the assurance that they can trust companies to maintain a steady supply of critical goods is important – both to avoid further disruption through stockpiling behaviour, and to achieve business success through customer loyalty – businesses are investing in courses of action that they feel will provide long-term, stable supply.
In the current environment it might feel like the only thing that’s certain is that we’re going to face more uncertainty. However, there are actions that supply chain executives can be taking now to help boost resilience and ensure that operations can cope with the changes and challenges of our new normal:
Go beyond tier one, to include tier two and three suppliers when it comes to mapping your supplier networks, focusing on value-adding manufacturing and distribution locations. For these suppliers, assess their health and readiness - including their business continuity and emergency alternative plans.
Map your inventory locations and know where your stock is held, focusing not just on stock value but also the number of items and the number of days of inventory held. Liaise with your logistics providers to understand how your stock moves through your network – and never assume that goods take the most direct route.
Re-assess your warehouse and distribution networks based on a new set of supply chain priorities that reflect the requirements of the new normal: resilience, customer proximity and demand patterns, sales channels, supplier locations.
Writing in an article published by NatWest Business Hub, Professor Wilding highlights: “Most businesses have performance metrics to measure everything – except relationships. Yet that’s an essential part of that chain, without which none of the other things can happen.”