Nigel Thomas explains how rethinking supply chain strategies will protect businesses in the short-term and set them up for longer-term success.
For the first time since the Second World War, both supply and demand have been completely disrupted simultaneously by a worldwide event.
Border restrictions and lockdown measures are having a massive impact on consumer spending and business investment, while also wreaking havoc on international trade and global supply chains.
Clouded by uncertainty, the long-term forecast is difficult to predict. Prior to this point, sustained economic growth had allowed businesses to make supply chains as lean as possible, supplying goods rapidly and cost effectively around the globe.
Now, however, the pandemic has laid bare some of the deepest vulnerabilities and risks within current systems.
But while COVID-19 has rattled, or in some cases completely dislocated, global supply chains, it also offers an opportunity to drive real change in the supply chain system. That is why it’s critical for organisations to not only respond with agility in the short-term, but also take actions to improve supply chain resilience in the mid to long-term.
Against this backdrop, here’s how companies can reshape their supply chains to absorb the immediate, and prepare for the stronger rebound…
Stabilising the short-term supply chain
The first step towards regaining control of the supply chain is to ensure you have enhanced visibility across all operations.
As laid out in our recent research The great supply chain shock: COVID-19 response and recovery – struggling businesses should consider establishing a war room, where a response team closely monitors the fast-moving situation and takes immediate action.
We’ve already seen such environments adopted by Toyota and automotive suppliers Dana and Aptiv.
Here, the designated team should be continuously monitoring the entire value chain via real-time dashboard and then using the insights to improve decision making– shifting supplier allocations and ensuring more accurate demand planning.
(I hope that most businesses have already done this, given the current state of affairs globally)
Businesses should also look to heighten the visibility of their finances, as sustaining cashflow and maintaining working capital requirements are key to stabilising supply chain operations.
Measures organisations could use to conserve cashflow include delaying large capital expenditure and cutting down on discretionary spending.
These will require the support of a range of short-term actions if they are to yield significant liquidity impact, including the use of dedicated dashboards and closely assessing the performance of procurement and sourcing contracts.
Finance teams can also maximise liquidity by exploring avenues that generate cash quickly i.e. prioritising clients with strong payment capacity, collecting dues, and selling off old inventory.
The data required to drive this level of financial insight may already exist for most large, complex organisations, but the ability to aggregate, analyse and interpret that data for business benefit may not be part of the current capability of many businesses.
Adopting emerging technologies
Emerging technologies offer organisations another route to strengthening their supply chains and maintaining a level of continuity during times such as these.
Organisations who fail to keep pace with digital changes risk losing out on business benefits.
In fact, recent research from Capgemini has shown that 95% of executives said their most successful projects were primarily digital. One innovative example of this is the use of 3D printing for manufacturing components.
In the US, a team from MIT is working on an open-source, low-cost ventilator design while several start-ups are employing 3D printing to produce everything from nasal swabs to face shields and splitters for ventilators.
Artificial intelligence (AI) can also be used to meet the new demands of a supply chain in flux, by predicting shortages, demand spikes and direct supplies.
In China, one of the largest water bottle suppliers used predictive and scenario-based planning tools to map the issues in its supply chain.
The technology learned about the traffic restrictions in various places, and regularly collected information from local managers to understand and build a picture of how many workers were most likely to be available at any given time and place. It then shifted production capacity in response to changing conditions.
The ability to utilise public cloud platforms to quickly ‘spin up’ environments that can host mission critical applications, e.g. track & trace, social distancing and geo-fencing apps, will be a key factor in enabling individual businesses to survive.
If this is done in a coordinated manner up and down the supply chain, it could preserve the competitiveness and future existence of the constituent parts of that supply chain.
Finally, organisations could consider deploying autonomous trucks and drones for intralogistics and last-mile delivery challenges. This can help support businesses struggling with a reduced workforce.
BMW is already using robots to help with small factory manoeuvres such as place-bots (for placing plastic boxes), pick-bots (for picking parts from supply racks), and sort-bots (for stacking containers).
Looking ahead to business bounce-back
As the spread of Coronavirus decelerates and lockdowns are eased, customer demand will no doubt pick up and businesses must prepare for this moment. Here, an agile approach that flexes to the evolving situation will be critical.
As we sit and wait, sales and operations planning professionals should be starting to build a picture of future consumer demand by stimulating several recovery scenarios before finalising production and logistics decisions.
Organisations can estimate demand recovery in the short-term, while also developing new forecast models based on the latest customer sales and market data.
Those who have already digitised their supply chains will be able to respond quickly. For example, industrial materials manufacturer, ATMI, has developed a supply chain alert system for its top revenue-generating products.
The system tracks each product’s supply chain back to base elements from the suppliers’ suppliers and flags any potential supply disruption.
On top of this, organisations should also ramp up operations recovery and prepare themselves for a full restart. This means creating new production plans and beginning to evaluate priorities and potential bottlenecks.
Building buffer stock can also help organisations to get ahead and will be particularly important for complex parts that require collaboration with multiple suppliers. This will be a direct challenge to the current financial modelling of investment in inventory and costs to serve the end customer.
Finally, organisations should begin diversifying their supply networks (by multi-sourcing from global or local suppliers or alternative sites of single suppliers) to avoid the risks associated with localised disruptions.
Again, this could be a significant diversification from current supply chain strategy for many organisations who have built on the concept of supply chain partnerships and leveraging the ‘sole supplier’ relationships with key suppliers.
It’s not enough to address the short-term supply chain complications. Organisations must plan ahead for the next six months and rethink their supply chain strategies in order to absorb future risks.
Rethinking supply chain strategies
Currently, most supply chain leaders are still in the reactive phase of how to deal with this pandemic. While the immediate focus is on maintaining supply and meeting customer need, organisations should also analyse the current pain points to plan for future disruptions throughout the rest of the year.
Enhancing immediate supply chain visibility, adopting emerging technologies to limit the severity of current disruptions, and rethinking supply chain strategies will not only protect businesses in the short-term, but set them up for longer-term success.
Nigel Thomas is Head of Aerospace and Defence at Capgemini UK
*All images courtesy of Shutterstock