As the coronavirus seems prepared to drag on well into 2021, supply chain managers continue to face unprecedented challenges in keeping products moving safely and efficiently across the country and around the globe. However, the pandemic has offered some lessons on how to build more resilient supply chains.
One of those lessons is that a laser-like focus on efficiency — conventional wisdom for the industry for many years — eliminated many of the buffers that could have better prepared supply chains for the disruption caused by the pandemic. It led to reduced inventories, which in turn led to store shelves without toilet paper for weeks in the spring of 2020.
Some companies continue to learn the lessons from the pandemic, making qualified supply chain managers who understand them an asset for all organizations. That’s important because while companies have spent decades building complex, global supply chains, they haven’t spent much time figuring out what to do when things go wrong.
A Black Swan Event
Black swan events are those that are unpredictable, like seeing a rare, black-feathered swan. They also can prove incredibly disruptive. In a report on the pandemic, Deloitte speculated that COVID-19 could be the black swan event that “finally forces many companies, and entire industries, to rethink and transform their global supply chain model.”
Deloitte found one fact indisputable: The pandemic made it clear the global supply chain has inherent weaknesses. They include the following.
- An over-dependence on manufacturing in China, where something like a virus outbreak can disrupt supply chains worldwide
- A razor-thin inventory with no margin in case of a significant disruption
- A lack of strategic planning that acknowledges the world is a riskier place than ever before because of pandemics, natural disasters and unrest in many countries
Experts said the pandemic quickly became the worst shock to the global supply chain since the start of globalization decades ago. But it may only be the beginning. Addressing the issue in a McKinsey Podcast, Ed Barriball, a partner in the Manufacturing and Supply Chain service line within the Operations Practice, said such shocks are expected to happen more frequently.
He said, “This is certainly what the coronavirus really highlighted — the impact that shocks can have on these global supply chains.”
Learning From the Lessons of COVID-19
The pandemic has made supply chain managers aware of the increasing dangers they face. In addition to pandemics and natural disasters, there are also competing economic systems that can be disruptive (such as those that can contribute to situations like trade wars).
But the key is not to focus as much on what to do in specific disasters, but more on the vulnerabilities in the supply chains that are impacted in all shock events.
Susan Lund, a partner at the McKinsey Global Institute in Washington, D.C., said in the McKinsey Podcast that one issue the pandemic exposed is the need for more transparency within supply chains.
By that, she meant that companies must go beyond first-tier supplies and look at the second-tier suppliers that serve the first tier, as well as third-tier suppliers. They can uncover bottlenecks that need to be addressed by doing so. This also allows companies to rethink the structure and geography of their supply chain.
Innovate Processes and Technology
Supply chains will almost certainly relocate some processes, particularly outside of China. In other cases, they may move specific processes back in-house. In either case, it gives them an opportunity to investigate the fundamentals of a process and determine if there are now better approaches using innovative technology.
As noted by Harvard Business Review, some business leaders are hesitant to change processes when the original investment of machinery has fully depreciated. But in the current situation where change is necessary, that will not be a factor. That opens the door to investment in more competitive plants and equipment.
Those upgrades could include more automation, new processing technologies, 3D printing and continuous-flow manufacturing.
Create More Resilient Systems
A resilient supply chain is one built to react faster to changing consumer demands or, as with the pandemic, a shock to the global supply system. By investing in resilience, companies do things like maintain an emergency inventory and set up alternative manufacturing sites and assembly nodes. Companies can also benefit by using secure cloud-based supply chain platforms to collaborate with suppliers and outside vendors, leading to better and faster decision making.
While the costs of building a more resilient system may seem high, it’s less expensive than the losses a supply chain faces when a crisis hits and their system is unprepared.
Speaking of collaboration, it is people, not software systems, that do the actual collaborating. Companies do well to focus on who they choose for operational staff on collaborative projects. It’s also helpful to include them early on in meetings that set up collaborative efforts, helping them forge relationships and fostering buy-in to the project. Those who work in this area also benefit from training and support.
It’s impossible to predict what event will cause the next shock to the global supply chain. However, it’s clear that something will eventually happen. When it does, supply chains that have taken the lessons of the pandemic to make improvements will position themselves to better weather the storm.