COVID-19 Aftermath: how to rebuild your supply chain? – LogiSYM May/June 2020
The coronavirus crisis will push economies into recession (as a positive scenario) or even depression. The corona crisis triggered an economic downturn caused by orchestrated lockdowns that brought production and international trade to a standstill. This caused companies and entire industries going out of business, rise of unemployment, housing market crash, collapse of air and sea freight markets, and rising dept levels among industries and consumers.
Supply chains through the corona crisis have been disintegrated. Some of your first and second tier suppliers have gone out of business. Raw materials through scarcity of resources cannot be purchased anymore or only against inflated prices. Other supplier lead-times have exploded due to overwhelming demand, caused by product stops forced by governments. Your supplies experience also transport delays as various transportation networks have been affected by lockdowns. For example air cargo capacity has collapsed due to a stop of passenger flights, which has brought airlines into bankruptcy. Also sea freight capacity and frequency has been reduced due to the economic meltdown. This has increased the cost, lead-time and variability of various modes of transport. In short, massive disruptions in your supply network have taken place.
Your production has been constraint by government regulation and/or scaled down due to falling demand. You might have been forced reducing a significant part of your staff and production lines in order to survive. You have probably delayed maintenance and repairs, investments, and research & development. In short, your organisation is highly damaged and slimmed down to a core team just to stay afloat.
Your distribution channels are also affected due to falling demand in your local and export markets. Some industries have been even banned to export their products. A significant part of your customers have gone out of business, changed supplier, or significantly reduced their purchase volumes from you. Exports have become more costly due to higher cost of international transport as the capacity and frequency of air and sea freight markets have been radically cut. In short, your sales has come down and your previous distribution network (design) is not anymore applicable.
Your supply chain is broken, your organisation that is left is purely focused on the day-to-day operations, but lacks the capability to rebuild the supply chain and upscale production quickly.
How to rebuild your supply chain?
Priority areas in rebuilding your supply chain during the coronavirus aftermath are (1) purchasing, (2) category management, and (3) supply chain management.
- Based on the changes in your supplier market you first need to reassess your product specifications. What ingredients/components are available in the market? Do we need to change ingredients/components that have better availability and/or lower prices? After this you need to search & select the most suitable suppliers, and of course contracting them.
- Horizontal collaboration, collaboration between different supply chains (cooperating with competitors and non-competitors), through direct collaboration and via third party and fourth party logistics service providers will be pivotal. This will enhance access to raw materials and other supplies, reduction of supplier lead-times, and lower cost of supply.
- As demand has changed dramatically, you need to conduct a market assessment to understand how demand has shifted, analyse new market structures, and identify those focus markets & customers that provide the best market attractiveness and business attractiveness.
- Co-creation: rebuild together with your key customers your product range, value proposition, and value chain.
Supply chain management:
- Establish a Chief Supply Chain Officer (CSCO), a position in the board room, that has the responsibility and authority to rebuild the supply chain and coordinate with purchasing, production, logistics, sales/marketing, and other relevant departments.
- Hire external supply chain expertise as Supply Chain Advisor to the CSCO to inject best-in-class competencies into your supply chain team. You will need the best expertise to make the right decisions in purchasing, category management, and supply chain management.
In the post-corona era, it is mission critical to be first in your industry in rebuilding your supply chain and upscaling production. Companies that are faster in rebuilding their supply chain will have a competitive advantage and will conquer a bigger market share! In case you need help or have any questions, please do not hesitate to contact us.