Now Is the Right Time for Supply Chains To Do the Right Things
Without a doubt 2020 will be etched in our memories as the year of multiple disasters, with the Covid-19 pandemic, trade issues between the US and China, wildfires in Australia, social unrest in Hong Kong, drastic declines in oil prices, turbulent financial markets and other politically dominated issues in emerging markets. All these events combined, plunged the global economies into multiple catastrophies—global shutdowns, negative economic growth and huge monitory and human losses. The Covid-19 aftermath is so deeply engraved that in future, we can actually explain this phase as: BC “Before Covid-19” and AD “After Disease recovery”.
It has forced world leaders, policy makers, businesses to shift their focus to a survival mode for the most part of 2020. We are struggling to meet the day-to-day requirements of employee safety, product security, brand protection, people retention and generate enough cash flow to survive and retain our customer bases.
Let me summarise the Covid-19 disruption and challenges, into three broad phases.
Challenges caused due to Covid-19: Phase I
From March to Augus 2020, it was meltdown situation with supply and demand severely imbalanced:
- Global geographies shut down reducing exposure of human to human infections
- Factories for most commodities (other than essential commodities, pharma, medicinal and medical devices, food and groceries) were shutdown globally
- China fully shutdown its manufacturing output during this phase affecting consumers globally
- Massive spread of Covid-19 infections all around the globe with high fatalities in all geographies
- Huge demand supply issues breaking the ever-so-fragile supply chain globally
- Exposing massive dependence on one country for most commodities including essential day to day consumer products
Recovery Imperatives: Phase II
From September to December 2020, China and a few South East Asian countries started to get back to a fair amount of manufacturing capacities and international logistics resumed for essential services, pharma, food, groceries, medical devices, PPE etc.
- In this phase, companies with relatively better supply chains, started to re-access the imperatives required to rebuild resilient and agile supply chains
- A few broad areas were identified as immediate levers to re-adjust and redesign:
- Upstream planning
Better demand sensing, shifts in customer behaviours, predictive/prescriptive case studies, shift in inventory stocking strategy and customer service
- Manufacturing Planning
Agility and flexibility, capacity planning, shift from Just in Time to agile and resilient operations
Visibility into Tier I, II and III suppliers, de-risk by developing alternates, build practical BCPs (business continuity plans) and China + 1 sourcing strategy
- Fulfillment and Logistics execution
Redesign networks, use of multi-modal distribution, collaborate with Tier I and II service providers, optimising multi-lanes and route planning
- Upstream planning
Tactical and execution enablers: Phase III
This is the current period. It is expected to drag into 2022 for the path to recovery for many industries. Business and supply chain leaders need to revisit and restructure their end-to-end supply chains.
This is the most critical phase where “the rubber meets the road”. This is the right time for the world leaders to bring about a change in their supply chains for the right reasons. This change was over-due, and Covid-19 proved to be a catalyst in many ways. It is now or never for supply chains globally if they do not put their acts together!
The Critical Levers that Global supply chains need to Execute NOW
- Changes in Customer profiles—expectations and trust
Pre-Covid-19, consumers took the safety and security of supply for granted. The products consumed were safe, destinations they travelled to and worked in were safe. But COVID-19 has ripped those assumptions apart. Post Covid-19, consumer behaviours have changed. Consumers now want safety, sustainability and transparency more than ever before. And it is the responsibility of the companies to provide the required ecosystem.Balancing strategic imperatives of risk, sustainability and winning consumer trust, will challenge and may prevail over pure economics for many years to come. It is important for companies to have their fingers on the pulse of public sentiment and build a supply chain which will compliment it.
- Renewed focus on Glo-Calisation (local execution)
Going forward, companies need to de-risk by rebalancing their supply chains with a more strategic mix of local, regional and global supply chains to mitigate disruptions and sustain fulfilment flows. This requires a new way of thinking and a completely different business sense. Logistics hubs will re-emerge at the local/mega city level, and sub-system suppliers and component suppliers will source, assemble and deliver from their own backyards.
- Escalating freight rates and severe capacity crunch
Air freight rates have sky-rocketed to 7-10 times higher during Covid-19. These new air freight rates will come down but will remain at a significantly higher percentage to pre-Covid-19 rates. This effect is caused by a loss in global air freight capacities. Supply chains need to factor in this new element in their cost structure and cost vs. customer service trade-offs.
- Strategically acquire or merge to increase leverage
Covid-19 has forced many companies to either fold over, merge or get acquired across the globe. As the pandemic slowly starts to subside during 2021, the M&A activity will accelerate. Multinational companies need to expand their local footprint and will use M&A as a hedge to gain market competitive advantage. M&A activity will create multiple operating models and are expected to be complex in nature.
- Form collaborative partnerships (horizontal and vertical)
There was a time when manufacturers and their suppliers were adversarial over prices, specifications, service and technical innovation. However companies now need to understand the merits of collaborating with their competitors. They need to form long-term partnerships in their supply chain network to improve their performance and viability.
- Trade-off storage needs: capacity crunch and escalating costs with customer satisfaction
As companies work on reshaping their manufacturing and sourcing footprints, it will have an impact on their storage requirements. This is especially applicable to pharma, food and temperature controlled products where the demand for compliant storage facilities will be highest. Managing the storage capacity vs. costs trade-offs whilst maintaining regional capabilities and meeting customer delivery expectations and compliance will be challenging.
- Embrace and execute multi-modal transportation models
To reduce cost-to-serve and build visibility of supply with increased resilience across their delivery network, companies need to review optimisation through multi-modal transport strategies. We expect to see a growth in alternate transportation modes, like rail, road and motorways globally during 2021.
- Capitalise on the new wave of contactless/online business models
There has been a big shift in customer buying profiles. Buying online during the Covid-19 shutdowns has been especially dominant for grocery, medicine supplies and leisure items. Will customers ever return to in-store buying? The opportunity for e-Commerce platforms is now and if online patterns continues, early investment in this mode will be crucial for retailers.
- Review your customer value preposition
A Customer Value Preposition is the promise of potential value that delivers to its customers to stimulate customer engagement. Value preposition of products and services need to be in a form that resonates with customers. Competitive analysis using AI and Big Data analysis are at the core of the value proposition. To win customers, companies need to define their value preposition and be able to communicate it effectively.
- Re-skill your employees to be comfortable with digital and advanced technologies
Leaders need to recognize the difference between change and transformation in order to effectively lead their companies on a journey of transformation. Transformation is not only about technology, but the change in employee capabilities and mindsets. Reskilling employees enables transformation using technology.An entire organization has to support the change with new capabilities needed to understand the impact on the business, culture and structure. Companies who are able to embrace this change will be in a better shape to mitigate the impacts to their business and continue to sail in troubled waters sustainably.
The COVID-19 pandemic has been a catalyst to rethink how organisations are led, organised, and operated. This in turn will lead to a fundamental rebalancing of their supply chains and business operations. The key questions business leaders need to answer are: What are we going to achieve in the rebalancing of our business model and supply chains? How do we ensure resiliency, digitalisation and agility in our business operations of the future?
The moment is now! Time lost now is gone forever, but those organisations who step up their game now will be better off and far more ready to confront the challenges—and opportunities—of the next normal than those who do not.
The Toyota Principle of automation with a human touch has proved to be the most adaptable during periods of crisis. Going back to the board once again is the right thing to do now!
Let me end this article with a quote from a great leader, Mahatma Gandhi: “You may never know what results come of your actions, but if you do nothing, there will be no results.”