7 Ways Supply Chains Can Grow from the COVID-19 Pandemic
Most supply chain problems have relatively obvious answers. For example, if an earthquake puts a facility out of commission, then supply chain managers find other supply sources to tap into or a facility to manufacture what they need. This isn't saying it's quick or easy to do...but it's obvious what needs to be done.
However, fixing the problems caused by COVID-19 requires a different way of thinking. The global supply chain lessons from COVID-19 are different than any we learned during previous disruptions for one reason: this pandemic is unlike any other crisis in our lifetime.
Disruptions can usually be contained. They happen. Then companies focus their efforts on recovery and improvement. Supply chain issues require some degree of understanding as to how they affect people, buildings and logistics, but typically the situation only improves from the initial moment of disruption.
On the other hand, COVID-19 is a unique situation, and its impact has unfurled in successive waves; we still don't know if we're past all the worst of it or if there will be further setbacks.
There has never been a disruption as severe, widespread and unpredictable from a supply chain standpoint. To complicate the situation even more, it was well within our abilities to make it worse. If we opened factories too quickly or failed to take proper safety measures, the problem could escalate, which is atypical of the geopolitical problems we've had to contend with in the past.
The learning curve to keep business afloat has been steep and seemingly endless. Supply chain experts couldn't come up with the quickest solution; they've had to reevaluate everything from risk management to smart planning to inventory policies to resiliency to analytics and more.
It hasn't been easy, but there are some key supply chain lessons to take away from the COVID-19 crisis.
1. Explore Options for Multi-Sourcing
Currently, only 31% of companies have developed alternate sources of supply for 70% or more of their tier 1 suppliers, according to data from APQC. However, as COVID-19 has cast a glaring spotlight on risk management around sourcing, companies are becoming more sensitive to being single-sourced or in a single geography.
With options becoming limited, having the ability to rapidly select qualified alternative suppliers and keep your products on schedule is even more critical. Simply put, having multiple sources per part is a requirement for a successful supply chain.
COVID-19 aggravated sourcing issues. Jabil recently sponsored a survey of more than 700 supply chain decision-makers from seven key industries, ranging from automotive to retail. These survey participants affirmed that the pandemic caused multiple problems for companies; production delays were the most common issue, but almost half of respondents also reported narrowed profit margins.
As a result, OEMs are more sensitive to the sourcing of everything that supports their products—equipment, the machines and the people in the manufacturing locations. They recognize that if they don't manage everything strategically and diligently upfront, then a global pandemic or another unforeseen, novel disruption can have a disastrous impact.
2. Expand Geographical Diversity
Because of China's role as the "world's factory," the outbreak of the novel coronavirus had massive implications for global supply chains. More than 200 of the Fortune 500 firms have a presence in Wuhan—the location of the initial outbreak.
Many companies are exploring sourcing options in geographical regions they hadn't previously considered. For instance, companies that never had a presence in areas like Mexico, Malaysia or Vietnam are now gaining a detailed understanding of the capabilities in these regions. These geographies might not be a part of their manufacturing footprint yet, but they are top-of-mind.
As we continue to navigate the fallout from COVID-19 and improve our supply chain strategies, I predict we'll see more companies investing in a diversified global footprint. In fact, in our survey, almost 90% of supply chain decision-makers stated that even though they've always known the value of a diversified supply chain footprint and sourcing strategies, recent events (COVID-19, tariffs, etc.) have made it even more clear.
Although this is a long-term strategy, we're already seeing slight changes in the teams that we engage with. They're starting to diversify into various regions by electing a local team to make decisions about what's sourced in their area. In a way, they're allowing their knowledge on the ground to be used a bit more freely.
3. Invest in New Supply Chain Technology
At Jabil, we believe that supply chain success relies on three pillars: people, processes and technology.
With COVID-19, two of these pillars cracked; companies were forced to lay people off, some people couldn't work because of government lockdowns, quarantine or health risks and the flow of their usual processes was interrupted. But as they try to recover and rebuild from the devastating effects of the pandemic, companies are investing in new technology.
More than 90% of our survey participants agreed effective investments in digital technologies and analytics will help companies recover faster from the impacts of COVID-19. Unsurprisingly, nearly 100% of our survey participants responded that they are investing in technologies or services to address the pandemic's effect on supply chains.
The most common category of technologies that companies are investing in is technology to help with supply chain optimization/visualization applications.
To put it simply, supply chain network optimization imagines different situations that could arise at various points of the supply chain. It involves a combination of extensive data and sophisticated supply chain analytics that provide an end-to-end quantitative snapshot of a company's supply chain.
It is an area that hadn't received enough attention prior to the pandemic, but this year, companies are dedicating it greater attention so that they can proactively recover from impactful disruptions more quickly in the future.
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4. Develop a Supply Chain Resilience Strategy
To put it simply, resiliency means the ability to hit some bumps in the road without crashing—it refers to the ability to react to problems and disruptions without rippling all the way up to the top. When you've established resiliency, breaks in the supply chain aren't fatal because you've already established a contingency plan for production, inventory, lead times and logistics.
According to our survey, 94% care about supply chain resilience but only two-thirds adequately fund a company culture of resilience.
The aftershocks of COVID-19 have cast a spotlight on the lack of resilience in modern supply chains. Thankfully, there are several steps that manufacturers can take toward a more resilient supply chain. For instance, instead of looking at their history to forecast demand, they can establish a demand plan for the "new normal."
However companies choose to approach it, the need for a better resilience strategy is obvious, and it is an area where we'll see much greater investment in the future.
Resilience programs are primarily focused on quick recovery to avoid impacting customer delivery timelines as well as developing multi-sourcing options. This goal has likely become more front-of-mind in the past few months as 62% of OEMs have experienced production delivery or time-to-market delays due to the pandemic.
What are the top risks that your organization’s supply chain resilience program focuses on managing? Choose up to 3 of the following.
5. Improve Cross-Divisional Collaboration
At Jabil, reacting to the COVID-19 outbreak required a huge mobilization across our teams. As a company, different divisions worked alongside each other, constantly collaborating and communicating to make sure there were no gaps or separate teams weren't working on the same issue. This was a significant factor in our ability to react quickly and effectively to the crisis.
But collaboration isn't something that should be limited to emergency situations. Teams that operate in a silo are a prevalent problem in supply chain. To future-proof both products and the business, there needs to be consistent communication between divisions. For example, designers and engineers should keep in touch with supply chain leaders to ensure their product designs align with current supply chain trends.
This cross-divisional cooperation should take place long before a disruption even occurs; it should be built into normal, everyday processes. Building collaboration into the design flow can lower the chances that a disruption, no matter the magnitude, will halt production.
6. Execute a Predictive Supply Chain Risk Management Initiative
A company's predictive supply chain risk management program may include the technology and teams involved in the management of events like sourcing shortages, natural disasters or geopolitical change. At the time of our survey, only 13% of decision-makers stated that they were fully executing a predictive supply chain risk management program with implemented technology and team structures. Less than 10% were executing pilot program and 80% were still in the planning stage - or not even considering it.
Only 17% of our respondents affirmed that their predictive supply chain risk management approach was "excellent," meaning that they had insight into coming changes and easily adapted. But as we start to get a handle on the fallout from COVID-19 and think about how to shield supply chain from future crises, I expect to see a boom in the use of predictive analytics.
Adopting predictive analytics will allow companies to fine-tune their supply chains and achieve a level of efficiency that was impossible with traditional supply chain management. This will be made possible by creating predictive insights into the organization's data along with the ability to make decisions based on future trends rather than historical information. Predictive analytics will enable or enhance several capabilities, such as demand planning, inventory management, shipping and logistics.
7. Find a Manufacturing Partner
You know how parents will tightly clasp the hand of their children before they cross the street? This helps to ensure that the kid won't dart ahead or drop something and fall behind. The diminutive body of a child can be hard for drivers to see, but it's easier for the larger, more experienced adult to cross the street safely. When children are holding their parent's hand, this safety is extended to them.
In the same way, a manufacturing partner can help guide companies past the hazards of supply chain disruptions. This partner may have access to resources, regions and industries that the company may not have on its own, but it gains access to them because of their relationship. A partner can also help cover a company's vulnerabilities by providing risk management and flexibility.
However, a little over a third of survey participants say that they would rather skip a partnership altogether and bring their manufacturing in-house. This provides them with full control over operations and decision-making.
Completely unplanned and unexpected events can come along and cause major disruptions. We shouldn't underestimate these, but we also shouldn't underestimate our ability to react to them. In our lifetime, a supply chain disruption at the magnitude of COVID-19 is unprecedented. Across the entire globe, factories were shut down, planes were grounded, and we still aren't sure when "normal" life will resume. The dedication, compassion, knowledge and effort that goes into recovering from a situation like this is phenomenal.
You know, we talk a lot about the theoretical need for a strategic supply chain, but we're living the perfect case study. As life slowly begins to reflect the pre-pandemic world, let's make sure we don't just say, "Well, we got through it," sit back and wait for the next crisis. Let's use this unparalleled problem as an opportunity for unheard-of growth and build a business continuity plan.
Special Report: Supply Chain Resilience in a Post-Pandemic World
Insights from over 700 supply chain decision-makers at OEMs with more than $500 million in revenue on how they are managing their supply chains in light of COVID-19 and other market dynamics.