The lockdowns that swept the world in early 2020 shed light on the global and fragile nature of supply chains. Suppliers shut down, transport links were cut, and stores closed: a perfect storm that brought international trade to a near halt. Let’s look back at lockdown and see what lessons can be drawn for businesses to better manage their supply chains.
Perhaps the best evidence for globalisation comes from supply chains: outsourcing is near-ubiquitous across all sizes of business. Over the past decades, the opening of countries’ economies to trade has allowed supply chains to be optimised according to cost without regard for national borders. For SMEs, it allows a focus on core competencies while benefiting from a larger organisation’s economies of scale, enabling competitive pricing that was previously unthinkable.
As supply chains complexify, though, they become less and less traceable and transparent. Hardly any business, especially SMEs, know who exactly is involved in the delivery of the final product. In normal times, supply chains are a well-oiled machine that delivers what is needed at the right time in the right place, without much thought from its end users.
Know your suppliers
Businesses should attempt to map out their supply chains: knowing who does what will help identify potential weak points and help plan for contingencies. Ensure that you go beyond only first-tier suppliers to have an overall perspective of the route your products are taking. As lockdowns have shown, transport can be a key determinant in ensuring supply chains stay running. Consider how your products are moving around between the stages of the supply chain and identify particularly vulnerable links. Finally, make sure your contingency plan is feasible, financially and operationally.
Reconsider lean
Since Toyota’s success with just-in-time production in the 1980s, lean manufacturing has been championed as the most efficient way to organise supply chains. Examples of businesses built on lean include Zara, who championed the use of just-in-time delivery to bring fashion trends to market within a matter of weeks. Though insanely reactive, this model is also extremely fragile and prone to disruption: the lack of inventory means that any disruption to the flow of goods can break entire supply chains.
Where their products are not perishable, businesses might want to consider holding some inventory as a safety buffer in case of an interruption of their supply chains – a not-so-unlikely event while COVID-19 induced lockdowns remain a threat. Looking beyond the pandemic, buffer inventory might be the new normal at a time where international trade is threatened by resurging protectionism. For example, uncertainty surrounding Brexit certainly warrants precautions.
Explore alternatives
Looking ahead in the long run, the current crisis is likely to bring lasting changes in the way we view manufacturing. Combined with the rise of nationalism, there is a push to shorten and relocate supply chains closer to the end consumer, to reduce risk and support local economies. Firms should consider automation and 3D printing, for example, as efficient and cost-effective replacements for outsourcing.
If anything, this crisis has proved that supply chains cannot be ignored and trusted to work, regardless of the condition of the environment. Maximising gains requires careful oversight and active management of the network of suppliers that deliver your product.
Written by SEPEC Consults SAS. For assistance with supply chain management, reach out to SEPEC Consults today!
References
Blair Nimmo. 2020. COVID-19 and global supply chains - KPMG United Kingdom. [ONLINE] Available at: https://home.kpmg/uk/en/home/insights/2020/03/businesses-need-to-respond-to-covid-19-supply-chain-disruption.html. [Accessed 05 October 2020].
Linton, T. & Vakil, B. 2020. Coronavirus Is Proving We Need More Resilient Supply Chains. Harvard Business Review, [Online]. Available at: https://hbr.org/2020/03/coronavirus-is-proving-that-we-need-more-resilient-supply-chains [Accessed 05 October 2020].
Shih, W. 2020. Global Supply Chains in a Post-Pandemic World. Harvard Business Review, September-October, 82-89.
Simchi-Levi, D., Schmidt, W., Wei, Y. 2015. From Superstorms to Factory Fires. Harvard Business Review, January–February, 96-101.
Simchi-Levi, D. 2015. Find the Weak Link in Your Supply Chain. Harvard Business Review, June, 2-5.
Schlossberg, M. 2020. Why Zara is crushing the retail industry while everyone else struggles - Business Insider. [ONLINE] Available at: https://www.businessinsider.com/why-zara-is-crushing-the-retail-industry-2016-5?IR=T&fbclid=IwAR1qkxt8gER_EiutsSpg2NeUjpjL-i7E4jmbZBYrd7iZ1WXuLKod9bYd_QE. [Accessed 14 October 2020].