Stefan Reidy
Stefan Reidy,

05 May 2020

With the world in turmoil, supply chains are more important than they’ve ever been. Grocery stores are being pushed to their limit as more and more people continue to bulk up on consumable items to weather out the global pandemic. Consumers and stores alike are looking to digital platforms for online shopping options to help maintain social distancing policies, but the strain that is being placed on the global supply chain is being felt. However, as vital information isn’t always readily available or accessible across global teams, many companies are left scrambling, reacting to new events as they occur. On the other hand, there is a small minority of companies that had invested in mapping their supply networks before the pandemic reared its ugly head. Unsurprisingly, these companies are better prepared for the myriad of obstacles COVID-19 presents.

“They have better visibility into the structure of their supply chains. Instead of scrambling at the last minute, they have a lot of information at their fingertips within minutes of potential disruption,” says a recent article from HBR. “They know exactly which suppliers, sites, parts, and products are at risk, which allows them to put themselves first in line to secure constrained inventory and capacity at alternate sites,” they added. Despite the numerous natural catastrophes over the past decade, from hurricanes and floods to earthquakes and other black swan weather events, why were so many supply chains caught off guard by the pandemic?

Supply network mapping is expensive

 

As with most significant business decisions, the outright cost is often one of the biggest obstacles for a company to overcome. Comprehensively mapping out a supply network is costly, both financially and in labor hours. Nor is it an easy process, which is daunting for many industry players, despite knowing the advantages. A potential mapping strategy, as suggested by HBR, is to look closely at the bill of materials and focus on critical components. Starting with the top five products by revenue and working down to component suppliers and their suppliers all the way down to the raw material level. The goal is to drill down through as many tiers as possible, as there may be “hidden critical suppliers” that the purchasers are unaware of. This increased demand for knowing all levels of logistics network and visibility throughout the supply chain can provide alternative solutions in the event of a major disruption. But with so many stakeholders, so many different players in even the shortest of logistics networks, how can cargo owners ensure that quality runs through every aspect of their transportation function? The visibility driven by data can shine a light on what’s happening across all parts of a complex network of suppliers and linked stakeholders.

Procurement uses cost savings, not revenue-assurance

 

While it might be a bit short-sighted, most procurement functions to find the right materials at the lowest cost. With the disruption, this means that procurement had to resort to drastic measures to ensure timely arrival of supplies such as expediting or paying premium prices for materials. However, that added cost is then ascribed to other functions of the business. Logistics picks up the tab for any expedited deliveries, while finance has to cover the added material cost.
This is an issue that isn’t just specific to the pandemic, but a general lack of in-house communication. If the procurement, logistics, and supply chain financing would come together and talk about the key gaps in their operations, they can develop a strategy to protect the business from a disruption in the future.

Resilience isn’t a determining factor when choosing a supplier

 

Perhaps one of the biggest issues that companies face when trying to strengthen their supply chain is that we don’t consider resilience when we’re considering suppliers. It doesn’t fall neatly into the industry-standard metric and, let’s be honest; most people don’t tend to consider the worst-case scenario until they’re already in the thick of it. “When selecting a supplier and writing the initial contract, many leading companies include language that requires the supplier to participate annually in its supply-chain mapping efforts,” HBR recommends. “When force majeure events like the current pandemic strike, those supply maps can be used as a roadmap to solutions to the crisis. (Suppliers in China made more than 3,000 force majeure declarations during the first few months of the COVID-19 crisis.) Contracts should also spell out expected recovery times and methods during such events.”

A supply chain is a 300-year-old machine, a process that was developed well before the wealth of technology we have at hand today. More than that, it was never designed with these types of hardships in mind. In the end, this pandemic will ultimately sort companies into two categories. The hopefuls, who will sit and watch and hope that something like this never happens again; and the proactive, who will begin to look at how they can modernize their supply chain and protect them from future disruptions. COVID-19 has highlighted the need for real-time data, for cargo monitoring, and digital solutions, as well as general overhauling of the supply chain as a whole. Another result of the crisis is the fact that the view on logistics is changing, it is not an unavoidable pain in the neck rather a valuable need, and it is worth to be taken care of. Taking proper care means managing risks efficiently that needs visibility and visibility needs information & data. Join our upcoming webinar to learn more about what can be learned from the mega-crisis.

 

Risk management_Transportation value driver

 

 

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