Re-balancing our supply chains post the pandemic

Commenting upon my previous article, ‘Did we lean too far?’, a client highlighted that supply chains have become ‘brittle’.   “When the dust settles, leaders will need to revisit near-shoring and local manufacturing to ensure their supply chains are more resilient during the next black swan event”, he elaborated.

As we progress through this crisis and learn more about the activities within various supply chains such as food, the word ‘brittle’ resonates.

Cracks started to appear before the onset of the global pandemic. Ongoing trade tensions with China, renegotiation of the US-Mexico-Canada (USMCA) trade agreement, and the looming trade implications of Brexit in the UK had an impact on labor, manufacturing, and logistics. The socio-political shift towards ‘protectionism’ bordering on ‘nationalism’ further complicated the environment.

It has become clear that complex global supply chains are disrupted by both demand and supply shocks and must be rebalanced. During the pandemic, supply chains have undergone unprecedented levels of scrutiny and require significant rethinking. Actions taken now will build the foundation for companies to achieve sustainability and growth post-Covid-19.

This article outlines 5 key areas that business leaders must consider including in their supply chain rebalancing exercises.

 

Realign product portfolio

The trend towards establishing a unique customer experience leads to a significant proliferation of products, particularly in consumer brands. This generates complex portfolios with highly-specific variants that are not sustainable during a crisis. The following questions about product prioritization should be answered and agreed to beforehand:

What products should you focus on?

How do you ensure the availability of essential products while protecting your brand image?

Where within your network should these products be placed for optimal sourcing and fulfillment?

When is the right time to reintroduce rationalized products post-event?

Whether those products are relevant post-event and can they be modified to new market demands and alternative market supplies?

Answering these questions while the decision-makers are capable of thinking objectively, ensures an effective and ready response during an unforeseen event.

 

Incubate alternative sources of supply

Single-source supplies or the concentration of supply within limited geographies poses the greatest threat to supply chains. The shift from a single source to a multi-source approach is required to mitigate risk. In some industries, this will mean proactively incubating new sources of supply. Once leaders have realigned product portfolio and identify essential products during periods of disruption, they can begin to rebalance supplier networks to support product strategy, for both normal and crisis operations.

Leaders must develop alternative suppliers to soften the impact of external events on the supply chains, enabling them to become insulated ecosystems during prolonged crises.  

 

Rethink capacity

The rebalancing of the supply chain is a complex endeavor. Increasing flexibility for capacity in production and distribution is the key to managing risks in the new world. Reliability in capacity is also required. This includes within your network as well as outsourced partners, logistics providers, suppliers, and customers.

For many years, we had purpose-built facilities. Now, we must consider alternative multi-purpose facilities with flexible capacity that can be redeployed with a clear understanding of cycle times and cost.

We also need to understand how long various touchpoints within our networks can operate, during a catastrophic event when supply chain connects are cut-off or shut-down.

 

Redesign physical supply chain networks

Complexity and globalization of supply chains has made it difficult to identify points of failure within supply chains. Redesign needs to take into consideration all physical assets including buildings, equipment, and transportation fleets. Organizations need to develop a ‘continuous supply chain network’ scenario modeling and analysis capabilities that can quickly assess various trade-offs as events unfold.

The redesign also needs to study the geographical location of nodes within the supply chain once the product realignment is complete and alternative supply sources are considered.

Redesign of the network should go hand-in-hand with decisions around the alternative source. Finally, leaders must know their constraints within each node of the supply chain. The efficient management of supply chains means creating plans to operate within constraints with a full view of the impact on performance, quality, a mix of outputs, sustainable operating durations, and costs.

 

Embrace leading technology

Building new resilient supply chains will require companies to embrace leading solutions. For example, the need for robotics to enable social distancing in production facilities and warehouses. Rapidly evolving and merging technologies such as 5G and IoT can be leveraged to automate routine tasks such as cycle counting as well as rapidly locate inventory via drones and geo-sensors. AI and cognitive analytics allow companies to shift from traditional forecasting to dynamic demand and supply sensing, critical to understanding the appropriate response.  Sophisticated ongoing scenario modeling is needed to build shock-resistant supply chains.

In the new normal, companies will need to understand their obligations beyond shareholder needs, to the communities and countries they serve.

Without these activities, supply chains may never work their way back to synchronization. This disaster will fundamentally reshape supply chains in the future. The probability of another such in the future event is very real, making rebalancing absolutely critical for companies going forward.