“There will be a huge economic hit to countries, and it will take time to rebuild supply chains. It’s not like you can turn around next Friday and start over. It’s not just one company but a whole ecosystem, and regulated parts with a long approval process.” - Yossi Sheffi, Professor, MIT.
With the effects of the pandemic already evident, the world as we know it has changed overnight. Running against time, enterprises are now faced with the predicament of having to create new business models, accelerate their fulfillment through new channels, and compete with a mix of companies that never featured on their SWOT analyses before. The ensuing circumstances have completely leveled the playing field for all. The need to transform digitally in every aspect of the business has never been stronger. Customer needs, now more than ever, dictate the product mix and the fulfillment with business agility.
Take all of this and place it in a manufacturing setting and you have the perfect storm. One of the key challenges facing manufacturing firms is the supply chain.
The supply chain today requires reimagining it end-to-end with the customer experience in mind. Not just within the four walls of the enterprise, but way beyond, from its suppliers all the way to the doors of the end customer. Issues such as sourcing, sustainability, inventory, production processes, warehousing, and transportation need to be thought through with a collaborative mindset. Think of the supply chain, not as a sequential chain anymore, but as a network that needs to be orchestrated in real-time. This means you need greater information visibility.
Here are the key ingredients to grasp the opportunities this pandemic offers and to avoid a sudden death in the competitive marketscape.
DRIVE STRATEGIC FIT
Incorporate business insights to drive strategic fit - There has to be a strategic fit between the supply chain strategy and the enterprise’s competitive strategy. This requires a clear understanding of the end customer and the supply chain. The market shift to online buying behaviors and digital channels has changed how an enterprise creates value for its customers. Coordination between marketing and production, for instance, is an area that could be out of sync, resulting in poor customer experiences. The urge to grab online market share with promises of delivering product to customers at their doorsteps is a non-starter if production isn’t in place or the distribution network is broken.
Fix the mismatches between your supply chain and your product – High-speed, low-cost supply chains are unable to respond to unexpected changes in demand. There is a place and relevance when efficiency should be the preferred approach. Similarly, focusing on high-cost expedited shipments for non-critical items can turn out to be detrimental to the business. Use a tailored approach to hedge against demand variability and increase predictability.
Understand your exposure to risk - Lean approaches and just-in-time techniques have driven manufacturing firms over the years to carry as little inventory as possible. When the pandemic hit, it was like a tsunami of demand in certain industries like healthcare that were not prepared at all. Even in the aftermath of this pandemic, most manufacturing firms are not equipped to recover quickly. All this leads to greater risk and needs immediate attention.
ENSURE AGILITY, ADAPTABILITY, AND ALIGNMENT
Understand your own operations - What drives competitive advantage for a company reliant on its supply chain is for the supply chain to be agile, adaptable, and aligned. Agility is required to respond to sudden changes in demand or supply. Adaptability is required to adjust to changes in market shifts. Alignment is required to ensure that all contributing partners in the supply chain are aligned. Miss any one of them and you seriously impact the supply chain’s resilience.
Work with your suppliers - Increase collaboration to promote visibility across the entire supply chain. Disruptions in the supply chain can cause the bullwhip effect, eroding customer loyalty, and supplier trust. Various techniques including collaborative planning and tailored sourcing combined with technologies like 3D printing and blockchain come into play for effective orchestration of inbound logistics.
Share information across the extended supply chain - Today, we see an increasing use of sand-grained RFIDs and BLE sensors embedded in products for real-time traceability and provenance. Apart from traceability, anti-fraud detection is also a key beneficiary of a transparent supply chain. Smart tags and labels using DNA-laced ink in textiles and packaging can address product counterfeiting. Equally important is the visibility of outbound goods to keep distribution costs to a minimum and customers happy.
Revisit your financial evaluation approach - Most manufacturing firms are undergoing a cash crunch. Suppliers to major manufacturing firms are at even greater risk of shutting down due to a lack of working capital. When suppliers go down, the big OEMs suffer, and with them goes the entire ecosystem. Focus on ways to improve working capital by addressing key levers like accounts payables, account receivables, cash flow management, and inventory. Revisit how major projects including make or buy decisions are being made and what financial models are being used to arrive at these decisions. For example, the Discounted Cash Flow (DCF) is used for making plant location decisions using the classical capital asset pricing model. This can become an expensive roadblock suddenly should the so-called “low cost” option change like it did with China with the onset of the pandemic. Instead, adding a real options valuation model provides for a strategy to hedge against risk and increase flexibility on where and when to manufacture your product.
Re-engineer your manufacturing processes - With production plants getting crippled overnight due to pandemic-imposed workforce restrictions, the need for rethinking manufacturing processes has become a necessity. Automation through significant advances in technology can provide much-needed production continuity. AI/ML, robotics, IoT, and blockchain can be integrated to create intelligent connected solutions while breathing life into legacy equipment.