There have been significant disruptions in supply chains due to the COVID-19 crisis. If we look at the past six months, we can see extreme cases of supply and demand shocks. The International Monetary Fund has estimated that the global output will shrink by 4.9 percent in 20201. The uncertainty over COVID-19 prevails and the global economy is yet to show signs of recovery. Clearly, we have failed the COVID-19 test – an ultimate test of ‘supply chain resilience’.
Our design choices failed us
A common practice in the supply chain is to consolidate supplier base for key items. While consolidation helps secure better contractual terms, it also makes the chain more susceptible to break downs. Another common practice is to maintain a low buffer across the supply chain, which lowers the capacity to absorb supply shock even for a couple of days. Essentially, supply chain was optimized for a steady flow. Moreover, to optimize this steady flow, manufacturers relied on ERP systems that could only provide post event data with limited context and visibility.
Fundamentally, the foundation for systemic failure lay deep in the design principles that evolved over a century.
Boosting your supply chain resilience requires a multidimensional approach
While there is consensus on the importance of resilience in supply chains, very few firms prioritize it over cost reduction initiatives. The COVID-19 test made it obvious that the current system cannot handle crisis; and investment in boosting resilience is required to respond optimally to similar situations in the future. A multi-dimensional approach is recommended below that can help prepare supply chain for uncertain times –
- Decentralize your supply base – Manufacturers need to decentralize their supply base to ensure that the downstream factories do not starve for supplies if one geographic region or supplier is at risk. Post decentralization, manufacturers need to distribute the demand between different suppliers in the most optimal way. Manufacturers can take inspiration from the power industry where decentralization of supply and efficient load sharing between different supply sources is a common practice. A digital collaboration platform can help match the needs of manufacturers with that of the available capacity of a verified supplier.
- Assess the business scenario of your suppliers on an ongoing basis - Manufacturers need to monitor the performance, consistency and financial and geopolitical scenario of all players across the chain. This information is critical to identify the weakest link in the chain and create a plan to deal with it. Continuous risk assessments of all parties across the chain can be achieved leveraging an automation solution. For example, consider a case where a tier-2 supplier is under legal scanner for improper waste handling. An automation tool running behind the scenes can identify such events from publicly available information and flag a risk much before it happens.
- Define mechanism to help select the next best action – For fixing failed machines, maintenance engineers follow a standard operating procedure (SOP). A similar set of thumb rules is not available to supply chain managers when dealing with a network disruption. While SOP is not practically possible for the possible network issues, recommendations on next best action can definitely help take optimal decisions. Such recommendations can be enabled by embedding intelligence in your supply chain that can predict a network disruption, evaluate available options, rank them as per the defined payoffs, and implement those changes with minimum human intervention.
- Adapt to the changing circumstances –During the COVID-19, a leading automotive manufacturer in India announced its plan to make affordable ventilators and face shields2. It is important to note that the speed at which these offerings were envisioned, developed and delivered indicates a truly agile and adaptable supply chain. Manufacturers can draw parallels from these initiatives to see how they can repurpose their offerings or adapt new ways to meet the requirements. Consider a tools manufacturer who cannot reach his prospective buyer due to unavailability of logistics partner. In such a case, a blockchain based solution can be leveraged to share the tool design and instructions with a partner who is located close to the buyer for final production and delivery.
Manufactures will shift gears post COVID-19. However, the learnings we had during this phase will affect the future design considerations. Going further, cost centric initiatives will not always get precedence over resilience initiatives. Technology and trust building will have a strong play in helping firms boost resilience.