The current COVID-19 crisis brings new meaning to the term disruption. Organizations and their supply chain managers need new supply chain management best practices -- and fast.
Coronavirus panic buying, national lockdowns, sudden changes in buying priorities and shipping challenges are each having a different impact on supply chains.
Companies are going to have to face the new reality, which is that we cannot make supply chain decisions based purely on economics, said Tom Derry, CEO of the Institute for Supply Management. Enterprises need to factor in a variety of disruptions, including geopolitical events, weather and health problems.
"For times like this, building innovative ways around supply chain production is not only urgent, but necessary," said Deepak Lalwani, principal of Deepak Lalwani & Associates LLC, a management consultancy.
Experts see a variety of ways that enterprises can help improve their supply chains to keep customers happy in the short run and build resiliency in the long run. To that end, here are seven supply chain management best practices to explore during the ongoing coronavirus disruptions.
1. Set up supply command centers
Communication and agility have always been critical to successful supply chain management. In a COVID-19 world, they are even more critical and supply chain management best practices must put actionable communication front and center. Setting up a supply command center is one way to do that.
Several organizations have set up command centers to improve communication and manage material needs in real time, said Steve Abbott, subject matter expert at Patina Solutions, a professional services firm. Military, large OEMs and transportation and logistics firms have employed operational command centers -- or OCCs -- for years.
"The basic premise is to have a central management function with access to all information, and authority to direct resources and allocate materials in response to a dynamic environment," Abbott said.
Business and supply chain leaders should understand this isn't a traditional decision-making approach that requires repeated operational reviews and approvals, he said. Instead, the command center can act as a nerve center for helping executives to quickly identify and mitigate operational threats.
Operating in this way requires a balance of better technology for assessing the current situation and executive skills for acting on them.
The first consideration includes giving command center managers access to business key performance indicators and license to act, Abbott said. Other considerations include developing the analytics used to generate various functional KPIs related to the speed to deliver goods and upgrading ERP systems to improve visibility.
2. Run tabletop simulations
The COVID-19 pandemic and the response to it will continue to disrupt business processes in a variety of ways, including the loss of key people, suppliers and distribution channels. In the near term, every company should find ways to address business continuity needs.
"Run a tabletop business impact assessment for your organization to determine the impact on your company and your plan of action, should someone become affected in your company," said Sam Dawes, a senior manager at West Monroe Partners, a business and technology consultancy.
Other tabletop exercises might look at how different policies and events occurring in other countries could affect the business if they occur at home.
Now is the time to reevaluate and soften your current demand plan, Dawes said. Although some exceptions exist, there is a general manufacturing and macroeconomic activity slowdown, so less supply will be required to meet demand.
These kinds of changes may also open opportunities to optimize the labor configuration. For example, it could be helpful to run two skeleton shifts in place of one.
"This mitigates the risk of your entire workforce being out of commission should someone become infected," Dawes said.
3. Manage supply chain risk proactively
In a COVID-19 world, supply chain leaders need to adjust best practices away from being reactive or bureaucratic.
This means shifting away from a pure cost-and-control mindset to instead consider proactive risk management, said Alberto Oca, a partner in the strategic operations practice of Kearney, a global strategy and management consulting firm. Supply chains need to be redesigned to treat disruptions as the norm, detect early warnings and be able to sense and pivot seamlessly to offset situations like this.
As part of this, the use of digital twins will increase, Oca said. Organizations can use them to create business process simulations that can be updated in real time as circumstances change. For example, this could include finding the best way to shift production to alternate locations, move inventory to different warehouses, increase or decrease safety stocks and be better prepared overall.
4. Explore supply chain regionalization
Regionalization is the process of moving more aspects of a supply chain closer to where a product is consumed. This can help reduce transit time, cut tariffs and bolster the appeal of products.
There has been a movement toward regionalization for a lot of reasons and COVID-19 will only accelerate this trend, Derry said.
Regionalization can also help boost the visibility and appeal of manufacturers such as Foxconn's commitment to building its presence in Wisconsin, GM's joint venture for a battery plant in Ohio, and Haier's white goods in Kentucky, Abbott said. These moves are being bolstered by investments in AI, robots and IT systems to increase supply chain efficiency.
Regionalization will play out through nearshoring as a key part of U.S. companies' shifting strategies, Dawes said. Mexico may be a major winner, as it is able to produce high-quality products with labor costs on par with China. Some industries, such as life sciences and health products, will reshore manufacturing as a defensive response, he said.
5. Create resilient supply webs
Relying on a single supply line puts a company at greater risk of disruption.
Businesses should consider ways to diversify their supply chains in ways the mimic the food webs of nature, said Kathleen Allen, author of Leading from the Roots: Nature-Inspired Leadership Lessons for Today's World. This starts with reviewing the current supply lines with an eye on diversification.
Kathleen AllenAuthor, Leading from the Roots: Nature-Inspired Leadership Lessons for Today's World
It's also important to evaluate the risk of each supply line according to multiple factors such as risk of disruptions, ability to scale each way and the adaptability of suppliers, she said. Organizations can consider new supply lines as they emerge owing to new business models or improvements to technology.
Businesses shouldn't just take a "get through this crisis" mindset since the virus may just be one example of unexpected disruption that will happen in the future, Allen said.
"Now is the time to create a resilient web of supply lines to feed your business," she said.
6. Understand suppliers
Most companies have a pretty good handle on their key suppliers, but things get murkier with suppliers further up the supply chain. The need for greater visibility and stronger supplier relationships has only become more important with the disruptions of the coronavirus pandemic.
"You need to know who your suppliers are," Derry said.
Now is a good time to do a deeper dive into the businesses that you are counting on. For example, many companies have invested in developing multiple tier 1 suppliers, but a deeper analysis reveals that these all depend on a single nexus supplier further up the supply chain.
"If there is an issue with the nexus supplier, it does not just affect one supply chain, but the whole industry," Derry said.
Nestle is a classic example of this kind of analysis. A few years ago, the company analyzed the entire supply chain involved in pet food products and found that most of the protein came from fish sources that used slave labor. Nestle reportedly is working to redo its entire supply chain to eliminate these suppliers.
Many companies of all sizes, including large OEMs, are finally getting serious about really executing supplier assessments and performance audits rather than simply going through the motions, Abbott said. In his experience most supplier assessments and supply chain audits have been ineffective. This has been because business leaders sourced tier 2 and tier 3 suppliers without adequate due diligence, and consequently risk management and response plans were lacking as well.
7. Create innovation labs
As new developments unfold, organizational and supply chain leaders should explore how they can get agile and use technology to strengthen a company's supply chain.
To this end, organizations should invest in creating innovation labs, Lalwani said. Innovation labs teams can work to come up with new ideas, execute them and iterate until the idea is fully executed or integrated into a business. This gives enterprises the opportunity to identify supply chain trends and apply innovative solutions to complex logistics issues.
For example, DHL has a 28,000-square-foot innovation center in Chicago where companies can learn about the latest supply chain technology and help them on their path toward digitization. The center provides customers and partners technical expertise with a variety of supporting technologies, including robotics, warehouse automation, AI, IoT and analytics.