The recent pandemic has impacted every stage of the value chain, from raw material sourcing to end-user satisfaction. It is putting most companies around the world’s commercial, operational, financial, and organizational resilience to the test, and has revealed risks and resiliency gaps for many.
CEOs want to be on the cutting edge of disruption and innovation, with 67% planning to increase investment in disruption detection and innovation processes. How should businesses seek to build resilience into their supply chains as the effects of COVID-19 continue to impact the global supply chain?
The following are some of the major supply chain disruptions, as well as strategies that leading organizations are rapidly deploying to help build supply chain resilience and agility.
1. Disruption in logistics
The ongoing global logistics disruptions caused by the COVID-19 pandemic continue to impact businesses and consumers, as the flow of consumer goods into key markets such as North America and Europe, Southeast Asia, and India is hampered by the continued closures of major global ports and airports, primarily in China, South Korea, and the United States.
Major logistics disruptions have a knock-on effect across global supply chains, causing goods to pile up in storage and affecting ships on their way to ports — as diversions or delays as they arrive at major transit hubs, restricting global trade flows and limiting access for businesses to import products and replenish inventory stocks.
Many reports show that restricted access to imported products will have a significant impact on the festive seasons in the region in December 2021 and January 2022. However, the challenge for many businesses in some of these markets is that this disruption may last much longer than the next three to four months, as it will continue into 2022 and beyond. Assuming that these disruptions subside and access to sea and air freight returns to pre-pandemic levels, it will take some time for things to return to normal. In the meantime, consumers should expect higher prices (due to increased freight costs) and longer wait times for retail shelves to be replenished (especially imported products).
Consumers should adjust their expectations because items requiring repairs and maintenance may also be delayed in long service lines. Government and industry leaders are attempting to define strategies for increasing resilience and strengthening domestic capabilities in order to reduce our reliance on regional and global supply chains. Companies should redesign alternative supply chain flows, locating inventory storage capabilities closer to their customers, and determining how to improve last-mile delivery.
2. Employment landscape.
Supply chains are changing and evolving at a faster rate due to the more demanding consumers, and as a result, they are growing more complicated. As a result, the distinction between workers with blue collars and those with white collars is blurring. Technology cannot function in silos, thus it requires employees with the necessary competencies and skills. Manufacturing and supply chain activities require a mix of technological and physical abilities in order to survive and develop.
Gen Z will increasingly make up the active workforce in the near future, therefore businesses should reconsider how they handle recruiting and engaging Gen Z. To retain the younger generation of employees inspired and motivated, it is important to take into account their goals and aspirations.
3. Delays in production
Delays in production during COVID-19 have made headlines. Manufacturers are competing for a limited supply of key commodities and logistical capacity, resulting in empty shelves and lengthy purchase lead times for consumers. But it’s not all doom and gloom.
The pandemic has heightened the industry’s focus on supply chain evaluation and evolution, with companies evaluating and investing in long-term supply chain strategies to prepare for a new post-pandemic normal. The days of buffering inconsistent supply with excess inventory at the lowest possible purchase cost are quickly becoming a thing of the past as manufacturers evaluate risk as a key decision point in the development of their supply chains.
The industry is being forced to address many long-standing supply issues and re-engineer product specifications because of increased awareness and the need to maintain competitiveness. Together, these are forming more resilient and cost-effective supply chains, allowing their respective organizations to position themselves as leaders in this new normal.
4. Excessive reliance on a few third parties in supply chain networks
Many organizations have solid relationships with one big supplier, one sizable customer (or export market), and/or one sizable supply chain partner, notwithstanding the inherent risk associated with concentrating on “one major trading partner.” A wider range of suppliers, different markets and clients, and alternative transport and logistics providers are actively sought after by businesses. Leaders in the supply chain are also focusing their businesses’ attention on continuing risk monitoring by third and fourth parties to handle not only inherent and residual risks in near-real time, but also cyber and counterfeiting concerns.
In contrast to long-term fixed overheads, new technology (trading systems, planning and analytics capabilities, etc.) and increased logistical needs are offered as variable cost solutions, allowing for greater flexibility and improved cost management.
5. Investents in Technology.
The initial investments made in the previous 18 months by many businesses were aimed at automating key supply chain nodes, including stores, warehouses, manufacturing facilities, and even corporate office buildings (such as intelligent automation used to enable efficient, effective, and safe operations).
Businesses are investing more quickly as they try to improve crucial supply chain planning capabilities by implementing more sophisticated digital enablers, like cognitive planning and AI-driven predictive analytics, as well as by enhancing supply chains’ security and transparency by utilizing advanced track and trace and blockchain technology. Leading companies are using cutting-edge technologies to greatly increase visibility and, as a result, improve their ability to respond to severe disruption and variability in their local, regional, and international supply chains.
6. Commodity pricing
Spending transparency is still lacking. Although the category price is known, there is no specified breakdown of the price by material component, wastage, conversion, labor, or premium added. The pricing of paper-based packaging, such as corrugated boxes, is one example where the category prices don’t move in sync with commodity pricing because category pricing is frequently not indexed to the basic commodity price. Very few organizations have a scientific way of indexing prices for these items. Commodity purchase decisions are frequently made in organizations more so based on experience than on a formal method. When making these choices, quantity and timing of the purchase become important factors.
Teams are concentrating on digital transformation and technology to address this; a smooth flow of information across the value chain and insights leads to quicker decision-making. Organizations are using spend analytics software and technologies to improve visibility into their spending patterns. Spending consolidation gives you more negotiating and buying power, which might help you get better deals or fight for value. Spend consolidation helps to reduce the diversity in quality and pricing for the same type of product or service across locations and frequently serves as a prelude to vendor consolidation and ESG segmentation.
Further reading:
Commodity markets – The World Bank
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