How investing in proactively managing supply chains will make the winners post COVID-19

The pandemic will sort companies into two categories. The hopefuls, who will sit and watch and hope that something like this never happens again; and the proactive, who will begin to look at how they can modernize their supply chain and protect them from future disruptions.

June 18 2020

As the pandemic crisis reaches global scale and some nations are still under lockdown while others are on the road to recovery, supply chains became more important than they have ever been before. The coronavirus has hit the global supply chain in unexpected and unforeseen ways, and it seems likely that it could take many months to recover. As demand is often unpredictable, all stakeholders in the supply chain need to be able to produce, track and redirect inventory where needed. As a lot of information is needed to ensure the supply of goods efficiently, companies have realized that vital information is not always readily available or accessible across global teams often caused by the lack of transparency and visibility across supply chains. As a result, their response to the disruption has been reactive and uncoordinated.

For years, few companies have been willing to properly invest in supply chains

For years, few companies have been willing to properly invest in supply chains. They see it more as a cost driver than a value adding business operation. Business organizations cannot be blamed for this phenomenon alone. As buyers, we are all guilty of expecting logistics to work without having to pay for it – we may not realize it but every time we choose a retailer that offers free shipping over one that charges for it, we send the message that how our goods get to us is not worth paying for. That is why, even as the function has commenced its own digital transformation, the focus for supply chains has been about removing costs rather than adding value. All this considered, it is not surprising that during the crisis situation business continuity has been extensively derailed given the lack of resources and technologies in supply chains.

The companies that have invested in new technologies and processes before the pandemic are now better positioned to respond to the crisis

On the other hand, there are few companies, that have invested in new technologies and processes before the pandemic, as a result, today they have better visibility into the structure of their supply chains. Instead of scrambling at the last minute, they have a lot of information at their fingertips within minutes of potential disruption and are better prepared for the myriad of obstacles COVID-19 presents. “They know exactly which suppliers, sites, parts, and products are at risk, which allows them to put themselves first in line to secure constrained inventory and capacity at alternate sites,” says a recent article from Harvard Business Review. Experts seem to agree that the COVID-19 and its implications are a wake-up call for supply chain management.

Supply network mapping is crucial – even if expensive

As with most significant business decisions, the outright cost is often one of the biggest obstacles for a company to overcome. Comprehensively mapping out a supply network is costly, both financially and in labor hours. Nor is it an easy process, which is daunting for many industry players, despite knowing the advantages. A potential mapping strategy, as suggested by HBR, is to look closely at the bill of materials and focus on critical components. Starting with the top five products by revenue and working down to component suppliers and their suppliers all the way down to the raw material level. The goal is to drill down through as many tiers as possible, as there may be “hidden critical suppliers” that the purchasers are unaware of. Having a comprehensive understanding of the supply network helps to ensure supply chain continuity.

Understanding the logistics network helps to ensure continuity

Knowing all levels of the logistics network and achieving visibility throughout the supply chain can provide alternative solutions for optimizing inventory at various locations in the event of a major disruption. But with so many stakeholders, so many different players in even the shortest of logistics networks, how can cargo owners ensure that quality runs through every aspect of their transportation function? Supply chain visibility driven by data can shine a light on what’s happening across all parts of a complex network of suppliers and linked stakeholders. Arviem’s supply chain visibility services is one example of how data can help in better understanding the logistics and supply network.

Procurement strategies need to shift to ensure revenue-assurance

While it might be a bit short-sighted, most procurement functions aim to find the right materials at the lowest cost. With the disruption, this means that procurement had to resort to drastic measures to ensure timely arrival of supplies such as expediting or paying premium prices for materials. However, that added cost is then ascribed to other functions of the business. Logistics picks up the tab for any expedited deliveries, while finance has to cover the added material cost. This is an issue that is nott just specific to the pandemic, but a general lack of in-house communication.If procurement, logistics, and supply chain financing would come together and talk about the key gaps in their operations, they can develop a strategy to protect the business from a disruption in the future.

Resilience should be a determining factor when choosing a supplier

Perhaps one of the biggest issues that companies face when trying to strengthen their supply chain is that they do nott consider resilience when they are considering suppliers. It does not fall neatly into the industry-standard metric and, let us be honest; most people don’t tend to consider the worst-case scenario until they’re already in the thick of it. “When selecting a supplier and writing the initial contract, many leading companies already include terms that require the supplier to participate annually in its supply-chain mapping efforts” HBR recommends. “ This is helping resilience; when force majeure events like the current pandemic strike, those supply maps can be used as a roadmap to solutions to the crisis. (Suppliers in China made more than 3,000 force majeure declarations during the first few months of the COVID-19 crisis.) Contracts should also spell out expected recovery times and methods during such events.”

Companies learning from the crisis and investing in proactively managing their supply chains will be the winners in the long run

In the end, this pandemic will ultimately sort companies into two categories. The hopefuls, who will sit and watch and hope that something like this never happens again; and the proactive, who will begin to look at how they can modernize their supply chain and protect them from future disruptions. COVID-19 has highlighted the need for real-time data, for cargo monitoring, and digital solutions, as well as general overhauling of the supply chain as a whole.  Arviem is here to help those who are ready to take the next step towards modernizing and digitizing their supply chains with the help of real-time data.

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