More than two years since the world was affected by the COVID-19 virus, supply chain continuity problems continue to occur. There are frequent reports of late deliveries, delayed production, and blocked shipping ports. Such problems are a result of inefficiencies that operations are now exposing.
The massive impact of the virus has given organizations’ heads and supply chain experts lots to think about. They must plan for a future to have better outcomes than the events that unfolded since 2020.
To be clear, the pandemic is still not over; what with the Omicron variant now threatening a higher rate of infection than the previous ones? Many integral building units are still short at the production stage or not delivered to the processing plants.
Shipments of various consumer items are still several months late. One famous example is the Toyota Land Cruiser’s delivery time, which has a verified 4-year waiting period.
This blog will review the changes that organizations have experienced in their supply chain due to the pandemic. Keep reading to learn how industry leaders plan to create an effective counter-strategy.
The need for greater visibility
According to a survey conducted by Ernst & Young LLP US, improving visibility across the supply chain is the top priority among businesses (61% of respondents). In fact, it will remain one of the top three priorities of manufacturers through the next 3 years.
What has brought on such a demand for visibility?
McKinsey’s survey of the global supply chain efficiency answers this question quite well. Manufacturers created extensive and untraceable procurement cycles in a time of prosperity. Resultantly, manufacturers had taken several critical production items for granted. They assumed these items would always be there until they weren’t.
According to McKinsey;
Only 2 percent of the manufacturers had visibility into their suppliers beyond the second tier.
An example to elaborate the gravity of this situation is the automobile industry. Their response to one particular problem has been below par. Multiple manufacturers installed a microchip into their cars (particularly SUV models), which was a central monitoring unit.
The pandemic affected the manufacturing and supply of this microchip. There was a single supplier for several automobile manufacturers. This meant a year and a half long delays for each of these automobile companies, with no alternative in place.
Therefore, businesses are developing infrastructure to have the required visibility at all tiers of their supply chain. They are working on continuity and contingencies in case of failure, even if it is improbable. Organizations are gearing up by building resilience in their supply chain. They believe this resilience will form on the back of improved transparency and accountability measures.
Top Management’s concern for supply chain continuity
The C-suite has brought its attention to supply chain matters, and with that, there are new strategies in play among Fortune 500 companies and other big players. CEOs identified supply chain disorder as one of the biggest threats to growth in 2021.
- To give some perspective to this, they ranked it as a more significant threat than the pandemic itself, war, and other geopolitical instabilities.
This means that upper management will now share more well-thought-out plans with the supply chain managers to implement. Chief Supply Chain Officers will play a prominent role in strategizing and reinventing supply chain intricacies.
One apparent fallout of the pandemic and the halting of the supply chain is that heads of manufacturing companies seek to reduce over-reliance on China by diversifying their supplier base. So far, the favorites still lie in the Asian region, as India has emerged to be a suitable alternative to China when it comes to manufacturing parts.
To summarize, the gears have finally started turning to try and innovate manufacturing supply chain practices that are better suited to avoid disruptions and become more sustainable. This reimagining of the supply chain is also a good opportunity for businesses to evaluate models to significantly reduce their carbon footprint and positively impact local and global economies.
Investment in supply chain continuity
The contemporary trends in other facets of every manufacturing company are now finally going to be incorporated into the supply chain. According to EY’s survey, 52% of top-level executives are moving towards an autonomous supply chain by 2025. A majority, 64%, of respondents also believe that digital transformation within supply chain processes will be fast-tracked due to the pandemic.
Innovation in supply chain processes is integral as trends like driverless cars and energy-efficient practices will lead to more sustainable supply chains. This has been a long-term goal but required the right push for businesses to act upon it.
Sustainability can be a competitive advantage as zero waste translates to lower costs during the manufacturing process. Mobile phone manufacturers have attempted to lower their carbon footprint by not including power adapters in the phone packaging.
All flagship phones of the top 90% of market shareholders are adopting this trend.
Organizations must increase investment in their supply chain continuity to innovate and make it a key differentiator and competitive advantage. They can do this by creating an end-to-end supply chain across procurement, manufacturing, and other sectors like planning and logistics.
Evolving relationships between suppliers and buyers
The impact that reliable suppliers have had on end manufacturers is a critical realization. Buyers must treat suppliers with respect and not use pressure tactics to continue manufacturing. Experts have observed that long-term contracts are a way of creating trust between the two parties. Suppliers will feel more comfortable expanding their own setup and planning for future needs if manufacturers give them assurances for business.
On the other hand, manufacturers also need to reevaluate the priorities upon which they are contracting suppliers. Both McKinsey and EY US concluded from their surveys that transparency and open communication was key to success in buyer-supplier relations.
The forthcoming trend which could make this transparency possible is incorporating blockchain technology to maintain true anonymity and security of trade secrets.
Suppliers also need to understand that competition is healthy and that buyers need multiple alternatives in case of a failure to meet demand. Alternative supplier networks have proven to be popular among global manufacturers.
One example is Samsung which has diversified its smartphone processors varying according to regions as one supplier could not meet the demands up to a reliable degree.
Creating contingencies for blockades and failures
It is pertinent for manufacturers to have backup plans, which the pandemic has now finally forced them to bring into action. Examples of these contingencies are businesses buying their own warehouses in situations of shortage of storage space.
Alternative ocean vessels and exploring air routes have also been noticeable trends when delivery and forwarding operations have been delayed.
Amazon has quickly advanced its logistical capabilities throughout the pandemic by increasing warehouse deployment across the regions they are serving and introducing air freight for their own products and an outsourcing option for other businesses.
They have taken up so much of the logistic services in their own hands that they now pose a threat to logistic giants such as Maersk and CMA CGM.
The upcoming trend is top-level management issuing directives for warehouse optimization and SKU rationalization. With these strategies manufacturers hope to make the supply chain less costly and sustainable. This will be their primary objective as they become partly self-reliant when it comes to storage and shipping operations.
Industry leaders are expected to implement chain segmentation to take more control and have greater visibility in the supply chain continuity, enabling them to reduce the working capital amount. Thus, by reducing working capital, they will achieve lower risk.
The decline of just-in-time production
Experts at Forbes have predicted that “the love affair with just-in-time- manufacturing may be over.” While the process was known for its incredible efficiency and responsiveness, the reliance on JIT production has led to manufacturers’ inability to predict and prepare for unforeseen circumstances.
The reason for this unpreparedness is that the JIT production method is purely reactive. It cannot be adjusted into a hybrid system that accommodates production based on estimates.
Instead, Forbes informs us, the manufacturers are now reverting to an older production process. Many know it as vertical integration. Manufacturers can control their supply chain effectively with this method while preparing for the worst.
It also relieves the pressure building up on suppliers. They can provide parts beforehand instead of instantaneously catering to volatile demand from the buyers.
The core idea here is what we started with in the first place; redefining supply chain strategy. The redefinition process will include renegotiating contracts with suppliers to suit the altered production processes, planning procurement details with the updated global environment, and reassessing which supply chain components to outsource and which to continue in-house.
Currently, C-suite, middle-management, and supply chain experts are all reacting to the effects of COVID-19 on the global supply chain. However, they are also trying to plan ahead for future disruptions.
Economists have predicted that such crises will be more frequent and impactful in the future. The pace at which organizations plan for such disruptions must beat the rate at which such calamities occur.
The primary strategy is digitization and automation of critical functions to reduce human dependency and human error. However, this might not be the safest option. Supply Chain managers and experts must also heed how COVID impacted semiconductor manufacturing.
Semiconductor chips are an integral feature of automated products, and increasing demand in such conditions might actually lead to more problems than solutions.
The more promising trends that manufacturers are taking up are improved visibility and transparency with suppliers. Alongside these, reverting to vertical integration production, and an increased focus on sustainability and reducing carbon footprint also show potential. These measures are sure to positively impact the cost and optimization of their supply chain.