Businesses have always worked toward building a resilient supply chain, but the scenario imposed by COVID-19 has exposed a lot of supply chain gaps and supply chain processes and also impacted digitalization and digital technologies. It’s tragic to see businesses reeling under this pressure in the digital space and major supply chain processes succumbing to these adverse supply chain planning conditions. However, the situation has allowed businesses to take a pause and look back at the supply chain planning decisions that were earlier taken. They can afford to course correct and build a more comprehensive business foundation via a more robust and adaptable supply chain with the help of digital technologies and, consequently, a holistic digitalization. Many supply chain methodologies have been incorporated in enterprises in one form or the other, but it now requires a rethink owing to the ongoing paradigm shift.
This blog post will try to bring forth some of the implications that have risen because of traditional supply chains concepts and some potential mitigation factors that can be recommended going forward.
Consolidation– To reduce cost and improve utilization, supply chain leaders have believed in consolidation and these groupings tend to occur by market area or scheduled deliveries. This step was taken almost at all nodes and levels for aggregation purposes. Consolidation, which has traditionally been a supply chain strength, has posed challenges during this pandemic because of limited redundancy. The present situation has made organizations realize that putting all eggs in the same basket is not a wise option. It might seem lucrative from a cost optimization perspective, but supply chain strategists and leaders must think of other novel ways to deal with unforeseen scenarios.
Economies of Scale– To gain a competitive edge, businesses have adopted economies of scale for decades to lower the production cost. However, over a period of time, organizations were compelled to run their factories at maximum capacity owing to intense competition. During this pandemic, factories in less affected geographies could have filled in for factories that were under lockdown, but businesses realized that they cannot scale up any further. Economies of scale, one of the important levers in normal circumstances, proved to be disadvantageous during the pandemic.
Just-in-time– Just-in-time (JIT) is a widely used concept where production greatly depends on ‘pull’ rather than the traditional ‘push’ factor. This gave businesses the ability to maneuver tight timelines, but it also necessitated sophisticated supply chain planning to make it work. By implementing JIT, companies were able to run with very low inventory levels and hence were able to drive significant cost efficiency. But during the pandemic, JIT’s philosophy of limited inventory proved to be detrimental for many companies.
In-transit inventory– This practice reduces warehouse space and the cost associated with it. During COVID-19, however, in-transit inventory has led to inventory immobilization owing to lockdown measures. There has been congestion of hubs and gateways and most of the lanes have gone static. As of now, there is high variability in demand patterns depending on the pandemic footprint across geographies. So, dependence on in-transit inventory is becoming a real challenge for companies. In the near future, this criteria should also be taken into account while deciding on the right sizing of inventory.
After discussing implications of some common supply chain methodologies and philosophies, we will now look at different ways in which these challenges can be mitigated.
Right shoring– Organizations should invest in diversifying their supplier or manufacturing base to different geographies. In difficult or unforeseen situations, they would then have more options to tackle unexpected demand. But this is a strategic and long-term decision and businesses must follow proper due diligence before embarking on this journey of enabling a digital manufacturing base. A lot would also depend upon the adoption of digital technologies to drive greater visibility and improved decision-making.
Rebuffering– Maintaining the right amount of inventory balance has always been critical in supply chain planning. With ideas like JIT or Kanban, enterprises have traditionally been able to achieve greater efficiency but in pandemic situations theses don’t always work. They might have to bring in a rule where the inventory is kept for 45 days or so, depending on the criticality. Any COVID-like situation generally leaves very less time to react and that is why it becomes imperative for organizations to be prepared as these scenarios have surfaced more than once in the last two decades.
Quick Response Supply Chain– Whenever there is a global disruption, supply chain resiliency starts gaining momentum, but it subsides as things come back to normal. More than a resilient supply chain, the effort should on achieving quick response supply chain. In fact, companies should build a quick response team that is specially prepared to handle any disruptive situation and it should be backed by adequate investments. Such supply chain resiliency can be one of the criteria for companies to do business. For instance, OEMs should check if the suppliers adhere to their quick response practice before including them in the bidding process.
Adopting Digital Tools and Technologies– Any mitigation effort cannot be complete without laying out the plan for digital adoption. Digital tools are already making quite an impact on supply chain processes and techniques and will continue to grow in stature in coming years. For instance, suppliers will have to invest in digital tools like RPAs and BOTs to allow collaboration with minimal human intervention. Data analytics and AI can quickly help identify supply material sources and fulfill the demand-supply gap and advanced analytics can enable quick response teams to better prepare for unforeseen pandemics. With digital manufacturing, clients involved in contract manufacturing can approve a prototype before actual production without even requiring to visit factories physically. They will be able to carry on with quality checks and ascertain if the supplier is capable of meeting product demand.
There’s enough evidence to suggest that digital is going to be a game changer for any pandemic mitigation effort. In these last few months, digitalization has made everyone realize that businesses that were embracing digital tools and technologies, in one form or the other, were better prepared than the ones that were slow or lethargic in digital adoption. Digital space is the catalyst that will help drive new ideas for supply chains to survive and eventually thrive in the post-pandemic world.