Hurricane Katrina, the Eyjafjallajokull volcano, floods in Thailand, the L.A. and Long Beach Port strike, the 2018 carbon dioxide shortage, pirate attacks off the coast of Somalia, the possible impact of a chaotic Brexit, the SARS and MERS pandemics, the Fukushima nuclear meltdown and disruption from US-China tariff disputes. No matter how sophisticated their systems or risk planning, supply managers have repeatedly faced the critical challenge of recovering from significant disruptions.
When faced with processes whose consequences are extreme in breadth and depth, it is no wonder that organisations - private and public, are left scrambling to catch up. Supply chain 1.01 tells us to think in systemic terms, that disruptions can cause the so-called bullwhip effect, shocks spreading out in ever greater magnitude across first, second, and third tiers.And yet, despite all this experience, this time it feels different.
Why is COVID-19 different?
This is a truly pervasive disruption, creating correlated risk events in both the upstream and downstream supply chain, coupled with political events. Upstream shocks continue to create delays, supplier bankruptcies or cash flow problems, slower production cycles due to social distancing measures, clogged logistics routes.
Downstream we have seen rapidly shifting demand patterns in a range of settings. Why was it that supermarkets initially ran out of products, like toilet rolls and soaps? Consider the example of flour. Here a well-established supply system faced a switch, almost overnight, from operating two channels, essentially B2B and B2C, to one B2C. In other words, stock was available but not in the right place.
Now consider the response, any decision a firm takes, to change production facilities, packaging lines, or distribution structures will likely be very expensive and yet, once restaurants, bakeries and food service firms, start operating normally, they will once again need large sacks of flour and consumer demand for smaller quantities will drop back down. How, whether and when firms should adapt in the face of what may be an extended but still temporary shift creates many strategic dilemmas.
Politics is also playing a greater role than ever, both in its direct impact on production guidelines, but also influencing production location decisions. Similarly, internal politics start to play a role - buyers will be living with the consequences of their treatment of suppliers for many years to come and in some cases the media have been quick to call out what they believe constitutes good and bad practice.
Three strategies for supply chain resilience
Much of the standard advice for improving supply chains resilience still holds even in more extreme situations:
Adopt a wider supply network perspective. If you don’t already do it consider supplier mapping; locations, age of the firm, parts mix and inventory levels. The greater the supply chain visibility the more information you have and the more effectively you can respond. Consider going beyond the first tier to suppliers-suppliers, and their suppliers, past and potential suppliers, and so on.
Amplify and accelerate good practice. From standardisation to modular design to postponing the point of product differentiation, various best practice strategies for handling demand fluctuations under normal circumstances can also be extremely helpful with supply chain re-configuration in the face of severe disruption. Likewise, although single sourcing can seem attractive - greater commercial leverage, potential for deep relationships - it can create problems for managing normal and severe demand fluctuations.
Focus on your logistics strategy. COVID-19 has affected the overall velocity of the supply chain. In the electronics sector, PCB and other systems manufacturers have become a noticeable bottleneck, they have stock available but no way to deliver. To avoid stopping operations when disruptions occur, a flexible logistics strategy that can access multiple modes of transportation may prove an invaluable capability. Consider the resilience of South Africa Brewery’s legendary distribution infrastructure. Products are reliably distributed across Africa, including for example, more than 30,000 licensed traders in South Africa itself, using a logistics capability that is both wide and efficient, via independent owner-drivers.
Beyond best practice
However, the current situation is different precisely because there is no simple roadmap to recovery. The above approaches work best for mitigating events that effect a specific region of the world, or a particular supplier, but they are likely to be less effective in the face of globally correlated shocks. Consequently, we would also recommend managers develop and maintain decision architectures that will help them navigate the myriad options that emerge when, at times, it seems like supply chains are being rebuilt from scratch. Times of crisis are an opportunity to create lasting change - don’t forget the changes you were considering before COVID-19 - but what are the guiding principles that will help you shape your future? We suggest two questions should feature in every conversation.
What can we simplify? Technology will inevitably be part of the mix, but beware of pursuing what is fashionable over what is effective. Many decisions are made harder than they should be because of a lack of clarity in thinking created by having too many options to consider.
What won’t we shortcut? We have already seen numerous examples of improper supplier selection practice leading to decisions that have not held up to scrutiny. How do you want your organisation and function to be remembered after the crisis? This is an opportunity to demonstrate the value creating role that procurement and supply chains can establish.
The future of supply chain
Although today, in the midst of a global crisis, everyone can see the benefits of resilient supply systems with robust recovery options. But what happens when you have disbanded the war rooms, stopped monitoring real-time data and lost the attention of the rest of the C-suite? Over time, the costs of implementing some of these insurance premiums may begin to seem a bit high. This is the ultimate challenge for any strategic purchasing and supply leader, to articulate the competitive value of their supply chain. While disruptions are never easy to deal with, these trying times require, more than ever, a combined approach between buyers, suppliers and governments around the world, to help us cope with current and future disruptions and function as stimulus to more innovative ways of working.
About the authors
Professor Michael Lewis is Professor in Operations and Supply Management at the University of Bath School of Management. His current research interests include the management of complex business relationships, contracts and major projects. Follow him on Twitter @OpsProf.
Professor Brian Squire is Deputy Dean at University of Bath School of Management. His research is broadly concerned with the design and management of operations and supply chains for resilience, innovation and sustainability.
