Companies globally are being forced to redesign their supply chain amid the Covid-19 outbreak and the emergence of a “new normal.” A new report by the World Economic Forum (WEF) and Kearney identifies five distinct strategies being followed.
Underlying all five strategies is a shift in priorities away from cost-competitiveness towards risk-competitiveness. Covid-19 was the last straw in an increasingly risky global business environment, characterized by rising political tension and increasingly frequent natural disasters. Here is how businesses are developing their risk resilience.
Adopting the overall supply chain set-up
Structural changes are key to minimizing supply chain risk. According to Kearney and WEF, businesses are making three changes to their supply chain setup. The first is an increase of sources, with multi-sourcing providing consistency and backups in case disruption occurs in any link in the supply chain.
Second, companies are going for simplicity. By focusing their supply chains on select regions, businesses can strengthen their grip on operations and significantly reduce complexities. The third change follows directly as the logical next step, and involves the localisation of supply chains. By using local suppliers, businesses minimize “exposure to global trade flow disruptions, allow for lower safety stocks, and decrease exposure to strongly increasing transportation costs in case of disruptions,” according to the report.
Doubling down on investments in advanced manufacturing technologies
The tech side of supply chain management is considerably more complex. As pointed out in the report, there are myriad applications utilizing an array of emerging technology, including artificial intelligence, Internet of Things (IoT), data analytics and cloud technology – which can be overwhelming. For clarity’s sake, it’s important for supply chain needs to drive tech investments, and not vice-versa, and there are four priorities that businesses should focus on.
For starters, firms need an overview of their complex and expansive supply chains, particularly in the face of unprecedented disruptions. They need to know which parts of the supply chain fall within risk areas, and what action they can take to mitigate the risk. IoT and AI can be tremendously useful tools to this end.
Once risk areas have been identified, it’s decision making time, which is where data analytics technology plays a key role. Large quantities of data available on supply chains can offer critical insight on what areas of a supply chain need the most attention. AI can also be of value here, although Kearney acknowledges that such technology remains in its nascent stages.
“The application of AI/complex algorithms which identify patterns in large samples to make predictions is still at the very beginning. It exists to predict certain demand trends or changes in prices, but is not yet broadly leveraged to, for example, proactively identify and manage risk,” the report notes.
Another priority is agility in operations, where 3D printing and other tech is already playing a central role. Lastly, businesses should integrate automation into their supply chains, which can make the entire production process more agile, flexible, and error-free.
Adjusting the operating model
While the changes described above all entail a degree of adjustment to operating models, Kearney suggests that a more fundamental change needs to be made to people, processes, organizations, and technology. Whether at the recruitment and skill development stage, or at the organizational setup and tech investment phase of a business, principles of agility and risk management must remain at the heart of growth.
Redefining external relationships
The scale and intensity of the Covid-19 crisis has bred an unprecedented level of cooperation across businesses, sectors, and borders. According to the Kearney and WEF report, this scenario could be a foundation for highly lucrative trade relations in the future.
For instance, a better relationship with suppliers could ensure a degree of quality and price stability in the long term. Building such a relationship would involve supporting suppliers that are having a tough time during the crisis, while collaboration among businesses could be the cornerstone for partnerships in the future. Mergers and acquisition activity (M&A) will also get a leg up in this scenario.
Reviewing and challenging the portfolio
The last thing to consider for businesses, according to the report, is the efficiency of their current product portfolio. Many businesses sell several variants of each product, which can lead to a highly complex supply chain when considering the number of products in their portfolio. In many cases, these variants don’t add much value either. In a bid to reduce supply chain complexity, the report suggests that businesses work on consolidating their portfolios and focusing on value-adding segments.
There will no doubt be sizeable barriers to each of these supply chain innovations. In fact, Kearney found that less than 10% of executives anticipate no challenges. That being said, these developments could prove crucial in maintaining business continuity in an increasingly risky market going forward.