Managing the supply chain used to be something for the middle and back office. Not anymore, now it’s at the top of every Board agenda. According to our recent CEO Outlook COVID-19 pulse survey, CEOs see supply chain risk as the greatest threat to growth over the next three years – excluding the pandemic itself.
As CEOs consider how to map a route through the disruption caused by the pandemic, many are having to fundamentally reassess how they operate. Decisions that were valid in a pre-COVID world, no longer stack up. That’s especially true for the supply chain. For example, organisations are now reassessing decisions made over the last few years to create an agile supply chain operation that can be flexible and robust to minimise risk.
92% of UK CEOs responding to our pulse survey said that the disruptive impact of the pandemic has forced them to rethink their global supply chain approach. That was the highest percentage across all countries surveyed, and well ahead of the global average of 67%. UK CEO’s responses are likely coloured by their concerns over Brexit. Over the past couple of weeks, it doesn’t feel like we’ve come any closer to reaching a deal – quite possibly the opposite. The best we can probably hope for is a ‘skinny’ deal – and even that’s going to hurt. There’s going to be friction and disruption to supply chains no matter what.
A shift of focus – from cost to resilience
It’s clear that supply chains are facing a myriad of risks. There’s the financial – liquidity of businesses and their suppliers. There’s location – the threats from natural disasters, political upheaval and weak and unstable infrastructure. There are workforce risks – there’s an aging population and key skills are in short supply. And there’ll undoubtedly be more disruption in the form of changes to tax, employment law and customs regimes.
With so much disruption now and more to come, the focus needs to be on building more resilient supply chains. We’re likely to see a shift in the trade-off between cost and risk. Companies will start to take a more forward-looking approach. Supply chain decisions will focus much more on how to mitigate the effects of future disruption – although with companies hit financially by the pandemic, there’ll clearly also still be a remit to manage costs.
To reduce risk and increase resilience, many companies are aggressively looking to shorten their supply chains and gain much greater visibility. This move is also a reaction to customer demands. The top two reasons given by UK CEOs for rethinking their global supply chains were “pressure from customers and communities to bring production closer to home” and “to become more agile in response to changing customer needs”. Reputation, speed to market and customer satisfaction remain key differentiators.
Implementing a resilient supply chain
So, what are the key steps in rethinking your supply chain? How do you deliver a supply chain that’s resilient and can adapt to changing customer needs?
Here are three areas we think you should focus on.
Using advanced analytics to give greater visibility
Visibility is key, and managing the known known. As supply chains have been linked to the deployment of efficient order processing ERP’s, visibility has been arguably lost, thus the ability to manage and flex your operations has been abdicated. Which of our suppliers are critical? Do we know who our second-tier suppliers are? What’s the lowest spend supplier that could stop our operation? Do we know our supply routes and have we explored alternatives? Have we re-evaluated our inventory positions? Is our demand data for forecasting still relevant?
These are some of the key questions CEOs need to be asking about their supply chains. Many aren’t going to be happy with the answers they receive.
Building resilience starts with a thorough understanding of supplier, customer and product risks. The implementation of automated supply chain analytics can provide a real-time view of any supply issues. For a better picture of demand, companies can use advanced analytics to adjust sales figures against broader trends. From here, it’s possible to implement resilience-driven KPIs and focus actions on high-risk areas. Companies can better allocate capacity based on customer needs, availability of parts and realistic production efficiency. And they can adapt quickly when customer needs change.
Accelerating digital transformation
The ability to access accurate, real-time data will require many businesses to accelerate their digital transformation. That’s already happening. 48% of UK CEOs say the pandemic has “sharply accelerated digitisation of operations, putting us years in advance of where we expected to be”.
There are a host of digital technologies that can help businesses improve supply chain resilience and meet customer needs. For example, deploying supply chain planning tools utilising the Cloud, refreshing decision making through the ‘Internet of Things’ (IoT) sensor combined with advanced analytics can provide clear visibility of product location and condition. That means any issues in transit can be addressed quickly. It also provides traceability for the purposes of calculating tax and customs duties, and meeting customers’ demands for ethically sourced products. Let’s remember all supply chains will have to report on ESG in the short future.
Digital transformation offers other benefits too that can help improve supply chain resilience. Smart warehouses can identify the optimum way of storing products and enable real-time inventory plans. Predictive maintenance helps minimise downtime of key machinery. And additive manufacturing can help address issues of inflexible production and provide on-demand fulfilment.
Companies will need to think through what greater automation means for the skills they require in their workforce. It’s likely that data science skills will be in high demand.
For procurement, the focus will stay on managing cost through optimal digital sourcing and buying decisions. But that needs to be balanced carefully with risk. For some, that will mean identifying near-shore or secondary sourcing locations to shorten supply chains and increase proximity to customers. Where key suppliers are in financial peril, some businesses are considering upfront payments to help them stay afloat. To provide supply stability, others have provided low-interest loans to suppliers that need support. We’re working with a number of companies to help them re-evaluate contract SLAs and align these with readiness.
Automating procurement can help businesses harvest more value. At the most basic level, companies can automate the many manual, repetitive tasks that take up a large percentage of employees’ time. By automating rules-based tasks such as verifying information, requesting additional information and completing spreadsheets, businesses can free up procurement professionals’ time to focus on strategy. More sophisticated systems can spot patterns in spend and operations data that humans might miss and inform better decisions on supplier management – effectively augmenting the skills of procurement strategists.
Ultimately, success in a post-COVID world will be about recovering better and faster than the competition. Your supply chain is the no.1 risk in achieving that goal.