Due to the enormous impact of the coronavirus pandemic on global supply chains, many companies are struggling to keep themselves ticking over. Many suppliers are no longer reliable because they themselves are struggling with staff shortages, liquidity gaps or blocked warehouses. Added to this are the difficulties that affect many associated service providers, for example in logistics. The risk of supply chain breaks has therefore increased dramatically. So, how to avoid them?
Supply chains must become more flexible, stable, and robust
The development just mentioned has also revealed the high susceptibility of complex supply chains to breakdowns. Although individual industries such as the food industry, agricultural and harvest machinery manufacturers or hardware stores have so far come through the crisis comparatively well, supply chains must be designed to be more robust and resilient in the future. To this end, supply chains must at least be partially rebuilt in order to function stably in the crisis situation as well as to be prepared for the new normality after the pandemic. After all, experience has shown that supply chains face the greatest challenges when business volume picks up again after an exceptional situation.
In general, it is important to understand the changed customer behaviour, to avoid single sourcing strategies and to shorten and stabilise supply chains by strongly focusing on local, regional, or European suppliers. Decisive benchmarks are:
- the number of suppliers,
- the mix of suppliers,
- and the strategic importance of certain materials or commodities.
In addition, metrics such as time-to-recover, i.e. the period from the failure of a supplier to its replacement, or time-to-survive, i.e. the quantity of materials held in stock to keep production running, are also important.
Strong measures for improved supply chain resilience
A methodical procedure with these four key aspects is suitable for the necessary adjustments:
- Risk Analyses: Many supply chains must be quickly reactivated after the crisis. However, you will have to examine to what extent they should be replaced, at least to some degree, by other, less risky alternatives. Above all, this applies to defining your supplier mix in terms of quantity and countries of origin. Furthermore, the relationship between warehousing and just-in-time delivery should be considered.
However, the desired higher level of security and stability of supply chains will in many cases have to be weighed against higher costs. Instead of building up additional safety stocks, it is, therefore, more important to distribute existing stocks sensibly in order to avoid increased capital commitment in economically critical times. In addition, companies should consider the use of intelligent forecasting and optimization systems for inventory management to balance delivery capabilities and stock levels.
- Plans for emergency scenarios: As early as 2013, the German government presented a risk assessment for an emergency scenario caused by a SARS pandemic. Other countries may have developed similar concepts. Nevertheless, both here and there most companies’ supply chains were not prepared for such a scenario. Thus, it is now at the latest that strategic plans for dealing with economic crises or other emergency situations should be drawn up, so that supply chains can be robust and resilient. In particular, the aim is to pinpoint possible reaction options and to define sourcing alternatives.
- Sourcing Strategies: Based on the aforementioned risk analysis and on the derived emergency plans, it is necessary to determine the concrete design of a supply chain. The most important points here are the diversification of the supplier base, the avoidance of geographical dependencies, the handling of inventories and the allocation of stocks, and even possible alterations to the company’s own depth of value creation.
- Cooperation: The current crisis has shown that soft factors such as mutual support are also important and beneficial. The exchange of materials and employees, the understanding of interdependence, increased transparency, and the disclosure and transfer of data beyond company walls ensure increased stability in supply chains, which benefits everyone. This lesson has been learnt in many industries and should be increasingly used as an integral part of supply chain design in the future.
Beyond supply chain optimization, we should also develop new solutions for resilience management in supply networks. One example are cooperation platforms that allow companies, for example, to act as virtual central warehouses and share information about their inventories. In this way, cooperation can be organized on an overarching basis and made operationally useful through technological support.