Corporate leaders and small-business owners alike are taking a hard look at business continuity planning as a result of the coronavirus pandemic, which devastated the global economy in March and continues to rattle the nerves of business leaders up and down the supply chain. Those who run warehouses and distribution centers (DCs) have seen the problem up close and personal, as they deal with the physical challenges of keeping facilities running during a pandemic as well as broader customer service and strategic planning concerns.
Among the biggest changes in continuity planning over the last six months is how companies view the importance of supply chain agility and adaptability, says Shehrina Kamal, product director at Resilience 360, a supply chain risk management software company.
“We are seeing a major shift in mindset,” Kamal explains. “Supply chain agility needs to be a core part of your operations. We’ve seen companies in the past view this as an optional thing, [but] the pandemic has shown us that in a situation like this, anyone with a supply chain agile enough to quickly adapt will survive. We’ve been saying this, and now companies are seeing that it’s really true.”
Kamal cites growing interest in Resilience 360’s technology platform and supply chain risk management tools as evidence of the change, but there have also been several studies that documented respondents’ lack of preparedness for an event of this scale and their resulting need to re-evaluate their risk management strategies. Over the summer, Resilience 360 and the Business Continuity Institute (BCI) published a pandemic-related survey of more than 350 manufacturers that showed that less than half had a plan in place that sufficiently addressed the supply chain issues they encountered with Covid-19. As a result, more than half—53%—said they planned to create a comprehensive pandemic plan and another 32% said they would adapt their current plans to ensure they cover supply chain issues in sufficient depth going forward.
A separate study by Netherlands-based manufacturing services provider 3D Hubs found that roughly 60% of all companies say the pandemic directly disrupted their supply chain. The firm surveyed 1,300 supply chain professionals and included insights from its own database of 36,000 companies and 240 global manufacturing partners for its Supply Chain Resilience Report 2020. The researchers said the Covid-19 pandemic has been the single biggest disruptive event of the past decade.
As companies look for ways to inject agility into their operations, Kamal and other industry experts say they are focusing on improving supply chain visibility and adjusting inventory strategies—all with an eye toward establishing closer collaboration up and down the supply chain.
FOCUSING ON PROCUREMENT AND DEMAND
Although responding to pandemic-related disruptions has been difficult because of the event’s unprecedented scale, experts say the crisis has revealed a few knowledge “gaps” that companies are now scrambling to address.
“Supply chain visibility is the number one gap,” according to Bindiya Vakil, founder and CEO of supply chain risk management technology firm Resilinc. Vakil characterizes the Covid-19 pandemic as the “black swan of black swan events” that has left many companies searching for better strategies for dealing with disruption.
“I’ve been in supply chain risk management for 20 years,” she says. “There are tremendous numbers of disruptions on an ongoing basis—transportation issues, supply capacity problems, allocation, labor strikes—something is always going on. But with Covid, it was like everything happened at the same time and all within a two-month period.”
By late summer, the situation had improved. Large-scale countrywide shutdowns had eased and disruptions became more localized, making it easier for companies to adapt, she explains. But as many sought to rebound from the experience, they realized they had limited insight into their supply chain operations. On the procurement side, for example, she says businesses found they lacked basic information about their suppliers, such as whom to contact when a disruption occurs. As a result, companies are now taking a “non-spend” approach to managing those suppliers—meaning that they view all suppliers as critical, rather than taking a tiered approach that prioritizes those who get the lion’s share of spending.
Collaborative tools and processes can help too, Vakil says, adding that supply chain mapping is gaining traction. This is a process of identifying exactly where your suppliers are located as well as where their suppliers are located. She says digital tools can help companies gather basic supplier data, such as contact information, details on warehouse and factory locations, and insight into leadtimes.
“[Companies] really need to put a strategy in place to know everything about their suppliers,” Vakil explains. She notes that this should ideally be an ongoing process that includes “keeping a close eye on those suppliers, managing them closely, [and] monitoring their locations—so they are fully aware and abreast of any disruptions.”
Companies also need greater insight into customer demand, especially in light of accelerated e-commerce activity over the past six months. This is causing many to take a closer look at demand planning as they rethink their inventory and order fulfillment strategies, explains Sean Laffere, managing director in the supply chain services practice at Alvarez & Marsal, a global management consulting firm. The first step in the process is asking broad questions about how the pandemic has changed the business landscape.
“Companies need to ask: What effects will a post-pandemic world have on my business? Will this change anything? Am I going to have to deliver products faster than before, and what does that mean from an inventory standpoint?” Laffere explains.
Once they have established that, and based on how they answer those questions, company leaders can begin to look at their existing footprint and determine whether or not they need to ship more regionally, for instance.
“We know we will have disruptions, [but the question is] how do we think about it?” Laffere adds, emphasizing the need for a high-level review of a company’s facility network as well its supply base in making those decisions.
Vakil concurs.
“As we emerge from this, a lot of board-level conversations will happen,” she says. “What did we learn? What would we improve? Every company should ask themselves that.”
CHANGING YOUR APPROACH TO INVENTORY
A company’s approach to inventory may be one of the biggest potential changes on the table. The large-scale disruptions many industries faced at the beginning of the pandemic revealed what Vakil describes as a supply chain trend that leaned too much toward a just-in-time (JIT) model in many cases. As companies rethink their processes with an eye toward enhancing agility, expect a shift to a more flexible approach.
“A lot of companies went too far down the lean and JIT [road],” she says, adding that she doesn’t expect companies to start building bigger warehouses and stuffing them with inventory, but rather, to deploy a more nuanced strategy. “[Companies will] bump up a little inventory and bolster that with a supply chain risk program that is rich in visibility and information—so you can sense disruptions and respond to them faster.”
Brian Deffet, vice president of operations for contract logistics service provider DHL Supply Chain, agrees, adding that DHL is seeing its customers starting to look at the length of their supply chains and potentially localizing more inventory by near-shoring, onshoring, or forward-stocking certain items in order to shorten leadtimes. No matter what approach a company takes, he says, flexibility and collaboration are paramount.
“[The pandemic] has shown companies they need to work collaboratively—not only with [their business] partners, but with their internal departments and partners as well,” he says. “This has brought everyone together to pull in the same direction.”
Kamal echoes those concerns and circles back to the importance of agility and the need to be able to react and make decisions “on the fly.”
“What we’ve seen a lot is companies collaborating more with supply chain partners,” she says. “In order to make decisions on the fly, they need more information [and] better information. If there is anything to take away from 2020, it’s that you’ve got to be prepared for black swan events; you have to treat business continuity and risk management [as a matter of topmost] importance. It’s absolutely critical.”
Gartner, Inc.