Supply Chain Lessons from Covid-19 Time to Refocus on Resilience

Supply Chain Lessons from Covid-19: Time to Refocus on Resilience

Arthur Lobelle Posted 03 June 2020

For the very first time in history, a third of the world population has been in lockdown due to the Covid-19 crisis. This has caused major disruptions in the global supply chain network. Furthermore, these disruptions are expected to increase in frequency and magnitude. For instance, due to the fact that natural disasters will increasingly occur due to global warming. Geo-political conflicts such as the recent trade war between the US and China or the Brexit provide additional examples of similar sources of supply chain disruptions.

During the last decades, Supply Chain teams were under a constant pressure to minimize inventories and cut costs. Figure 1 is showing the worldwide dependency on China as “the world’s factory” caused by a never-ending hunt for the lowest price. The major impact that COVID-19 is having should as a consequence not come by surprise. Many companies were not fully aware of the vulnerability of their supply chain until this point in time.

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All over the world, borders have been closing and production was ceased or al least interrupted. COVID-19 has revealed that a well-balanced Supply Chain strategy is the excellent partner to minimize risk in a complex environment. Proactive companies already anticipated to situations like these years ago and invested in a resilient supply chain network. The economies of scale to produce for example one million items a year in one giant plant, do not offset the marginal cost increase of operating in two large plants producing each 500.000 items a year. In other words, the resilience obtained by operating in two smaller plants is more valuable today than the cost savings of producing in only one plant.

Now what does it mean for companies to create resilient supply chains? In the article referenced below, four capabilities to become resilient are listed.

  1. Network agility: Setting up alternative manufacturing sites and qualifying backup suppliers to be able to react quickly to disruptions. Spread the dependency to multiple suppliers.
  2. Digital collaboration: Developing collaborative platforms to allow smooth exchange of information with suppliers. In stressed times, companies require immediate and reliable information.
  3. Rapid generation of insights: Using the available information to make the right decisions. Management teams should install the appropriate tools to propose risk-based scenarios.
  4. Decentralized teams: Empowering local teams can help tremendously to react quickly to market changes and build the necessary capabilities for difficult times.

Flexible supply chain networks help companies to better meet customer’s demand, yielding an important competitive advantage. The smaller operating plants and teams are easier to pivot to new market trends. Furthermore, research is showing that investing in a resilient supply chain is helping companies to increase inventory turns, improve perfect order rate and customer satisfaction. Advanced analytics also help companies to invest in strategic buffers throughout the supply chain and cut the needless inventory.

COVID-19 has severely impacted companies around the world. The question is which companies will have turned this crisis into an opportunity to prepare themselves for disruptions yet to come.

At MODIS, our experienced supply chain consultants and managers can help you to prepare your supply chain for the future.

Arthur Lobelle,
Business Consultant Life Sciences


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