Dynamic Supply Chains in Uncertain Times
While supply chain disruption and volatility is not new, it appears to have hit home with the general public due to the current impact on people’s daily lives.
In the past, some lessons have been learnt from disruption of key suppliers upstream, such as after the Japanese tsunami or US hurricane impacts, and this is particularly evident in the automobile manufacturing industry. Large firms invested in Supply Chain Mapping and data analytics to assess disruption predictability and visibility of impacts on their supply chains. However, even with these resources, some automobile manufacturers were still impacted by Covid-19’s disruption on their key suppliers, causing a suspension in their own production; and this was also true across many other sectors and organisations.
Initial thoughts and discussion focused on shortening supply chains and potentially arguing for the onshoring and shifting of manufacturing closer to home. Shorter supply chains, it was argued, may be more agile, quicker to respond, and perceived as being less exposed to risk. But as disruption spread beyond Asia, recognition grew that single location-based sourcing – not only in Asia but in Europe and the USA – was also an issue.
Information about the geographic location of suppliers is critical. Procurement is a key element of supply chain management, and it is upstream/supplier focused. However, procurement is traditionally measured by cost control/reduction. The current operating environment may become a stimulus to challenge the status quo; with organisations embracing a more comprehensive supply chain management approach that is focused downstream on customer demand as well as upstream on suppliers.
As lockdowns were initiated, many organisations did look downstream, to volatility in customer demand. That sent a shockwave along supply chains; from significant increases seen in supermarket goods or PPE, to significant falls in demand for other sectors such as aircraft manufacturing and oil. While consumer behaviour increased demand at supermarkets, it wasn’t just evidenced as a sudden increase in demand for food; the transportation capacity to move products was also key.
Agility has come into focus with regard to responsiveness and resilience in dynamic supply chains. But this usually comes with a cost, which can be contrasted with low probability events. Over the past numerous decades many organisations embraced lean principles and focused on efficiency, stripping out waste; but by doing so they have not ensured capacity in the system to address volatility. Will we now see a change in tack?
Possibly a dual supply chain strategy will now emerge. To aid in dealing with volatility in consumer demand some organisations have adopted a Leagile approach, (Lean upstream with suppliers, and postponing uniqueness of products to end customer). However, risks upstream with suppliers will require more than this: resilience planning not only by the Original Equipment Manufacturers, but also by their key suppliers. Supply chain strategies are under discussion and possible changes include having a combined approach of nearshoring and offshoring to increase responsiveness and mitigate single location sourcing risks.
Considering the current mass impact on supply chains, the focus on analytics and intelligence is likely to increase significantly. Organisations should now focus on their supply chains to consider how to redesign them in order to mitigate risk and vulnerability, but this also begs the question how much of a supply chain can you actually design? Consider a complex product such as a car, which has thousands of components and suppliers from around the globe; designing a supply chain from cradle to grave (or circular) is practically impossible. Supply Chain Management should then be strategically focused, embedding resilience monitoring and indexing into the procurement and SCM approaches, rather than being primarily focused on cost.
While large organisations, who may be considered supply chain champions or supply chain dominant, have resources and specialism in this field, how can small and medium-sized enterprises (SMEs) manage in such environments? The challenge is likely to result in an increased demand for SCM expertise and professionals who can stimulate a shift toward SCM culture; further diffusion of data analytics and visibility; and the further embedding of SCM principles into a wider range of organisations.
Dr Eoin Plant-O’Toole, Associate Professor