By Proxima

05 May 2020

Proxima considers some of the steps to restoring supply chains as the world recovers from COVID-19 

Four months ago, life seemed relatively healthy in the business world. There were the 'usual' and the 'usual unusual' challenges going on, but nothing outside of the norm. Finance leaders were overall more optimistic than 12 months earlier, and a substantial majority were expecting to make strategic investments in 2020, despite forecasting a recession. It was not all plain sailing for supply chain leaders, who were keeping a close eye on Brexit and US/China relations but on the whole, most businesses were optimistic. And then came the curveball.  

This global pandemic has changed the world beyond recognition. Many argue that by default or by design, we will never return to "the way it was" or even close. You might agree or disagree with that , but either way the pandemic has challenged our thinking and created different visions of our collective future. While we are not yet clear on when this ends, it will come to an end. The world will continue to rebuild itself with supply chains being key to global success. 

But what will they need to look like?

Will businesses redevelop supply chain strategies to meet the challenge of the 'new normal'?  

Different thinking is emerging, which is not surprising as there are many competing forces at work when considering what to do next. There are those that say that the pandemic is a once in a generation event and that therefore we can and should rebuild as was. Others seek to reverse years of lean, just-in-time thinking to build more physical resilience into their supplier chains. Some seek to succeed through leaner, more agile and adaptable supply chains. 

When facing unknowns, who is to say that any of these is not the right answer? In fact, it may be that a combination of these is correct, depending on the business. The common "new world challenge" for UK supply chain professionals is how do they build a commercially viable supply chain that minimises risk and gives them the adaptability to face into the 'usual challenges' and pandemics, Brexit and tariff wars. 

Commercial departments will be working closely with supply chain businesses to ensure the timely flow of goods. But these are not normal times. This article considers some of the steps to start thinking about now when getting ready to reshape and reboot.

Step one - Ask yourself some straight questions

Firstly, it is important to look back over the last six weeks to put your supplier relationships in context. With hindsight, do you have the right suppliers? This is not about whether they are capable, it’s more about the relationship: how did they work with/support you the pandemic? When the going got tough, how did it feel to be their customer? Of course, you may have got the treatment that you deserved. 

Looking back, is your segmentation right? Were you putting your energies into the right places given what we know now? In most cases, you will get, what you give; if you take a strategic service, and treat the supplier tactically, you will get tactical back. Suppliers want to gravitate to partners. Amid the pandemic, and as we accelerate out, it is going to be important to be a 'customer of choice'; having good relationships with suppliers is going to be vital in achieving speed, agility, and correct levels of service.

Step two - Markets have changed, time to check in on your suppliers 

Work on the assumption that everything has changed in your supply base and supply chain. Every organisation will have disruption to cope with; it could be staffing, liquidity, lack of, or even an explosion of demand.  With this in mind have you assessed your domestic haulers and freight forwarders recently? This is a low-margin industry, which has seen a sudden and dramatic shift in the volume and type of goods handled. Do you understand how your suppliers themselves have reacted to the crisis? Are they financially viable? Can you rely on the capacity you have traditionally been able to? Or are capacity issues driving up price? There has never been a more important time to know your suppliers.

Step three – See if your sourcing strategies need a reboot (they will)

Many organisations have taken great care and investment to shape highly efficient, low cost, just-in-time supply chains. But few have visibility or manage beyond the prime vendor. The pandemic brings this strategy into question. That is not to say it is always wrong, but sourcing strategies need to be reviewed factoring in risk, resilience, and mark changes. Does this mean setting up shadow supply chains, does it mean going more local? Perhaps. 

Supply chain managers need to figure out how to identify risks but keep commercial tension within the supply chain. Given that today's supply chains have often been engineered to be low cost, resilience may come at a price. It is going to be important to embed risk-adjusted thinking and pricing models into our decision making.

Step four- Start thinking about the (risk-adjusted) cost to serve

In the commercial world it is still surprising how few buy and manage according to the full cost to serve. Many buy in spot markets, on the cheapest price, in the belief that they are achieving a certain margin, without factoring in the true supply chain cost. An example of this might be stockpiling of goods (PPE for example) considering only the purchase price rather than the full lifecycle cost of procuring, holding, distributing, and disposing of the stock.

In the new world there is an added dimension which is producing and understanding risk-adjusted costing, which means factoring in the financial implications of a risk occurring when looking at cost to serve. As we emerge from the pandemic, the lowest cost to service might propose an unacceptable risk level, whereas the optimal risk solution might lead to unsustainable costs. Balanced decisions need to be made.

Step five – Think about how you will manage short term cost spikes

When consumers are ready, willing, and able to spend freely there is likely to be a race on to service their demand. This means that organisations should start thinking about 3PL storage needs and commitments now. When the pandemic hit, contractual commitments in many instances became fluid. Supply chain leaders should be thinking about checking theirs quickly, assessing contracted volumes and getting close to providers to see where they are, what challenges they face and how ready they are to ramp up demand.

The UK market has a substantial shortage of warehouse space now, and this is only going to be made worse by the pandemic and Brexit, so locking in space commitment is critical for the short and medium-term. Over the last few weeks some organisations had demand explosions, whereas others saw complete capitulations in demand. 3PL providers had to hunt for their customers and will gravitate towards those that can offer the most demand, the best commitments and liquidity. 

Step six - Ensure seamless alignment between commercial and operational thinking

Commercial and Operational teams are often misaligned at the best of times. But, since speed and good decision making are at a premium, it is time to ensure that they are working 'hand in glove'. An oft-cited 'benefit' of the pandemic is the forming of 'crisis teams': cross-functional groups who meet regularly to steer businesses through the challenges faced. This should continue through ramp-up as the operating environments continue to be volatile, and speed and flexibility are key. Now is the time for commercial and operational teams to work with one seamless approach, understanding how they affect and interact and getting the best for the business.

Step 7 – Think about the human factor and the digital opportunity

Flexibility and resilience can be given a huge boost through automation, but many warehouses still have a sizeable dependency on manual labour to operate. They may also have the added complication of implementing some additional hygiene and social distancing measures in the short term.

Labour markets themselves are unclear now. While there are large numbers of people not working, the nature of furlough probably means that the supply and demand balance will not be clear for some weeks to come. This may be further influenced by how any reduced access to the European labour market plays out now, and as Brexit re-emerges. Supply chain managers need to be thinking about workforce strategy now, as well as scenario planning against various demand levels and staffing scenarios. The worst outcome would be being unable to act at the speed and scale that the market demands. 

Now is a great time to be thinking about forcing through business change, and so the thinking should start now around accelerating automation. While a significant capital expenditure, it may deliver on resilience, flexibility, and productivity.

It will come down to who is ready to act first

The key to shaping a new resilient supply chain is a strong supporting supplier base, with partners pulling in the same direction to achieve common goals. In what will be a highly challenging and competitive market, switching that supply base on will not happen overnight. A cohesive team on internal and external resources working together to solve common challenges and achieve common goals is going to be much stronger, faster, and more agile than a traditional parent-child relationship. Plenty to think about, lots to achieve.  

Click here to learn more about Proxima’s Capability on Demand service – bringing trained commercial professionals into your organisation to help keep procurement functions, businesses and supply chains moving.

Or click here to read their report – Resourcing challenges in government commercial. 

Read the most recent articles written by Proxima - Why COVID-19 doesn’t mean that developing at pace needs to grind to a halt…


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