5 ways to strengthen vulnerable supply chains in the pandemic era
At the height of country-wide restrictions during the 2020 coronavirus pandemic, when consumers started panic buying, Kellogg's business unit in Australia and New Zealand was pumping out cereals, muesli bars, and snacks from its warehouses and working closely with its retail partners Coles and Woolworths to ensure it had visibility of stock levels.
At the same time, Kellogg's supply of Pringles from its plant in Malaysia faced some capacity challenges due to government directives.
The pandemic highlighted what supply chain experts have been warning companies about for years: A disruption can happen anywhere, and supply and demand can be buffeted thousands of miles away.
"We set up a twice-a-week meeting at the height of the pandemic, with myself, the managing director of the business, the sales director, and the manufacturing director," said Shanaka Wijesuriya, FCMA, CGMA, the CFO and planning and logistics director of Kellogg's ANZ. "We worked through priority stock-keeping units to see how we would reschedule production so we could meet demand on a dynamic basis."
"Now, that's not ideal under supply chain best practices, because you ideally want to fix scheduling a month in advance," Wijesuriya said. "You want to make sure line time is well understood. Obviously, chopping and changing is not how you should run efficient manufacturing process — but you do what is required at the time. The plant responded really well," he said.
5 ways to improve logistics, procurement, and supply chains
A recent World Trade Organization (WTO) assessment said supply chain disruption often happens locally — through hurricanes, tsunamis, or other economic disruptions. The radical difference with this pandemic is how disruption has globalised. The WTO suggested companies manage this by making "risk-versus-economic efficiency" calculations. Companies should also:
Use automation in warehouses. Kellogg's houses and distributes its cereal products and snacks from a warehouse and distribution centre in Sydney's southeast, operated with its logistics provider Linfox. After cereal boxes are made and stacked on pallets, they travel over an airbridge into an automated warehouse, where robots remove stock from the pallets and place them into containers. From there, the products are delivered to major Australian supermarkets, such as Woolworths and Coles.
Automation can be critical in labour-intensive operations when social-distancing rules are tightened.
Get serious with supplier location. An Economist Intelligence Unit (EIU) report on supply chain risks predicts companies and industries will move towards regional — rather than global — supply chains. But companies need to understand a supplier's headquarters is often not its production location, as Richard Wilding, a supply chain strategy expert and professor at Cranfield University in the UK, explains.
"I was talking to a major engineering company recently, who had tri-sourced products," Wilding said. "They found three different suppliers and they thought that was good. It turned out they were all based in one town. They hadn't picked up on that. When the town got locked down, the whole supply chain got locked down again. To procure for resilience, think differently about the information you've traditionally taken for granted."
Explore onshoring and nearshoring. Building better visibility and resilience into supply chains may see companies move from offshoring and cost-saving, a World Economic Forum analysis suggests. In fact, a recent Bank of America survey of more than 3,000 global companies found many were planning to shift supply chains from current locations, even before the pandemic.
"Onshoring and nearshoring may reduce potential risks of extended supply chains which are prone to disruption," said Goh Puay Guan, a supply chain expert and associate professor at the National University of Singapore. "We now have global operations and products with components from all over the world. Companies have to look strategically at how to position their supply chains for different products and components, rather than a one-size-fits-all approach."
If you can't on-shore, try near-shoring, Wilding suggested. But if the capability you need is still not so "near," multi-shore, so if one area of the world is disrupted or locked down, you have other options.
Protect key relationships. Supply chains have long been just-in-time, and a past focus on efficiency has created transactional relationships between companies, suppliers, and sub-suppliers.
"Many people don't manage relationships," Wilding said. "If you think about managing inventory, they will have performance metrics, they will have even warehouses to store it. They'll have information systems to do it and everything else. When it comes to relationships, it's done in an ad hoc basis, nobody monitors, and then they wonder why everything goes wrong,"
Recruit and train good people. Kellogg's was fortunate to have experienced operators who managed the recent pandemic disruptions coolly, Wijesuriya said. "Our absenteeism actually went to zero, which helped. Usually with any plant or any factory, you have certain levels [of absences]," he said. "We have a great crew in our operations and supply chain team who really stepped up and helped the business to navigate the challenges that we faced during the pandemic."
Talented people will always be a key piece of the supply chain puzzle, said Hermione Parsons, director for the Centre for Supply Chain and Logistics at Deakin University in Australia. "The most important issue here is talent, capability, and capacity," Parsons said. "In successful supply chain countries — such as Germany, the Netherlands, and France — supply chain education receives government scholarships and has for decades. Those countries understand supply chains underpin economic activity in every walk of life."
Avoid the costs of inaction
Still, the supply chain challenge is sizable. Australasian Supply Chain Institute President Alexandra Riha, speaking at a recent conference of the Committee for the Economic Development of Australia, explained that the pandemic has shown every country is interlinked.
"The most curious thing about the COVID-19 crisis is our lack of visibility, and we are facing this at all sides," she said. "On the supply side we don't know how suppliers or sub-suppliers are affected. We don't know how customer demand is evolving, and freight difficulties mean we don't always know how to serve the customer best."
Goh from NUS said diversification and business continuity measures may increase costs for companies at first. But doing nothing may be far more expensive in the long term. "The costs of inaction could come from lost sales or liability claims if supply chains are disrupted and companies do not make sufficient preparations."
— Luke O'Neill is a freelance writer based in Australia. To comment on this article or to suggest an idea for another article, contact Sabine Vollmer, an FM magazine senior editor, at Sabine.Vollmer@aicpa-cima.com.