As businesses strive to move on to a post-pandemic scope of operations, many have an entirely new perspective on supply chains.
The pandemic caused extensive disruptions. Among the 1,000 largest US companies, 94% reported supply chain disruptions in the past year and 75% reported negative business outcomes, according to an
Accenture report. Nearly all of about 400 supply chain and procurement experts in the US, UK, and Europe surveyed by the Economic Intelligence Unit (EIU) said their businesses were affected by the pandemic, 45% of them significantly. About two-thirds of respondents in the EIU survey said supply chain disruptions during the pandemic lowered revenue 6% to 20% compared with the previous year.
Many companies have provisions in place to manage supply chain disruptions, but the pandemic wreaked havoc quickly across industries and globally. Also, companies had already been dealing with the impact of major commodity price fluctuations, tariffs, and Brexit. Add the pandemic, and many struggled to design supply chains that are both resilient and efficient.
Most resiliency plans were little more than documents and conversations that were “pulled out of a drawer” when crisis struck, said Louisa Hosegood, FCMA, CGMA, digital and strategy director at Bis Henderson Consulting in the UK.
That mindset is now changing. “Resiliency can no longer be just a reaction when a crisis happens. It needs to be built into the supply chain as part of the organisational DNA and part of every decision that we make,” Hosegood said.
4 basics that build resiliency in the supply chain
Building resiliency in supply chains is about more than planning. It's about thinking differently and adapting systems and processes that enable the organisation to pivot quickly when needed, Hosegood said.
Here are four ways CFOs can help build resiliency in the supply chain:
Think modularly. While organisations have typically led supply chains as siloed operations in a single unit, they should now consider how various components of the supply chain operate within the business. Supply chain leaders also need to think modularly about their supply chain systems and operations rather than see everything as a “wall-to-wall, super everything solution,” Hosegood said.
For example, having disparate systems optimised for each channel may enable an organisation to more easily pivot its business.
Brands that had the greatest success in the early part of the pandemic were those that were able to quickly adjust sourcing or fulfilment, Hosegood said. “Having building blocks that you can use modularly not only gives you cash resilience but a greater ability to pivot than if you had all of your eggs in one basket.”
Be flexible. Flexibility is key to dealing with supply chain disruptions, says Shanaka Wijesuriya, FCMA, CGMA, FCPA (Australia), the CFO of Kellogg’s in Australia and New Zealand, who also heads up planning and end-to-end logistics. In the early days of the pandemic, many consumer packaged goods faced panic buying, sourcing disruption, and even transportation challenges. Kellogg’s had to increase safety stock, adjust shipping routes, and even air freighted a shipment to one customer to get it there on time.
Supply chain leaders need good metrics to support flexibility, says Aiden Goddard, FCMA, CGMA, vice-general manager and CFO at Kärcher Investment China in China’s Jiangsu province. Goddard started increasing the frequency and details of forecasting, moving to every month at a stock-keeping-unit level and then comparing that to actual sales to improve the accuracy of the forecasts.
“If your supply chain metrics are working well and have a higher level of forecast accuracy, you will have more built-in resilience,” Goddard said.
Collaborate. CFOs should resist the temptation to operate the supply chain in a silo and instead “share” supply chain problems and solutions with internal stakeholders and external partners, Hosegood said. This could include risk-sharing agreements or joint continuity plans that enable shifting production or materials from one plant to another.
For example, more than half of original equipment manufacturers in the past year started looking to manufacturing partners for risk mitigation and flexibility, according to a survey of more than 700 supply chain decision-makers commissioned by Jabil, a US-based manufacturing services company.
Collaborative transportation agreements can also help. Kellogg’s outsources operational logistics from warehousing all the way through to delivery. Wijesuriya has taken a closer look at partners to have more conversations about resiliency and performance in challenging times.
Even a minor dip in partner performance can have a significant effect downstream, Wijesuriya said. “Even just a percentage point can be critical,” he said. “If a retailer expects you to deliver 98% of everything on time and we have 96%, that’s not where the target needs to be.”
Understand how the supply chain drives the business. Having a clearer vision of how the supply chain supports the business's overall mission can also help organisations respond to disruption and crisis, Hosegood says.
For example, a McKinsey study estimated that production of 16% to 26% of global trade, worth $2.9 trillion to $4.6 trillion, could move across borders in the medium term. This could involve some combination of reverting to domestic production, nearshoring, and shifting to different offshore locations.
"It’s really about having that holistic understanding of how the supply chains impact all areas of the business to make the right decisions quickly," Hosegood said.
Finally, many organisations are investing in more technologies to increase visibility and predictive analytics. About half of those surveyed by Jabil said they are looking to visualisation applications, risk management technologies, and advanced and demand planning.
“We found our systems and processes were great for when times were normal, but when things stepped up, we needed more investment in visibility into the total supply chain. We’re getting better with automation,” Wijesuriya said.
— Craig Guillot is a freelance writer based in the US. 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.