Natural disasters and international trade disputes have disrupted supply chains in the past, but most experts agree the coronavirus pandemic has dealt an unprecedented blow.
In a survey by Harvard Business Review Analytics Services, 95% of business leaders said their companies have experienced disruption to strategic sourcing and supplier management processes during the pandemic. The survey, conducted in the fall, included 198 leaders in a range of industries including manufacturing, financial services, and technology.
Tough lessons learned about managing supply chains in a crisis can help companies emerge stronger post-coronavirus, experts say. And they can help executives prepare for the next big disruption.
Here are some factors to keep in mind.
Make data easily accessible
Digitising supplier data is a top priority in 2021, according to the Harvard Business Review Analytics survey.
But how the data is digitised is important. It should be organised in a way that companies can easily access information such as inventory levels and business continuity metrics, Adam Andolina, chief procurement manager at KeyBank in the US, said during a recent webinar about the survey’s findings.
“I think what the crisis called out for us is that, while we are doing many of the most important aspects of supplier management, we’re doing it across multiple systems and parts of the business and don’t necessarily have a way to bring it all together in real time,” Andolina said.
In the survey, the vast majority of respondents said cloud-based systems are the future of effectively managing suppliers.
“In a crisis, the last thing you have time for or where you don’t want to spend your time and effort is manual communication and simply pulling the data together,” he said.
Diversify and be transparent
Don’t put all your eggs in one basket, advised Rajitha Kariyawasan, FCMA, CGMA, managing director of Haycarb PLC, a global supplier of coconut shell-activated carbon.
When COVID-19 cases spiked in Sri Lanka, Haycarb was forced to shut down its factories there for about two weeks, Kariyawasan said. So the company shifted part of its work temporarily to sites in Indonesia and Thailand.
“When Indonesia was there afterwards hit by COVID, we had to scale down operations to about 70%, and Sri Lanka and Thailand took the load,” he said.
It’s also important to have transparency into the supply chain, beyond just the suppliers you buy from directly, said Ed Barriball, a partner at McKinsey & Co., a global business consulting firm.
For example, he said, a company that makes palm oils might want to track its product all the way back to the fields where the crops are grown.
“It helps to understand where companies are exposed to potential risks,” Barriball said.
More issues typically arise further down the supply chain, he said, in the second or third tiers.
A company might think it has diverse suppliers, Barriball said, but “all of those suppliers might buy from the same tier 2 or tier 3 suppliers”.
Go against the norm in some cases
It might be time to rethink how much inventory you have on hand.
Before the pandemic, Haycarb had a policy of keeping at least a three-month supply of charcoal in case bad weather caused a shortage, Kariyawasan said.
That’s more than what business experts would typically suggest, he said, but the practice proved helpful in 2020.
“Holding that inventory was very, very useful because otherwise we would have run out of the material and run out of our product,” he said. “Holding that inventory also gave us better confidence.”
Companies must consider what makes sense for them in terms of increasing or decreasing inventory of certain products, Barriball said.
After a major tsunami hit Japan in 2011, he said, the automotive industry decided to increase its inventory of some car parts. The pharmaceutical industry stocked up on some products when Hurricane Maria struck Puerto Rico in 2017, disrupting the supply chain.
“It’s a little bit of smart inventory strategy,” Barriball said.
Put a bigger focus on supply chain management
More than 39% of business executives in the Harvard Business Review Analytics survey said supplier management was not part of their business continuity plan.
That’s a problem moving forward, experts say.
“I think the weaknesses that we’re seeing are because that supply chain strategy was not planned at a high enough level with enough true strategic mindset integrated with the supplier community,” Brian Peters, senior director of procurement at Gilead Sciences, a biopharmaceutical company based in California, said during the webinar. “I bet you have a lot of business leaders seriously conscious now about supply chain as a core business strategy.”
Ultimately, Barriball said, “you’ve got to find a way to measure and quantify resilience”. To do that, companies must analyse their exposure and their suppliers’ exposure to risk and make any necessary adjustments.
Barriball said companies can then ask and answer the most important question: “What do I have, and when will it be coming in?”
“Because the supply chain in itself is a means to an end, it can be overlooked,” said Keith Russell, finance director for Gist, a UK-based supply chain company. But, he added, “If it goes wrong, it could cause severe problems.”
Relationships are key to an efficient network, from delivery drivers to IT, according to Russell.
“If we operate in partnership with customers,” he said, “then on a day-to-day basis, a month-to-month basis, or on a longer outlook, we can help and support their objectives and priorities and make supply chain part of their decision-making process and part of their solution.”
— Sarah Nagem is a freelance writer based in the US. To comment on this article or to suggest an idea for another article, contact Neil Amato, an FM magazine senior editor, at Neil.Amato@aicpa-cima.com.