The strategic takeaways from COVID-19 on supply chain management

When the coronavirus pandemic first started in China at the beginning of the year, supply chains around the world were quickly affected as the country closed factories, halted transportation and locked down its borders. As the world’s largest manufacturing country, companies across the globe were in for a rude awakening, now seeing what happens when it relies too heavily on one source.

“A challenge and takeaway from the coronavirus pandemic is that supply chain management is strategic. That was being established with e-commerce and how Amazon dominated with order-delivery velocity driven by supply chain management. And, in addition to its strategic importance, its criticality was clearly defined,” said Tom Craig, an independent supply chain and logistics consultant.

As a result, companies were faced with needing to update their supply chain strategy. Ensuring that their businesses wouldn’t get caught in another supply chain standstill.

Supply chains must become more diverse

What many companies realized quickly was that not having a diversity of supply was detrimental to their operations. As a result, diversifying the supply chain has become key for the future.

“As the virus spread rapidly around the globe and countries began shutting down at various times and in varying phases, production halted, which resulted in shortages of products for a period of time, making it more important than ever for businesses to diversify their sourcing and refrain from having all of their eggs in one basket,” said Ken Weygand, Solutions Architect at Aptean.

Axis Communications employs a “second sourcing” strategy, which ensures that it has alternative suppliers for essential components, often based in different countries, and that they can keep supply to manufacturing centers in place.

“We also keep a ‘safety stock’ of essential components ourselves, and also have a number of agreements with distributors to do the same, meaning that we never run low on essential components,” explained Per Ädelroth, Chief Supply Chain Officer at Axis Communications.

Ulrika Magnusson, Global Supply Chain Director at Axis Communications, further explained that the company has adjusted its strategy for configuration centers where previously a single product line was typically configured in a single center, now multiple centers have been established and geared up to configure the same product lines. By implementing these different measures, the company mitigates against the risk of disruption due to specific local issues.

Need to better balance supply and demand

In addition to focusing on protective measure for employees and operational issues, companies must ensure the post-pandemic ramp-up will be as smooth as possible. However, anticipating fluctuations in consumer demand is amongst the biggest supply chain management challenges for businesses today, and has only been made more difficult by the pandemic.

“The coronavirus crisis has mercilessly exposed deficiencies in demand planning, sourcing strategies — such as offshore vs. onshore, single vs. multiple, etc., sales and production planning, and supply chain organization and transparency at many companies,” said Christian Wibbe, Member of the Management Board at Miebach Consulting.

Weygand also pointed out that with economies slowing and shutting down, there were less inbound vessels and containers going to the U.S., creating the slowed supply of goods and difficulty keeping up with demand.

“It’s no surprise that demand is fluctuating rapidly these days, and will continue for the foreseeable future. As physical stores and restaurants shuttered, businesses selling into brick-and-mortar retailers saw demand come to a screeching halt, but online saw the opposite, with home accessory sales seeming to skyrocket during quarantine,” Weygand said.

This is why it is important to skillfully balance supply and demand by means of appropriate planning (e.g., procurement, transport, production, sales planning, etc.), which may include setting up buffer stores for critical end product components.

Wibbe pointed out that companies with more mature sales and operations planning (S&OP) processes, corresponding safety stocks in the network and an overall transparency have predominantly proven to be much more robust. Furthermore, much more emphasis will have to be placed on this aspect in the future, which means that supply chain management is likely to play an even greater and more strategic role than ever before.