The bitter China–United States trade war might actually have helped organizations prepare for the COVID-19 pandemic.
When the world’s two largest economies decided to impose tariffs on hundreds of billions of dollars’ worth of one another's goods, corporations were pressed to consider alternative supply chain management constructs.
LevaData recently sat down (in a virtual, COVID-19-friendly manner) with a group of Chief Supply Chain Officers (CSCOs) from some of the worlds most renowned high-tech electronics and manufacturing companies. We wanted to understand how their respective organizations had managed to move from triage to transformation during the first phase of the pandemic, while building resiliency and agility for the future.
One fact is beyond doubt: COVID-19 disrupted supply chains like few crises have before. It exposed supply chain vulnerabilities of many organizations, especially those that operate or have business relationships in China and other impacted geographies.
Wuhan, the Chinese province where the COVID-19 outbreak is reported to have originated, is highly industrialized and plays an important role as a manufacturing hub for numerous Fortune 500 firms. Many of the organizations we spoke with were however already actively rethinking their supply chains long before the pandemic, especially those with a high dependence on China to fulfil their need for raw materials or finished products. While tariffs are often quoted as one of the main factors for such exit strategies, there are several other concerns as well, related to intellectual property and security, prompting organizations to reconsider China.
Keeping the lights on
A decades-long lean manufacturing effort focused on minimizing costs, reducing inventories, and driving up asset utilization had removed buffers and flexibility to absorb disruptions. When the pandemic hit, much of this needed to be unraveled, and quickly. The lack of visibility beyond the first tiers made their efforts unmistakably challenging as supply chain management teams started reacting to the disruptions caused by COVID-19. One of the first challenges was to gauge supply chain impacts and to find leverage without reliable forecasts, while everyone else was trying to lock in inventory. Beyond securing their own supply and business continuity, teams even found themselves helping to facilitate their suppliers’ transition to a work-from-home environment in order to maintain production. For those organizations who had already reduced their dependency on China, many had moved production to Malaysia. While the COVID-19 outbreak in Wuhan served as a precursor, the shutdown of Malaysia followed shortly. The counter measure became moving inventory out of these regions but also leveraged local manufacturing capacity to dual source.
As teams witnessed forecasted demand from traditional brick and mortar plummet, demand started to surge via on-line channels and agility became the sustenance to offset the lack of predictability. Initially the cost of airfreight could be passed on to the customer because of scarcity, but once the airlines started to close down, airfreight was no longer an option. The trade war had only caused financial implications affecting cost of goods, the main question for supply chain teams during the pandemic became what do you do when you can’t get it at all?
Never let a good crisis go to waste
In many ways, the pandemic exposed patterns and flaws in our supply chains which historically could be circumvented by securing alternative sources or expediting freight already in motion. For most organizations, the pandemic highlighted the importance of efficient supply chain management and it earned the supply chain function a seat at the leadership table. Attention was brought to cost of distance and the importance to compress time instead of just squeezing out inefficiencies. Leadership teams are consequently not just reconsidering their reliance on China or monolithic reliance on any geographical regions. It also accelerated inchoate transformation decisions to shorten supply chains and move some production closer to consumers in EU and US. Those with their own manufacturing capacity are moreover looking at increasing production redundancy between production locations to secure core products.
How to play the new game
Supply chains are in dire need of de-risking and will need to take a cluster-based transformation approach per key region focusing on network optimization. Most organizations are already busy reexamining their supply chain constructs, and many have created risk and resiliency think tanks identifying, and eradicating, points of failures. Without the ability to travel, people have generally become more productive and are subsequently coming up with more improvement initiatives. Some of the companies we spoke with, even pledged to leverage AR/VR technology moving forward to reduce time-consuming physical factory visits. Compared to most historic supply chain disruptions, during the COVID-19 pandemic, the manufacturing infrastructure remained intact while workers were being sent home. This highlighted the reliance on, and cost of, labor inside the supply chain and new strides will be taken towards optimization and automation.
About the Cognitive Supply Chain Management Executive Roundtable
Each quarter, LevaData hosts intimate roundtable discussions featuring a mix of thought leaders and Chief Supply Chain Officers (CSCOs) from global manufacturing organizations. Each roundtable is focused on a pressing issue that impacts the ability of these CSCOs to push their businesses forward and include discussions on where emerging technologies may be helpful in overcoming these challenges. To ensure these events generate candid discussions and opportunities to share experiences, they are not recorded, and the participants are largely anonymous. To continue this important conversation beyond this event however, we have captured highlights and key insights from our discussions above.
If you’re a CSCO that would like to join this community to share your experience and learn from your peers, we’d love to have you, reach out today.
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