The early days of the pandemic sent shockwaves through global supply chains, affecting nearly every aspect of manufacturing and consumer goods delivery. A perfect storm of factory closures, materials shortages, and unpredictable spikes in consumer demand served as the ultimate stress-test for many manufacturers.
Supply and demand fluctuates, but usually in predictable intervals, such as during the holiday season. But manufacturers typically build some slack into their production cycles to accommodate for those ups and downs. The pandemic, on the other hand, came along so suddenly and was so immediately disruptive that it caught many manufacturers flat-footed. According to recent EY research, 57 percent of US companies experienced serious disruptions, but only 2 percent were actually fully prepared for the pandemic.
The pandemic one of the most significant tests in history of our national supply chain, which has seen an increased reliance on just-in-time manufacturing over the last few decades. Part of this shift has meant a gradual move to products being produced and delivered right where they're needed, right when they were needed, and in just the right quantities, as opposed to warehousing huge stockpiles of inventory. This contributed to some high-profile shortfalls during the spring, like the toilet paper shortage.
We spoke to a few leading supply chain and manufacturing experts to get a pulse on the industry at this state of the pandemic and find out what steps are being taken to better weather the next big disruption.
An Urgent Call for Transformation
With COVID cases spiking across the country, uncertainty still looms large. However, manufacturers are taking some of the lessons learned from the early pandemic days to shore up operations and revamp processes to ensure they're prepared for whatever comes next. Part of that process has involved taking a closer look at every aspect of their supply chain.
"Winning companies are right now focusing on accelerated transformations – they aren't waiting. And they're adopting a 'turnaround mindset' even if they are performing quite well," says David Garfield, Leader of AlixPartners' Americas Business Unit.
"They recognize that the best way to deal with disruptions and uncertainty is to be proactive and to try to get ahead of the curve. They are building resiliency into all aspects of their business – their organizations as well as their operations."
When the pandemic first hit, many manufacturers were finding their way in the dark, trying their best to rebalance supply to meet wild swings in consumer demand, all while simultaneously dealing with materials shortages and ensuring their workers remained safe on the job.
"In the early days there was a need for information pertaining to the pandemic and extrapolating its impact on demand. Now there is demand, though it varies greatly by industry. So companies are determining how to supply the demand given some of the longer term uncertainty as cases rise, lockdowns extend in Europe and the political climate remains volatile," says Shanton Wilcox, US Manufacturing Lead at PA Consulting.
Since then, many companies have moved out of the initial panic stage and have started looking at how revamped processes and a streamlined supply chain can serve as a strategic advantage in a new economic reality.
"Today clients are firmly focused on supply chain efficiency, resiliency, and how the supply chain can be an engine for growth. There is a renewed focus on defining the future of supply chain and what operating model changes and technology investments need to happen to support the future strategy of the company," says Sean Harapko, EY Americas Supply Chain Transformation and Global Supply Chain RPA Lead.
"Most organizations have elevated supply chain to a C level conversation."
Toilet Paper Shortage 2.0 Coming Soon?
When the history books are written on this era, one of the enduring images from the early pandemic days will be the months-long national toilet paper shortage. This was largely kicked off by a huge and unpredictable surge of panic buying, but helped along by just-in-time manufacturing.
"These supply chains can handle spikes up to a point – seasonal changes, big promotions, a new product that really catches on, etc. But those supply chains were really challenged last spring to deal with the short-term impact of widespread consumer hoarding," Garfield says.
Heading into what is widely expected to be a severe winter coronavirus resurgence, state governments have begun reintroducing curfews and business closures. A full lockdown on the scale of last spring seems unlikely for the moment, but if it does eventually happen, is it inevitable we'll see store shelves picked clean of Charmin and Shout Wipes once again?
Not necessarily. In fact manufacturers have been devising strategies on how to avoid such shortfalls no matter how the next several months play out.
"Going forward, one strategy for companies to weather crises such as COVID-19 is to increase their supply chain visibility. Visibility across the supply chain includes capabilities to sense or predict supply and demand, processes for collaboration with suppliers and customers and ways to assess and measure supplier-risk in near real time," says Harapko.
In fact, Harapko notes, a 2019 EY supply chain survey of 500 Americas executives showed that end-to-end visibility was ranked as the top factor in creating a successful supply chain.
Another thing the pandemic highlighted for manufacturers is the importance of building greater resiliency into their supply chains and simplifying things wherever possible.
"This requires deeply analyzing supply bases, internal and external manufacturing capabilities, and the economics of becoming more flexible. Leading manufacturers are right now constructing these models and running scenarios," says AlixPartners' Garfield.
"Another thing that companies can do is reduce complexity. This goes beyond simple product-portfolio rationalizations. It requires a deep understanding of your profitability right down to the individual-product level and even individual-customer level, and then taking actions to streamline your business so it can be more responsive to sudden changes in demand."
What Have We Learned?
The pandemic brought to light many previously unknown vulnerabilities in global supply chains. Companies best positioned to make it through to the other side of this crisis will be the ones who have been most proactive in patching the weak spots, and the least afraid of transformation efforts to boost resiliency. There are business lessons to be learned from the pandemic, and companies avoid applying those lessons to their future operations at their peril.
"Whenever there is a shock to the system, it causes businesses to reexamine some of their assumptions related to industry dynamics, operating models, and financial returns. In addition to greater focus on resiliency and complexity reduction, we're advising clients to renew their focus on stress-testing, and to put even more emphasis on the critical fundamentals of execution and cash management," Garfield says.
Harapko says resiliency goes beyond simply adding capacity or arranging for alternate suppliers, and should also entail things like scenario planning, detecting signals of potential disruption, adopting digital technology, and having the agility to effectively respond to major and sudden market shifts in the event of a crisis. He also says opportunities abound for consultants.
"Many companies will re-think their overall company strategy based on the strength or weakness of the supply chain. Should we be a products company or an R&D company? Build vs. buy? Global vs. local? We see some very strategic opportunities coming out of COVID, including mergers, acquisitions and divestitures and re-imagining the business strategy," says Harapko.
"There has never been more exciting time to be a supply chain professional or consultant."
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.