5 Ways COVID-19 is Transforming Supply Chain Management
The supply shock that started in early 2020 due to COVID-19 and the demand shock that followed exposed vulnerabilities in the supply chains of retailers just about everywhere.
The challenge for companies going forward will be to make their supply chains more resilient without weakening their competitiveness.
Companies can learn from the supply and demand issues they've faced over the last year to transform their supply chains.
1. Uncover the Hidden Risks
COVID-19 has forced many companies to rethink and transform their supply chain. It exposed the vulnerabilities of many organizations, especially those that use single suppliers in one country.
It’s taught businesses that relying on single sourcing as a supply chain strategy exposes a company to the possibility of not being able to get critical supplies in the event of a disaster.
Flexibility is an important reason to consider multiple suppliers. Not only can having multiple suppliers in several different regions or closer to home minimize disruptions going forward, but it can provide competition and an incentive for each supplier to improve cost and service.
2. Identify Vulnerabilities
Finding vulnerabilities within a company’s supply chain is vital in how organizations can manage and reduce risk wherever possible.
The goal of the mapping process should be to categorize suppliers as low, medium or high risk, allowing businesses to put actions in place to rapidly react when something disrupts the chain. It also allows businesses to develop a deeper understanding of identifying where value is added or lost, mitigating the impact of risks ahead of time, strengthening the entire chain, streamline and speed up processes, and discover what affects cash flow, giving an advantage over competitors that lack this vital knowledge.
3. Diversify Your Supply Base
One of the key ways to address heavy dependence on one supply source is to add more sources in locations not vulnerable to the same risks.
Where possible, managers should consider a regional strategy of producing a substantial proportion of key goods within the region they're consumed. For instance, after the cargo ship Ever Given was stuck in the Suez Canal for six days causing a backlog of over 400 vessels waiting, experts predicted the negative impact this disruption caused to supply chains would last for months.
Reducing dependency on one area and diversifying your supply base increases options for order supplies, improving the company's flexibility.
4. Hold Safety Stock
As we’ve seen recently with the coronavirus pandemic, our supply chains are longer and more globalized than ever before, making them more susceptible to disruption and delays. Therefore, if your supplier is unexpectedly closed for a duration of time or delivery is delayed, your buffer stock will help ensure you can still fulfill your customer orders.
However, knowing what stock to hold or not can be the most difficult part. That’s where a third-party analytics solution and better visibility into your supply chain data can help determine when, where and what stock is selling so businesses know how much stock to produce and where to cut their losses.
5. Take Advantage of Process Innovations
As COVID-19 allows companies to re-evaluate their supply chains, it allows them to improve their processes.
There are five areas of the supply chain that can be improved to meet consumers' needs and help businesses save on costs, including designing the product to make it easier to produce, easing the assembly process and product serviceability to improving consistency, reducing costs, and helping minimize its environmental impact throughout its lifestyle.
Nick Schwalbach is director of product management at SPS Commerce, a company that provides cloud-based supply chain management software to retailers, suppliers, third-party logistics providers and partners.
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Nick Schwalbach is Director of Product Management at SPS Commerce, an EDI software company pioneering in retail automation for 20 years.