Strengthening today’s supply chains for tomorrow

Ever since the World Health Organization (WHO) declared the global COVID-19 outbreak a pandemic on March 11, nearly every country has been hard-pressed to contain the spread of the coronavirus.

The global economic turmoil caused by the rapid spread of COVID-19 has significantly impacted businesses and industries — in particular, their supply chains. Many companies were shut down while others had to ramp up to deal with panic-buying of essential goods. Many companies struggled to read and plan for demand, with panic-buying and inadequate supply altering consumer buying behaviors and patterns.

Manufacturers in Luzon also struggled to maintain staffing and output under social distancing and the enhanced community quarantine (ECQ) rules. Many enterprises experienced the disruption of their distribution and logistics due to the resulting lockdown. These conditions were experienced by all companies, from small third-tier suppliers to billion-dollar conglomerates, with the likelihood that many will not recover for years to come.

The lockdown struck various industries, but not all to the same extent. Industries such as automotive, tourism, consumer goods, electronics and retail in particular have been profoundly affected by the ECQ. Car manufacturers, for example, had to shut down their factories due to their suppliers’ inability to deliver critical components. While there are efforts to revisit and identify new suppliers, preventive measures such as maintaining multi-tier relationships with vendors and alternative providers could have helped companies minimize the impact and maintain a minimal level of utilization or productivity in their manufacturing lines.

The tourism sector was also severely affected with the government expecting roughly 30,000 to 60,000 jobs lost due to travel restrictions. Consumer goods firms, on the other hand, have had to modify their demand forecasting because prior sales history is no longer an effective predictor of future sales considering the abrupt market shift. Retail companies have also had to revisit their omnichannel strategy, as the demand shifts to online purchases from bricks and mortar stores which were shuttered by the lockdown, or, even if still open, affected by social distancing rules.

Business leaders must take bold action to manage their supply chains, and they must realize that understanding and planning for disruption is more critical than ever. How business leaders combat the current disruption will have a direct follow-on effect on their companies’ performance. This challenges business leaders to provide well-thought-out and agile solutions for their current supply chain while avoiding any adverse impact on their future supply chain.

Based on the developments from this pandemic, coupled with learnings from past disruptive events, this article lists key considerations to help companies build a resilient supply chain.

END-TO-END SUPPLY CHAIN RISK ASSESSMENTS
As companies address the new normal, proactive engagement and strategic partnerships with supply chain ecosystem partners are vital. Regular checks must identify changing demand and inventory levels to locate critical gaps in supply, production capacity, warehousing and transportation. These should then be further synthesized to create an outcome-driven resiliency strategy with the aim of efficiently and effectively leveraging additional networks within the pool of production and distribution networks of various suppliers. A real-time supply chain risk intelligence system should also be in place to provide early warning in case of potential and pervasive disruption to the supply chain.

ROBUST RISK MANAGEMENT AND DIVERSIFIED SUPPLIER NETWORK
Enterprises should map out supply chain networks from end consumers to tier-N suppliers. Firms should establish a methodology to measure risk for each supply chain node/arc-like channel, warehouse, factory, supplier, or transportation mode.

DIGITAL AND AUTOMATED MANUFACTURING CAPABILITY
Several manufacturers are now looking at leveraging automation and Internet of Things (IoT) solutions for smart manufacturing operations to mitigate reliance on labor-intensive processes. While companies in the Philippines tend to take advantage of low labor costs, manufacturers should balance labor and manufacturing productivity needs in case of disruption. A strong manufacturing excellence program enabled by digital technology can allow the standardization of daily work and job aids, relieving the pressure of relying on specific individuals to maintain operational performance. IoT capabilities can help foster a digital ecosystem of connected systems providing users with relevant and updated data to make the most informed decision at any given time. Automated manufacturing capabilities will also enable a company to run a manufacturing operation using interchangeable personnel while reducing labor requirements.

EVALUATE AND ADJUST PROCUREMENT CATEGORY STRATEGIC PRIORITIES
Procurement should be transformed into a value-generation function through timely reviews and adjustments to category strategic priorities, defining new business relationships with suppliers to meet the company’s overall supply chain objectives. An agile procurement operations system enabled by various technologies and factoring in category strategic priorities across variables such as cost, quality, delivery, innovation, etc. will also help drive resiliency. Companies can introduce digital procurement technologies to benefit from supplier social networks. Implementing such networks in sourcing and in supplier lifecycle management can strengthen sourcing capability and collaboration under challenging circumstances.

MORE COLLABORATIVE AND AGILE PLANNING AND FULFILLMENT CAPABILITY
The art-of-possible concept today in technologies that can bring more agility and collaboration within the enterprise as well as across business partners is endless. IoT devices for demand sensing and goods movement tracking to advanced forecasting solutions and social media demand behavior monitoring are heavily impacting how companies understand demand signals and how quickly they can react to them. These capabilities are extremely important for business performance even in normal business conditions and they increase the supply chain resilience during challenging events like the pandemic.

BUILDING A RESILIENT SUPPLY CHAIN
The pandemic has inevitably caused disruption in all sectors, with various degrees of impact. Through the chaos of recovery, it will be very easy to overlook the root causes and gaps within a supply chain that may have paralyzed businesses during this unprecedented global event. However, it is time for companies to rapidly assess, recover, and respond quickly through numerous obstacles and challenges that remain, as building towards a resilient supply chain will be at the epicenter of future discussions for years to come.

This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.

Maria Kathrina S. Macaisa is a Partner from the Performance Improvement Service Line of SGV & Co.