Comment: Reshaping the supply chain

Now is the time to restructure, re-tool and apply our learnt lessons to supply chain setup, says Nigel Thomas, Head of Aerospace & Defence - Private, Capgemini UK.

The worldwide outbreak of COVID-19 took most companies by surprise. With some businesses hit hard and some suppliers stopping production in Asia first - procurement and supply chain executives were immediately confronted with the vulnerability of their global supply chains. Everything from border restrictions to rapidly changing customer demands are causing havoc. In fact, as many as 94 per cent of Fortune 100 companies have experienced supply chain disruptions.

COVID-19 has laid bare some the issues within current supply chains, many of which are no longer able to remain lean and supply goods on-time and cost-effectively across the world. However, this also presents an opportunity to generate real change in the supply chain system. Now is the time to restructure, re-tool and apply our learnt lessons to supply chain setup.

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In these unprecedented times, reshaping the supply chain model will help businesses respond to these new challenges with agility in the short-term, but also prepare for a resilient rebound in the longer term.

Responding to short-term struggles

In order to recover control of the supply chain, businesses must first ensure they have heightened visibility across their operations. As laid out in our recent research ‘The great supply chain shock: COVID-19 response and recovery’ - this should start with enhancing visibility of their cash flow and maintaining working capital requirements. Breaking this down further, such measures could include delaying capital expenditure and cutting down on discretionary spending. Strengthening cash flow management requires the use of dedicated dashboards showing real-time information, as well as closely assessing the performance of procurement and sourcing contracts. Another step towards tightening cash outflow includes renegotiating supplier contracts to increase days payable outstanding for suppliers with strong financials, and not for those struggling with finances. This can be balanced by offering better payment terms to those same suppliers after the recovery.

In an integrated supply chain, the failure of a critical supplier can affect all players in the chain and can even disrupt an entire national industry. Providing finance for struggling but strategically important suppliers or logistic operators, especially smaller ones in the chain, can maintain operational continuity. To stabilise the supply chain, businesses must prioritise their suppliers and logistics partners based on the importance to their supply chain or the products to be immediately produced and delivered.

Utilise the latest innovations

Emerging technologies offer organisations another route to strengthening their supply chains and maintaining a level of continuity during times such as these. One particularly innovative example of this is the use of AI-based tools to predict shortages and demand spikes in supply. For example, a water bottle manufacturer in China learned about traffic restrictions in various places by using predictive planning tools. In response, the manufacturer collected information from local managers to understand and build a picture of how many workers were most likely to be available at any given time and place. It then used AI tools to run simulations to devise plans A, B, C, and so on and from there was able to immediately shift production capacity in response to changing conditions to offset transportation issues.

A further example on how technology can respond to current challenges is the adoption of 3D-printing in manufacturing. In the US a team from MIT is working on an open-source, low-cost ventilator design while several startups are employing 3D printing to produce everything from nasal swabs to face shields and splitters for ventilators. At Capgemini we’ve been involved in a range of technology ‘pivots’ – from re-purposing 3D printers to help with the UK wide production of face masks, to developing a commercial app that helps organisations manage employees’ return to the workplace using sensors, mobile devices and the Cloud.

Looking ahead

As the spread of coronavirus slows and restrictions are relaxed across the globe, it is likely that customer demand will accelerate again. In this instance, businesses must remain agile.

While we wait for demand to pick up, sales and operations planning professionals should use this time to start forecasting future consumer demand by simulating various recovery scenarios before finalising production and logistics decisions. By using the latest customer sales and market data, organisations can develop new forecast models to prepare them for the future. Organisations who have already digitised their supply chains will have a head start here. For example, industrial materials manufacturer ATMI have already developed a supply chain alert system for its top revenue generating products. The system tracks each product’s supply chain back to base elements from the suppliers’ suppliers and flags any potential supply disruption.

As well as this, organisations should also begin to look at operations recovery – essentially preparing themselves for a full restart. Creating new production plans, evaluating priorities and potential bottlenecks and building buffer stock will help organisations edge ahead. Finally, organisations should also consider diversifying their supply networks to steer clear of localised disruptions. Again, this could be a significant diversification from current supply chain strategy for many organisations who have built on the concept of supply chain partnerships and leveraging ‘sole supplier’ relationships with key suppliers.

Conclusion

The sudden disruption due to the COVID-19 virus requires businesses to rethink their supply chain structure. While many leaders are currently preoccupied with reactively responding to new challenges – they must seize the opportunity to set up their supply chains for future success. Not only should they look at meeting customer demands (the accurate forecasting of which is a subject all of its own, given the huge variability that an event like this exposes), they should also use current pain points to predict future challenges throughout the rest of 2020.

Improving immediate supply chain visibility, leveraging technology to absorb current disruptions (and help to predict the future) and restructuring supply chain strategies will not only protect businesses in the short-term, but set them up for longer-term success.

Nigel Thomas is Head of Aerospace & Defence - Private, Capgemini UK