The COVID-19 pandemic upended the world beyond the immediate and obvious public health crisis. The supply shock that started from China and spread like wildfire exposed the vulnerabilities in global supply chains. What ensued was chaos. The demand and supply shock worsened the economic turmoil caused by the virus.
The pandemic indeed revealed the fragility of our supply chains. In the post-pandemic world, we need to steer our traditional supply chains towards resilience.
Here are some points for consideration.
- Stay alert about the hidden risks of your supply chain
Few products are manufactured from end-to-end in one location these days. Instead, many firms chip in to create a product. Take a smartphone, for example. Different firms make different things, right from the batteries to the microchips to the cameras that go into a typical smartphone.
Several manufacturers have suppliers and subcontractors who tend to focus on one component only. This means that manufacturers have to rely on several other firms to make their products. Although this has plenty of benefits, a supply shock will leave such manufacturers vulnerable. This problem can be addressed by reducing dependence on suppliers and subcontractors and increasing inventory in order to be prepared with a reserve in case of a temporary supply chain shock.
2. Map out your supply chain
This process requires a lot of work. Map out the first and second tiers of your supply chain, including the various transportation and distribution hubs, even though this is expensive and time-consuming. Most manufacturers focus on direct suppliers, even though surprise disruptions with indirect suppliers can have a massive impact. Once you’ve identified the vulnerabilities, you can diversify your sources and build in redundancies.
3. Diversify your supply base
This is an obvious way to reduce dependence on risky sources. Adding more locations will reduce location-specific risks. Consider a “China plus one” strategy, in which production is spread across countries like Vietnam and Indonesia, along with China. Geographical crises like the 1997 Asian Financial Crisis, in which a series of currency devaluations led to cascading effects across East Asian and South-East Asian economies, make a strong case for geographical diversification.
4. Hold safety stock
Even alternative suppliers can get caught when a supply shock occurs. To safeguard business from this, companies should always have a fixed amount of extra stock, just in case. Although safety stocks increase costs and run the risk of being obsolete, they can prove quite valuable in the event of supply shocks. The savings that companies enjoy from lean inventories and just-in-time stocks have to be weighed against the costs they will incur if a supply shock happens.
5. Leverage new technology and innovations
When you get the opportunity to make changes to your manufacturing process, employ state-of-the-art technology that will reduce your dependence on outside suppliers and subcontractors. Modern technologies help companies lower costs and introduce flexibility into their manufacturing process.
Companies can employ automation to strengthen their supply chains. Industries are beginning to safely integrate robots alongside humans on the manufacturing floor. The lockdown that was announced when COVID-19 hit left factories without workers. If a greater percentage of supply chains is automated, the labour shock might have a lesser impact on manufacturing.
5. Take small steps
Businesses can take a variety of small steps to safeguard their supply chains when they do business with an impacted country:
- Focus primarily on Tier 1, or direct, supply risks.
- Develop and activate an alternative supply source.
- Rethink your inventory policy if you feel that a supply shock is imminent. Acting fast is imperative during such times.
- If things look grim, prepare for the closure of a factory.
- Keep your production facilities and offices safe from possible outbreaks by retaining only the workforce essential for production to continue.
The supply shock during the pandemic raised serious doubts about the viability of globalization. Manufacturers cannot function without leveraging the advantages of globalization. However, manufacturers everywhere should rethink their supply chains, and focus on making their supply chains resilient. A robust supply chain with fewer vulnerabilities can reward manufacturers massively during tough times. Manufacturers should also consider incorporating modern technology into manufacturing processes to reduce costs and make their supply chain less reactive to global events and shocks.