Re-setting supply chains for the next normal

8/6/2020

The coronavirus pandemic’s “unprecedented tests” are inspiring companies to consider bold moves in rebuilding their supply chains for the future, according to a new study by US management consulting firm McKinsey & Company.

In the preface to its study, Re-setting supply chains for the next normal, it noted: “At the height of the COVID-19 pandemic, bare supermarket shelves and worldwide shortages of critical personal protective equipment made supply chains headline news. Across industries, companies had little time to address logistics disruptions, shortages of parts and materials, and sudden swings in demand. That required many organizations to rewire their supply chains at short notice – all while keeping their people safe and complying government policies designed to slow the spread of the virus.

“Now, as businesses embark on the journey to recovery, supply chain leaders are telling us that they have no intention of returning to the status quo ante.

In the second quarter of 2020, McKinsey & Company surveyed 60 senior supply chain executives from across industries and geographies, asking them about the impact of the pandemic on their operations and their future plans to make supply chains far more flexible and agile.

“The overwhelming majority of respondents said that the crisis had revealed weaknesses in their supply chains that they’re now working to address. For example, 73% encountered problems in their supplier base, and 75% faced problems with production and distribution. In the food and consumer goods industries, 100% of respondents had experienced production and distribution problems, and 91% had problems with suppliers.

“85% of respondents struggled with inefficient digital technologies in their supply chains. And while just over half of the executives felt that they had been able to manage supply chain planning following the abrupt introduction of remote working, 48% said the changes had slowed down decision-making in planning.”

The sample was broadly aligned on the actions they want to take in response to those challenges: about 93% of respondents said that they plan to increase the level of resilience across their supply chain.

They intend to do that using a variety of mechanisms, including dual sourcing of raw materials, increasing their inventories of critical products and, to a lesser extent, by near-shoring, dual-sourcing, or regionalizing their supply chains.

The survey also found that respondents see an urgent need to get better control over their supply chain technology, which will likely be possible only with a skilled workforce trained to use new digital tools at speed and scale.

“Some 90% of leaders surveyed said they plan to increase the amount of digital supply chain talent within their organizations, through a combination of in-house reskilling and external hires. Just over half also expect permanent changes to their planning processes in the next normal, such as greater centralization of planning activities, shorter planning cycles, and introducing advanced analytics techniques.

“Intriguingly, only 11% of respondents said that budgets were a constraint on their ambitions to make these changes, suggesting that resilience requires smart investments, not just pouring money into the supply chain.”

The study underlined that in order to succeed in the “next normal,” companies will need more than “makeshift, duct-tape solutions” that address specific problems.

“The coronavirus pandemic has already exposed gaps in many existing setups, and it may also drive long-term changes in customer requirements and behaviours. For example, consumers who switched to on-line retail channels during the crisis, or who opted for curb-side and in-store pickup of online orders, may stick to their new behaviour well beyond the pandemic. And the desire to retain the environmental benefits that were a byproduct of reduced economic activity may lead to an increase emphasis on sustainability in future business operations.

“We believe that leaders should take this moment not just to fix their supply chains temporarily, but to transform them. Reimagining supply chains to avoid past traps and meet future needs will require a more comprehensive approach.”

Some of the findings and views mirror those of other surveys and analysis. For example, Lloyd’s Loading List reported last week that COVID-19 is forcing shippers around the world to re-evaluate and resilience-test their supply chains to a much deeper level, along with the adoption of greater levels of supply chain diversification, innovation and long-term planning, according to the latest report by DHL’s supply chain risk management platform Resilience 360.