What COVID-19 Is Telling Us About Supply Chains

Zak Rafiq, Wholesale Distribution & Manufacturing Centre of Excellence, Oracle NetSuite

Bare shelves. Warnings about delivery delays. Websites and supermarkets using the phrase “out of stock” so much it was almost like branding. Crises can reveal weaknesses, and the start of the pandemic highlighted one major issue – the supply chain. It demonstrated the fragility – and made clear the lack of visibility – many businesses had into their operations.

Suddenly, supply chain was at the top of the list for businesses and building resilience was priority number one. The numbers show why. According to a recent report, COVID-19 could top $5 trillion in economic losses worldwide if global supply chains don’t adapt. The market is showing some signs of normalising – British manufacturing hit a six-year high in terms of outputs – although it comes with an expectation of turbulent times ahead.

However, this small bounceback does demonstrate possibility. Whether it’s establishing relationships with multiple suppliers, gaining more visibility into the source of each component or reshoring supply chains to have them closer to home, we can learn from the past six months to prepare for future disruptions.

Here are practical steps UK organisations can take to build supply chain resilience.

 

Move beyond single sourcing

The past few months have caused more disruption than most industries would typically see across a decade. Many manufacturers have spent considerable effort re-evaluating existing suppliers and looking into strategic sourcing, especially if they relied on single or sole sourcing options. This approach traditionally enabled cost reductions and resulted in a smaller supplier base which might have seemed promising for manufacturers previously. But today’s climate has shown that to be a dangerous approach.

With cash so essential, manufacturers must evaluate all vendors and investigate strategic sourcing, particularly in single or sole sourcing scenarios. That means looking into secondary and tertiary options to mitigate against future supply chain disruption – with the added challenge of sourcing cost-efficient and reliable suppliers. Supply chain redundancy is effective in maintaining efficiency and keeping your most vital items moving, but as they come at a cost, only use them at the most critical points of the supply chain. Now is the time to identify back-up vendors.

 

Consider onshoring (some of) your supply chain

Many businesses are looking at moving parts of their supply chain closer to domestic markets. The pandemic has encouraged deep introspection into the way that supply chains are organised, with commentators suggesting that streamlining the distribution of goods closer to home could aide flexibility and traceability. Others, however, are cautious about whether UK manufactures could replicate the efficiency of overseas supply chains.

But bringing your supply chain closer to home does not have to be an all-or-nothing strategy. As businesses look to build a more extensive network, adding secondary suppliers domestically or using a contract manufacturer nearshore could help mitigate the impact of future distributions.

A local supply chain can benefit your business, but there are challenges associated with moving your network away from hubs like China. It’s worth weighing both the benefits and obstacles of a change and understanding cost will be the biggest barrier. Replacing supply operations with similar facilities in the UK can be expensive. It’s also worth acknowledging that in many sectors matching the expertise and experience found in China can be tough, but that doesn’t mean it cannot be done.

 

‘Just in case’ manufacturing

 Even with an established supply chain that can withstand disruption, optimising inventory is key. It used to be all about just-in-time manufacturing – traditionally focused on a lean inventory model to help manufacturers cut cost. But in today’s environment, just-in-time is no longer enough. Businesses need to be in a position to ramp up and have more inventory on hand.

Manufacturers must conduct a balancing act of holding enough inventory so they aren’t facing a depleted supply chain, but not so much they tie up cash. It’s important to identify the items in your supply chain that are fast moving. These are the products that are most likely to sell and are worth holding additional inventory for. On the other hand, make sure you’re valuing old, slow-moving inventory accurately as well. Between housing, handling and administrative costs, the total cost of holding inventory can represent 25-30 percent more than the inventory’s unit cost value.

The world will continue to change and transparency in the supply chain has never been more important. It will be crucial to keep planning for the best-and worst-case scenarios to be successful no matter what comes next.

 

 

 

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