A wake-up call for supply chain management

An invisible component named "Covid-19" is dominating the lives of six billion people around the world. People all over the world have now started to adopt to the new normal to tackle the pandemic.

Evidently, coronavirus did not only paralyse the normal lives of people but also revealed the critical importance of supply chain management.

Professionals all over the world realised that traditional supply chain management unquestionably needs a realignment and reformation to cope up with the new normal.

"We are only going to come out better on the other side of this, once this is all said and done," said Seckin Ozkul, a supply chain management expert at the University of South Florida.

Experts opined that the coronavirus pandemic has been an important learning experience for the supply chain professionals who are struggling with unprecedented demand and supply chain disruptions.

It is high time organisations running both on a small and large scale shift focus to the realignment of the supply chains to respond to unprecedented situations and also prepare for the impact on the value chain.

At the outset of Covid-19, before it was declared a "pandemic" by the World Health Organisation, it was considered a local issue affecting only China. However, the impact of it on the supply chain was visible from the very beginning. It was because of our extensive dependence on China for raw materials.

ILLUSTRATION: ASIFUR RAHMAN

Undoubtedly, China has been the biggest sourcing hub for companies in Asia, Africa, Europe and South America because of its robust infrastructure run by a skilled and cheap labour force and equipped with resources base.

However, suppliers now realise that overdependence on key primary China suppliers can create significant risk on revenue streams. To ensure sustainability and be responsive to all unprecedented situations, global retailers and suppliers must consider adequate contingency like surplus inventory supply and network integrity.

"Just-in-time" shipment delivery with tight inventory-to-sales ratios used to be the topmost priorities in lowering carrying cost and efficiency for the majority of companies, but, Covid-19 has made "just-in-time" network designs a thing of the past.

It shifted our focus to a more conservative and safety inventory stock supply strategy. Retailers and importers now may revert to inventory safety stock, higher sales-to-inventory ratios with multiple suppliers, and having suppliers closer to consumption markets to protect the corporate valuation and offer business continuity during the next pandemic.

"The uncertainty that Covid-19 is causing has been extraordinary. One thing that is certain, however, is that supply chains have never been more visible and mission-critical."- said Eddie Capel, president and chief executive officer of Manhattan Associates, urging the implementation of the digital supply chain to handle the disruptions.

A digital supply chain platform can be viewed as one "single version of the truth" for companies. It helps retailers manage raw materials so they can be quickly deployed to the right factories when production is shut down in the existing one. Features such as vendor onboarding and management will let companies handle multiple sourcing locations.

It is not unusual for the companies to choose the lowest cost supplier and in the majority cases keep the focus on the single source only. But if this continues, then we are operating in a very vulnerable position, and that is what exactly is happening around the world now.

The coronavirus is proving that the companies need a resilient supply chain to survive in the long run. Currently, the most successful businesses and supply chain leaders are suggesting to engage customers and suppliers in open and transparent dialogue early and often about their efforts—from safety to forecasting and supply chain response.

They proactively provide insights on supply node dependencies, gaps, and abilities. As demand returns, identify the capabilities and limitations which impact lead times. Most supply chain leaders recognise now that the cost of retaining multiple supply locations must be seen more as a cost of doing business, rather than an inefficiency.

Finally, companies should be alert while calculating some additional costs associated with the sudden disruption in the supply chain such as non-delivery to customers. One of the main goals of automotive supply chain management is to receive real-time information or data and feed it into an agile response planning and execution process.

The top priority of a company should always be ensuring people's safety and welfare worldwide and implementing business plans to maintain their well-being. Companies should communicate with customers to understand their evolving needs, and with necessary suppliers, to determine inventory levels and potential issues that may arise in the short and long terms.

Maintaining flexibility and automation within our supply chains is essential for limiting disruption to services now more than ever. Supply chain leaders must ensure that consumers have access to services they need with creative, resourceful responses to the pandemic, while also maintaining the health and safety of both consumers and supply chain workers.

As Jeff Cashman, COO, GreyOrange rightly put "companies that once had a plan to automate their supply chain in the next 3-5 years are now working toward implementing a more flexible and scalable system as soon as possible. Moving goods faster and more efficiently is needed. For supply chains to survive and get back in gear, they must adopt automation."

Aroka Chowdhury ACMA, CGMA is currently working in a leading investment bank in Bangladesh. Email: [email protected].