The post-Covid supply chain
Professor of Supply Chain Strategy | Cranfield School of Management
The Covid-19 pandemic has put supply chains in the spotlight. Worldwide, from business leaders to the average person on the street, there is now greater appreciation for the delicate balance of risk and reliance that results in free and open movement of goods and services – as well as greater knowledge of how easily the whole carefully-choreographed ballet can be disrupted.
Many say this pandemic will change the world forever. We have already seen it affect every aspect of our lives, from the way we live, work, travel and interact with others, to the way we do business. By accelerating trends that were already in motion and revealing new priorities, Covid is driving us towards a ‘new normal’, but we do not as yet have a clear idea of what shape that will take. We can see its outline, but not the fine detail.
This ‘new normal’ will require businesses to find new ways of operating, but this will not happen instantly. In a recent report co-authored for DHL on the impact of Covid-19 on supply chains and logistics, we explore the need for businesses to accept a period of transition – a ‘pre-new normal’ phase of as-yet-indeterminate length where they re-assess their supply chains based on a changed environment and potential new set of priorities.
During this period, we are likely to see increased focus on resilience, flexibility and collaboration, and the challenge will be for businesses to ensure they balance these alongside maintaining efficient and cost-effective supply chains. Transportation and warehouse networks may need to be re-configured. Supply chains will be reshaped around diversified manufacturing and multiple sources of supply. This process will take some companies, industries – even countries – longer than others.
One thing is for sure: businesses cannot carry on as they were. If your supply chain is the same now as it was before coronavirus, you’re probably doing something wrong. What works before and during a crisis is not necessarily indicative of what will work afterwards, when freedoms resume but the legacy of the pandemic lives on in our minds. Long-held habits have been broken, buying behaviours irrevocably changed, the ties of familiarity severed. Now is not the time to be stubborn, to hold onto the past and the safe ground. Now is the time to prepare and get excited for the ‘new normal’ – because it’s coming, whether you like it or not.
The good news is that there are several things businesses can do now to help plan and prepare for operating in a post-Covid world.
Understand your key capabilities
What does your organisation do well, and can you bring your capabilities to new markets that have been less affected by the pandemic? In any changing set of circumstances, there are winners and losers. Lockdown restrictions have drawn a line between businesses that are considered to deliver essentials (such as food, housing, healthcare products and digital connectivity), and the rest who offer ‘luxuries’. Post-Covid, there is likely to be at least an initial period in which consumers are psychologically constrained to thinking about the ‘essentials’, so companies will need to be adaptable. Those that understand their capabilities and are able to be flexible will be best placed to thrive. Take inspiration from the automotive firms making respirators during the pandemic, and the likes of Louis Vuitton and Brewdog who have been bottling hand sanitiser.
Map your supply chain
Now, more than ever, is the time to get to know your supply chain. Map out the flows of raw materials, geographical location of key suppliers and the transport flows that connect them. Ensure you know where your products go after manufacture. Work to build stronger, more transparent relationships with your suppliers; collaboration will be everything in the post-Covid world.
The Covid-19 pandemic has exposed the fact that supply chains are loaded with risk, and that the potential for disruption increases at every stage where there is reliance on people. So, businesses would do well to begin assessing what elements of their supply chain have the potential to be automated, whether immediately or in the longer term, to more easily deliver ‘business-as-usual’ services.
We are moving from an era marked by emphasis on procurement for cost, to one which prioritises procurement for resilience. With this in mind, businesses will increasingly look for opportunities to build a more local supply chain. Investigate opportunities for near-shoring. If you cannot procure in your local area, can the capability be developed? If capability cannot be developed, can you multi-shore, ie. source from multiple geographic locations to increase resilience? Businesses should investigate the potential for collaborative competition or coopetition as a means of building shorter, simpler, more resilient supply chains. The ability of suppliers to be transparent, flexible and adaptable will be a key consideration.
Know your costs
Having become accustomed to the convenience and safety of home delivery, consumers are likely to expect high levels of service, such as free or low-cost delivery, or free returns. Understanding how much these conveniences cost you – the business – to provide (your Cost to Serve) will be imperative. As will recouping the cost of the services you provide through financial savings elsewhere or increased profit margins. Remember, there is no such thing as ‘free’ – someone will be paying, and it could be you.
Posted on: April 1st 2021