While there is still significant disagreement among the healthcare community about the reach and impact of COVID-19, supply chain management experts are all pretty much in agreement: supply chains – particularly for healthcare, manufacturing and food industries – will remain in disarray for months to come. So what do we do next?
By now, most smart businesses have found ways to get by. Re-sourced key components. Re-engineered parts to use available products. Identified alternate materials. But what do we do next?
Keep in mind the old proverb, “Fool me once….” Who could have anticipated a worldwide pandemic that would decimate the global supply chain? Certainly not me. But being the proverbial ostrich with its head buried in the sand does not prevent this or any future disaster. It only ensures that you are caught unprepared when it does happen. The wise supply chain leader continues building an agile, flexible, resilient network of suppliers and logistic capabilities.
What Do We Do Now?
Recently, I was chatting with Bill Hurles who was Executive Director of Global Supply Chain at General Motors when the Fukushima earthquake and tsunami occurred in 2011. That event severely impacted many of GM’s critical suppliers. I asked Bill what were some of the most important steps GM took to mitigate the disaster. Three things topped his list:
- Allocate resources to minimize loss;
- Ensure, to the best of your ability, that your key suppliers survive; and,
- Take steps to safeguard against future vulnerabilities.
Allocating Resources
Here are the basics steps every business should be taking to properly allocate critical supplies. First, look at your resources, that is the materials you need to generate revenue. Determine how many days of supply you have at current production rates. Next, do the analysis needed to determine how to get maximum profit from those resources. To be clear, I am not talking about seeing where you can gouge your customers. What I am talking about is shifting those limited resources away from low profit contribution products and services and ensure they are allocated to the high profit contributors. This may mean you temporarily stop production of some of your goods and services until your suppliers are back up to capacity. That is what GM did in 2011. GM closed its assembly plant in Shreveport, La., which made a pair of compact pickup truck models. These models contributed less to the company’s profit than did the models made in other locations, so the Shreveport plant was temporarily shuttered, and its allocation of scarce components and parts were reallocated to other, more profitable plants until supplies stabilized.
Ensure Your Suppliers Survive
It is often the smallest of your suppliers that are hardest hit when disasters occur. For example, when COVID-19 struck, more than a third of Chinese suppliers had less than 2 months of cash reserve. This all but ensures the extinction of many of these vendors without some outside help. Some of these could be your tier-2 or tier-3 suppliers. Some could be critical to your products or services, critical to your brand. GM proved that by extending a lifeline to many of its small vendors devastated by the Fukushima earthquake and tsunami a company can not only ensure continuity of critical materials, it can build alliances and loyalties that serve both parties for years to come.
Take steps to safeguard against future vulnerabilities
The last, and possibly most important step a savvy supply chain leader can take now, is to exercise clear foresight to mitigate future vulnerabilities. But building a resilient supply network does not happen haphazardly. It is not simply a matter of adding additional capabilities; rather, it is a persistent effort to add the right capabilities. It takes a focused, systematic approach that begins with a comprehensive assessment of your current strengths and weaknesses. Through such an assessment, the enterprise can evaluate and prioritize its true vulnerabilities. Only then can it identify the appropriate capabilities to develop as countermeasures. Any other approach threatens to erode profit without adding adequate value.
Once the right capabilities have been identified, a roadmap to implementation needs to be carefully designed. The journey toward supply chain resilience, like most corporate initiatives, must overcome initial inertia. At the earliest stages, the project is still fragile and can easily be derailed. For this reason, it is imperative that you begin with low risk projects that are likely to have good adoption by the users, while demonstrating value that can be appreciated in the C-suite. We like to start our clients off with Inventory Replenishment Optimization. While almost every ERP system has some form of inventory optimization tool, most are pretty perfunctory in their performance and leave significant room for improvement. Utilizing tools that simultaneously evaluate both the total cost of inventory ownership and manage delivery performance levels is ideal in that they improve the user experience by ensuring the proper material is available on a timely basis while concurrently driving down the inventory investment.
The final, and likely most important step is the effective deployment of the strategy. All too often, companies hire consultants who send in a team armed with templated deliverables. After a few weeks or months, the consulting team leader sets up a meeting with the project sponsors or steering committee. There, they drop off a stack of documents along with a sizable invoice, announce that these contain the Holy Grail of solutions – all the client must do is fully enact their suggestions. Then they shake everyone’s hand, declare victory, and head to the airport never to be heard from again. Sadly, this represents a sizable investment with little to no accountability and leaves the client little better off than when the consulting team arrived.
A superior approach is to ensure the outside team you engage will embed one or more of their team members as management augmentation to drive their proposed plan to conclusion, adjusting and adapting to real-world contingencies and problems that are certain to arise during deployment. A lot of consultancies claim to be your “partner”, but a genuine partner will not give you suggestions, take your money, then walk away. Look for a team that will be there with you all the way to completion.
Next Steps
All too frequently, when crisis hits, we can get swept up in a form of triage that is hyper-reactive. We end up finding ourselves too busy mopping up spilled water to turn off the faucet. When this happens, crisis begets crisis. So, right now, stop for a moment. Take stock of on hand and pipelined resources. How can you get these to produce the highest revenue in the short run?
Next, who are your critical sub-tier suppliers? Check on their fiscal health and see if you can throw a lifeline to those in peril.
And most importantly, begin to design and deploy an agile, strong, and flexible supply chain resilience strategy. Remember, “…fool me twice, shame on me.”
