Article

Paula Sáenz López 08 June 2020

Supply Chain Resilience post Covid-19: How to Transform the Core of your Business

At LS International, we work hard to find the best fit for every role that we have a search mandate for. Our longlist includes only the best-qualified candidates, irrespective of their gender and other affiliations. This strong commitment to diversity (and the fact that we specialize in the consumer goods industry) underpins our continued association with the LEAD Network, which works to “attract, retain and advance women in the retail and consumer goods industry in Europe through education, leadership and business development”. (https://www.lead-eu.net/).

The pandemic has derailed supply chains for most industries; consumer product segments (snack foods, clothes, healthcare products, electronics, fashion accessories etc.) have been particularly impacted. It is quite clear that all companies- and especially those in the consumer space- will need to reinvent their supply chains to make them more agile and build resilience against the risk of future disruptions while retaining cost-competitiveness.

The LEAD Network recently organized a webinar on how, in the post-Covid19 world, companies in the consumer product space can make their supply chains more resilient. I personally gained several insights that I thought would be useful to share with a wider audience.

 

WHY SUPPLY CHAIN HAVE BECOME COMPLEX

Supply chains have evolved incrementally over a period of time. The rising complexity of supply chains over the past couple of decades is due to factors such as these:

  • the constant quest for cost savings to protect margins
  • the need for a larger range of SKUs to cater to new markets
  • technology advances
  • superior logistics capabilities
  • tightening regulations

Significant changes to consumer behavior have altered demand patterns, which too have shaped supply chains. For example, many buyers routinely seek to upgrade gadgets such as mobile phones every two years. Also, instead of getting products repaired or serviced, many consumers choose to simply replace them. Differences in food safety rules, packaging requirements and disposal of waste have all added their bit.

 

TRANSFORMING CONSUMER PRODUCT SUPPLY CHAINS

As we look at the transformation of consumer product supply chains, it’s useful to consider four approaches.

Simplification and Rationalization

The more the moving parts, the harder it will be to make the entire chain resilient. Any chain is only as strong as its weakest link. Thus, the task of building more resilient supply chains must begin with understanding them. In turn, this means rationalizing not just the number of suppliers a company relies on, but also making sure the supply network is agile and can be adapted easily to an everchanging context.

Just as important is to reduce the number of SKUs- the different variants in which a company makes products available (e.g. pack sizes, pack designs, ingredients, flavours etc.).

Such rationalization not only reduces packaging costs but also the downtime needed for manufacturers to switch the line from producing one variant to another. Potentially, it can also optimize shipping costs.

Revisit make vs buy

A company’s decision to buy components (or fully-made products in the case of companies that use white label strategies) instead of making them in its own factories is based on an analysis of the relative costs and benefits under the two options. But such traditional analyses do not account for scenarios where global supply chains are disrupted for weeks together, leading to stockouts and lost sales. Perhaps such decisions should now be looked at in the light of such risks and the quantification of associated costs.

This may not be possible for all products, but it’s worth serious consideration. Also, as governments look to kickstart their economies in the aftermath of the pandemic, cost assumptions may well change. With state-level incentives, making domestically may be less expensive than importing from halfway across the world.

Innovative policies to minimize returns

The reverse supply chain is something that is often not thought about because it is largely invisible. It gets into action only when a customer returns a product (either because it is defective or for other reasons). If you select suppliers with robust manufacturing processes and a strong quality focus, your company reduces the risk of having to deal with defects.

A 100% defect-free supply is almost impossible. But what if your returns policy does not make it necessary for your customer to physically return the product in all cases, and only needs a video of the malfunctioning product? Or what if you decide to incentivize customers with a discount on a future purchase if a product is not returned (this will likely apply to non-defects)? Not only will the volume of non-defective returns reduce, but also the prospects of repeat purchases will increase.

Reimagining the “Plan-Source-Make-Deliver” cycle

How business leaders and supply chain strategists view their company’s supply chains going forward needs to change. This will mean going back to the basics and asking fundamental questions and finding new solutions. Here are some questions that experts recommend you ask in your company:

Planning:

  1. Rethink products in light of changing consumer behaviour: how essential is our product? Will it be relevant in a post-Covid19 world given the need for contactless processes, social distancing etc.? What changes do we need to make to ensure their continued relevance?
  2. Can we capture data to better predict demand and monitor supply-side actions?
  3. How can this data be used to make our supply chains more agile, flexible and robust?

Sourcing:

  1. How well do we know our suppliers? For example, do we know who they source from and who they source from and so on till the manufacturer/producer? What constraints exist in those loops?
  2. How much flexibility do our contracts allow us? Not just force majeure clauses, but freedom to exit even long-term supply contracts with minimum financial costs?
  3. Can we assist suppliers in sourcing raw materials during difficult times so that our supply lines do not get dislocated?

Making:

  1. Are there situations when agility and sustained supply are more important than quality? If not, what can we do to build such trade-offs into our supply chains?
  2. Protecting employees may mean reduced productivity and throughput. Can we create cost-effective alternatives through automation and robotics or redesign processes that allow workers to operate from stations that are further apart? What implications will these investments have on pricing our products- and will we still remain competitive?
  3. Can maintenance activities be carried out using a higher compliment of robots? Should there be a greater emphasis on preventive maintenance to coincide with periodic breaks needed to sanitize the plants or during future periods of lockdown when a majority of workers cannot come to work?

Delivering:

  1. If our imports come into a certain port or airport and that is closed, can we quickly use an alternative? What will be the cost impact and how long can this be sustained without severely impacting profitability?
  2. If social distancing reduces the passenger-carrying capacity of commercial airlines, can we tie-up with them to use the spare capacity in the hold of their aircraft to carry perishables or high-value material on a regular basis?

 

Successfully transforming your supply chain can be a significant source of competitive advantage in the medium-to-long term – especially if the visible worldwide trend of nationalism and self-reliance in key areas gathers momentum.

All the above are ways to make supply chains more resilient and proactive. Clearly, each of the above possibilities will not be suitable for every business. Irrespective of which options are likely to work best for your company, it is critical to ensure that the leaders responsible for managing your company’s supply chains are thinking on the above lines to envision new supply chain configurations that are robust and cost-effective, and also more flexible, agile and responsive than they currently are.