The COVID-19 pandemic is not a one-off supply and demand disruptive event that will disappear into obscurity. It has left indelible marks on supply chain practices and practitioners. The not-so-strange thing is that many of these marks are positives. In the spirit of “never waste a good crisis,” supply chain practitioners and technologists face a post-pandemic recovery armed with a set of new systems and practices.
Two of the most important of these new systems and practices involve supply chain agility and supply chain risk management.
Supply Chain Agility: Supply chain agility is how well a supply chain responds to uncertainties by quickly adjusting operations (and sometimes tactics) while still meeting crucial success metrics. Agility wasn’t born in the pandemic. It came from the digital transformation of the supply chain. The combination of large volumes of real-time data from the IoT and advanced analytical techniques to mine new insights led the way for supply chain practitioners to pursue supply chain agility. However, the pandemic exponentially accelerated the adoption of supply chain agility and transformed it from a practice to a strategy.
The chief supply chain officer of a multi-billion-dollar consumer goods company wrote during the peak of the lockdowns that for every dollar spent on supply chain agility, the return is 10x against traditional supply chain planning methods. Supply chain agility contradicts what many practitioners have been taught over the past decades. Experts have traditionally focused on efficiency and consequently pursued the lowest unit cost dream. By utilizing optimization techniques, we have sought to minimize procurement costs while absorbing larger order quantities and longer lead-times. We plan for longer manufacturing runs to drive a higher return on assets and full-container load land and marine freight to reduce transportation costs. Agile supply chains exist almost as the antithesis of efficient supply chains.
Supply Chain Risk Management: As companies emerge from the pandemic with an eye on recovery, there is a new appreciation for the role risk management plays in supply chain operations. Supply chain is essentially a decision-making game. Experts decide how much to make, move, buy, and sell. Supply chains have traditionally been driven by the financial cost of such decisions: procurement and production costs, the cost of expedited freight, and the cost of unmet orders. However, the COVID-19 crisis has taught us what should have been obvious to many, that risk trumps cost. Risk, if not properly managed, poses an existential threat to a manufacturer. So why has it been ignored, or relegated to a strategic supply chain design role?
Risk must be identified, evaluated and, when appropriate, mitigated. When making a supply chain decision regarding material sourcing or production, the risk spectrum will take its place alongside profitability in the process.
The pandemic has lifted the importance of supply chains within the boardroom. No longer just a cost center or necessary evil, supply chain is now viewed as a source of transformational and competitive differentiation. Thanks to COVID-19, thanks to toilet paper shortages, and long lines at Costco, my children now understand what a supply chain is. No longer do I need to explain what I do in my job.
Shaun Phillips is director of Product Management at QAD DynaSys, a division of QAD Inc., which began solving planning issues for food and beverage companies from an old bakery in Strasbourg, France, three decades ago. QAD DynaSys is now a leading provider of digital supply chain planning solutions in the areas of forecasting, planning and supply chain optimization.
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