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June 17, 2020

Pandemic-driven changes to the supply chain

Hidden vulnerabilities in the global supply chain are now in clear view due to the global health crisis. In response, companies have started reevaluating the supply chain to create a more resilient model. Michigan State University and Maine Pointe, a global supply chain and operations consulting firm, released a white paper that reveals the immediate need to address supply chain weaknesses, as well as offering tips for businesses to avoid future pandemic-driven fallouts.

The pandemic has become a catalyst for rethinking how businesses organize their supply chains and according to the researchers, will lead to a rebalancing of the supply chain that addresses limitations of the current model.

One burning question companies have is, “Is the supply chain dead?”

“No, but a new model needs to be put in place that addresses weaknesses,” said Simon Knowles, CMO of Maine Pointe and paper coauthor. “A more resilient supply chain will be better able to withstand the next major disruption, whatever that may be.”

The authors suggest that the purely cost-driven supply chain, which emphasizes cost savings above all else, is inflexible, ill-equipped to deal with major changes in demand — which can lead to serious shortages — and not as responsive as it needs to be.

“Existing supply chain models have been very efficient at driving down costs,” said Steven Melnyk, professor of supply chain management at MSU. “But the pandemic has highlighted serious risks to the supply chain, and now is the time for companies to take a serious look at whether they can simply return to their previous supply chain model.

The harsh reality, Melnyk said, is that 2020 will be a washout for many firms.

“However, if companies want to hit their 2021 numbers, they need to start assessing their model and have rebalancing plans in place by October 2020 to build a more competitive and responsive supply chain model.”

The paper outlines several actionable steps business leaders must take to address both the short-term fallout of the pandemic-driven shutdowns and the need for a long-term rebalancing:

  • Conducting a review to determine what went right and what was missing in the company’s response
  • Reassessing the company’s global footprint, building in more agility, optimizing manufacturing production and rebalancing the offshore, nearshore and onshore mix
  • Building in more optionality and de-risking, including a strategy to procure critical components from two or more locations to ensure continuity
  • Digitizing the supply chain operation and realigning KPIs to optimize the supply chain for greater visibility, speed and agility
  • Ensuring an improved end-to-end supplier process with greater transparency and uniform standards
  • Realigning the organization to inspire a new culture of digital transformation and visibility

Additionally, the white paper addresses several ways the business world will shift after the pandemic. The supplier base will have to change to better balance the risk and, as a result, a purely cost-driven supply chain will have to be replaced with one that builds in greater optionality.

“This will still include a global factor, but the long-term rebalancing will limit exposure by avoiding single-region or single-supplier sourcing,” Melnyk said. “A balance of global, regional and local sourcing will prove to be less risky and more efficient in the long run.”

According to Knowles, the pandemic is one in a series of global risk events that have exposed supply chain vulnerabilities.

“It certainly will not be the last disruptive event, and action must be taken immediately to ensure resiliency in the future,” Knowles said.

By: Chelsea Stein

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