COMPANIES NEED TO MAKE THEIR SUPPLY CHAIN MORE RESILIENT
At ONILOG we are aware COVID has drastically changed the way industrial and commercial supply chains are planned and should be managed.
The supply shock that started in China in February and the demand shock that followed as the global economy shut down exposed vulnerabilities in the production strategies and supply chains of firms just about everywhere. These developments, combined with the US-China trade war, have triggered a rise in economic nationalism.
As a consequence of all this, manufacturers worldwide are going to rethink their use of lean manufacturing strategies that involved minimizing the amount of inventory held in their global supply chains.
Yet many things are not going to change. Consumers will continue to want low prices and firms won’t be able to charge more just because they manufacture in higher-cost markets; competition will ensure that.
The challenge for companies will be to make their supply chains more resilient without weakening their competitiveness. To meet that challenge, managers should first understand their vulnerabilities and then consider a number of steps – some of which they should have taken long before the pandemic struck.
UNCOVER AND ADDRESS THE HIDDEN RISKS
Modern products often incorporate critical components or sophisticated materials that require specialized technological skills to make. It is very difficult for a single firm to possess the breadth of capabilities necessary to produce everything by itself.
Manufacturers in most industries have turned to suppliers and subcontractors who narrowly focus on just one area, and those specialists, in turn, usually have to rely on many others. Such an arrangement offers benefits like flexibility and updated technology; but at the same time creates vulnerability when you depend on a single supplier somewhere deep in your network for a crucial component or material. If that supplier produces the item in only one plant or one country, your disruption risks are even higher.
To minimize your supply chain risks, ONILOG might collaborate with you and create feasible solutions to:
- Identify your vulnerabilities
- Diversify your supply base
- Hold intermediate inventory of safety stock
TAKE ADVANTAGE OF PROCESS INNOVATIONS
As firms relocate parts of their supply chain, some might ask their suppliers to move with them, or they might bring home some production back in-house. Either course – transplanting a production line or setting up a new one – is an opportunity to make major process improvements. This is because as part of the change, you can unfreeze your organizational routines and revisit design assumptions underpinning the original process, examples include the following:
- New processing technologies
- Continuous-flow manufacturing
- Additive manufacturing
In many industries, technologies such as these promise to upend the traditional strategy of seeking economies of scale by concentrating production in a few large facilities. They will allow companies to replace large plants that serve global markets with a network of smaller, geographically distributed factories that is more resistant to disruption.
To facilitate the relocation of production process to the USMCA region, ONILOG might facilitate the process either as a Shelter Program Operator, a Business Processes Manager or as a Production Outsource Contractor. In any of these options, our objective is to create value by minimizing our customer’s risk perception while offering complete control of their operations in Mexico.
Revisit the Trade-Off Between Product Variety and Capacity Flexibility
During the pandemic, when demand surged in many product categories, manufacturers struggled to shift from supplying one market segment to supplying another, or from making one kind of product to making another.
Researchers such as Barry Schwartz of Swarthmore College and Patrick Spenner, a consultant who was formerly at CEB (now part of Gartner), have long argued that more choice isn’t always better. The lesson: Companies should reconsider the pros and cons of producing numerous product variations.
THE ECONOMIC TURMOIL caused by the pandemic has exposed many vulnerabilities in supply chains and raised doubts about globalization. Managers everywhere should use this crisis to take a fresh look at their supply networks, take steps to understand their vulnerabilities, and then take actions to improve robustness. They can’t and shouldn’t totally back away from globalization; doing so will leave a void to others – companies that don’t abandon globalization- will gladly and quickly fill. Instead, leaders should find ways to make their business work better and give themselves and advantage. It’s time to adopt a new vision suitable to the realities of a new era-one that still leverages the capabilities that reside around the world but also improves resilience and reduces the risks from future disruptions that are certain to occur.
Based on the article Global Supply Chains in a Post-Pandemic World by Willy C. Shih