PPE and toilet paper shortages, air freight capacity crunches, blank sailings, last-mile delivery overloads, and supplier struggles (just to name a few!)—2020 was a year full of challenges within supply chain management. Many companies who relied on a single supplier (especially one in China) struggled, as did those who didn’t have the technology or the systems to give them up-to-the-minute insights across their supply chain.
As many professionals look back over the year’s events, a few key questions emerge:
- What have we learned from all of this?
- How can we apply it to our supply chains to make them more resilient to unexpected events in the future?
- In other words, knowing what we know now, how can we prevent massive disruptions to supply chains in the future?
While we don’t have all the answers—and a global event like the COVID-19 pandemic reminds us that we may never have all of them—we have a few key insights to share, after helping our customers respond to this pandemic. If you’re a supply chain professional interested in creating a more responsive supply chain that can quickly bounce back from global events, these seven areas are worthy of your consideration.
Lesson #1: Supplier Diversification Is Key
When the U.S. was in the throes of the trade war with China, many companies had already begun the process of locating new suppliers in order to minimize the impact of the dispute. The COVID-19 pandemic has only underscored the importance of maintaining relationships with multiple suppliers. If your company’s processes rely on raw materials or specialized components, it’s important to secure more than one source, ideally in different geographic regions. That way, an incident like a pandemic or a natural disaster is less likely to disrupt your supply chain.
One more idea to consider: Look locally, if possible. Grounding of passenger flights and increased online ordering from home-bound consumers created some capacity strains this year. If you’re able to find a local source for some of your components, you’ll be able to respond more easily to future events.
Lesson #2: Strong Relationships Are Still Key
Companies who maintained strong personal relationships with their suppliers—as opposed to being simply an order number in the queue—found themselves ahead of the curve when it came to responding to the impact of the pandemic. Although online ordering has made it significantly easier to get supplies from all over the world, it’s still important to take any chance you get to become a recognizable name and face with your suppliers. That way, if you need to negotiate terms—or beg, steal, or borrow a few necessary components during a time of strife—you’ll have a leg to stand on.
Lesson #3: Second- and Third-Tier Suppliers Matter
As we discussed in our article on sustainability, it can be challenging for companies to get full insight into their second and third-tier suppliers. However, the pandemic brought this issue to the forefront when shortages from these junior-tier suppliers directly affected many first-tier suppliers, who were unable to deliver promised components and supplies. For example, second and third-tier suppliers in Wuhan were unable to deliver when that region closed, creating serious challenges for companies who might not have even been aware that their components were ultimately sourced in the area.
It’s worth taking the time to fully map out your suppliers, including the junior-tier ones, especially when it comes to critical components. Only by understanding exactly where all your supplies come from will you be able to truly diversify—and mitigate future risk.
Lesson #4: Is It Time to Rethink Lean Models?
Many organizations have been operating under the principles of just in time (JIT) logistics, in which they maintain minimal raw materials, components, and inventory on hand. While this model keeps costs at a minimum, it also presents a significant risk if there’s a run on a particular item. Many companies experienced this first-hand during the pandemic and found themselves scrambling both to obtain supplies and to deliver finished products to meet spikes in demand.
While one catastrophic event surely isn’t just cause to throw out an entire logistics model, it might be time to consider more of a balance between just in time and just in case methodologies. That might mean keeping more supplies on hand and maintaining more inventory, both of which could allow companies more flexibility during future events. This could be especially important if you’re not able to diversify a couple of your suppliers. If certain components are all sourced in a single region, it might make sense to stock up.
Lesson #5: Data Insight & Transparency Are More Important Than Ever
The companies that were best able to respond to the COVID-19 logistics disruptions were the ones who had clear visibility into every aspect of their supply chains. Some had previously made big investments in technology that made this possible. Others got creative and put together “war rooms” that brought together various systems and experts to give as much instant clarity and insight as possible to decision-makers.
The lesson here? If you’ve been delaying on investments in technology that would improve your visibility into your supply chain, now might be the time to make them. Companies that are able to understand patterns, spot trends, plan, and solve problems in the moment are going to have an edge going forward.
Procter & Gamble saw this lesson in action during Hurricane Sandy in 2012 when the storm disrupted operations at a factory producing over 90% of its perfumes. The company had previously invested in a cloud-based system that delivered real-time information on production and external demand. The insights they gleaned from that data helped them keep that factory’s downtime to a minimum. It also played a key role in creating contingency plans and relocating inventory to mitigate the impact of Hurricane Irma’s landfall in Florida in 2017.
Now, having the data is one thing, but you also need the experts and the decision-makers to interpret it, so that brings us to our next 2020 insight.
Lesson #6: It Might Be Time to Upgrade Your Supply Chain Talent Bench
Some organizations treat supply chain management and procurement as an afterthought, something that gets tacked on to someone else’s job description. Other organizations take the time to seek out and hire supply chain professionals with training and experience, ones who can bring significant expertise to their roles. These organizations will be much better positioned for future disruptions, since they’ll have a real pro in their war rooms, helping leaders make the right decisions in the moment.
However, if your organization falls into the former category, it might be time to upgrade your talent bench. Find a supply chain expert who can help you not just manage but also optimize your supply chain—and implement some of these lessons to create a resilient and responsive operation that can flex when the unexpected happens.
You also might want to consider adding another relationship to your roster.
Lesson #7: Relationships with 3PLs and Freight Forwarders Will Remain Key
With the grounding of the majority of passenger flights this year, the prices for air cargo skyrocketed, making it untenable for a number of businesses that previously relied on this mode. As a result, many organizations looked to other modes, including ocean freight.
However, given the difference in transit times, these switches involved more than just a simple mode swap. Instead, many organizations realized they needed to re-think their inventory and supply strategies on a larger scale. Some found themselves placing larger orders less frequently while shipping a short-term supply via air freight to keep operations moving.
Having a trusted 3PL or freight forwarder on your side will help you make these switches more easily. This is especially true in an environment like the one we saw in 2020, where pricing, flight schedules, and sail dates shifted frequently. A forwarder or 3PL can help you stay on top of these changes and shift cargo to other, more practical modes—quickly.
Lesson #8: Risk Management Is More Important Than Ever
In some ways, the name of the game for supply chain management has been “efficiency.” Many organizations have successfully lowered their costs, run lean, and seen a boost in their bottom lines as a result. Given the events of 2020, it might be time to temper that focus with some risk management strategies. Although things like maintaining a larger stockpile of supplies and inventory—and seeking out relationships with other suppliers who may not be as cost-effective as your preferred supplier—may cost the organization in the short-term, the long-term benefits may outweigh that investment.
In other words, is it time to start shifting the focus of supply chain management from efficiency toward risk management? Of course, the answer will be different for every company. However, it’s a question worthy of asking within most organizations, so that the next time an event with global implications rolls around, your supply chain will be ready to respond.
Looking for some assistance creating a more responsive and resilient supply chain? We’ve been serving the freight forwarding and supply chain management needs of most every vertical market for more than 20 years. One of our experts would be happy to help you prepare your supply chain for the future. Just reach out to us for a free consultation to get started.
Get a Free Quote