COVID-19: Preparing to succeed with shorter supply chains

23 June, 2020

In the past, decisions on how to organise supply chains were based on scale effects and lowest cost. Supply chain risk was seldom a consideration. This has changed in the wake of the pandemic. Not only are long supply chains vulnerable to disruption but geographical disparity in manufacturing costs is disappearing. Increased automation has made labour costs less of a concern.

COVID-19 has clarified that supply chain risk has a cost. Global supply chains have proved to be very vulnerable during this crisis. According to WEforum, 75% of the world's global manufacturing output has been impacted by COVID-19. How can your business prepare to succeed in uncertainty with shorter supply chains and to what extent can you leverage regional suppliers?

Not all industries will be able to go entirely regional, and certainly not in the short-term. But better articulated risk-reward claims are bound to be at the forefront of footprint decisions in more industries and activities in the future. Automation changes the requirement for talent, focusing less on quantity and more on quality. The enabling skills base continues to be a critical factor when deciding where to produce or distribute products from. That means we need to invest in upskilling to complement already existing advantages in institutional frameworks, infrastructure and the business environment.

Acceleration towards a new industrial fabric

The current crisis will only speed up the pace at which we move towards more regional supply chains, closer to customers.

Underlying forces that were already having an impact on our industrial fabric. These have become more apparent with the emergence of COVID-19. They include:

Individualisation and impatience: Industries close to the end consumer, in particular, are shifting to faster delivery, like Amazon Prime, and products specifically designed for the customer; think of Twikit personalising your new Mini Cooper. The only way to make this viable is through more local production and logistics.

Technology maturity and willingness to adopt: COVID-19 has accelerated the adoption rate of new technology. In manufacturing and supply chains, we are seeing an additional surge to connect digitally and produce tailored products for individual customers.

Geopolitics: Trade wars and tariffs have reshaped global trade over the last few years. We have already seen many companies relocating operations due to geopolitical factors. This is a trend that is likely to continue to gain more traction as we emerge from COVID-19.

Sustainability and circularity: A floating farm in Rotterdam houses over 30 cows and delivers yoghurt and milk by electric vehicle to the city centre. This is an example of how production can be moved closer to the end customer, and the positive effect that it can have on the environment.

Urbanisation: The increased level of urbanisation will create viable business models for direct-to-consumer delivery. Production will also move closer to the end user. For example, oatmeal drink manufacturer Oatly is building its Singapore production facility in an existing skyscraper.

How to start building short value chains

Most companies coming out of COVID-19 are focused on restarting their operations. Soon, we will see supply chains transform more fundamentally. Priorities that should be considered as part of this transformation include:

Build in supply security: duplicate critical supply sources and increase safety stocks on critical resources and products
Gain real-time transparency: map your supply chains with new track-and-trace technology; critical resources, suppliers and customers etc
Get closer to your customer: evaluate your strategic product portfolio with the new insights you've gained
Invest in advanced manufacturing technology (Industry 4.0): increase automation in production, logistics and administration, and embrace the Internet of Things to optimise operational visibility and management
Adapt your footprint: identify local production sites and connect them via a digital backbone
Review the tax implications of a change in footprint and related supply chain flows
Build a connected supply chain using technology: videoconferencing, track-and-trace solutions, integrated business planning tools, etc
Investigate the circularity of your operations and their ecological impact
Develop multiple channels to market, especially direct to customer online
Use the gig economy in more traditional industrial environments (e.g. to support a new channel to market)

We are here to help you

There's no doubt that the months ahead are going to be challenging as you restart and reconfigure your supply chain. We are ready to help you as you face the future and seek to ensure the resilience and effectiveness of your supply chain in a new operating environment. Contact us today.