Future-proofing the supply chain – the impact of COVID-19

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The unfolding pandemic is creating a paradigm shift in supply chain strategies in the three main areas – risk management, demand management, and cost optimization and operational efficiency.

It can rain, and you’ll be fine. It can rain heavily, and still, it’s OK. But you only truly know how good the roof is on your house when it rains really, really hard, not just for a few hours, but for days at a time.

If there’s bad news, that’s when you find out – and sadly, it’s after the event. It means not just fixing the problem, and stopping it happening again, but dealing with damage that could, perhaps, have been avoided.

COVID-19 has made a similar impact on many businesses this year. Supply chains that have been able to cope just fine with sizeable peaks and troughs in demand – even major events such as Black Friday – suddenly found themselves facing something that was on an altogether different scale. Areas of weakness that were revealed included:

  • Unstructured risk and compliance management
  • High operating costs
  • Reactive (rather than proactive) decision-making
  • Fragmented technology architecture
  • Lack of process integration
  • Inefficient utilization of capacity/resources.

The pandemic has prompted a major rethink of supply chain strategies. According to a recent study, business models are changing in three main areas.

Risk management

Organizations have adopted several typical risk management strategies to date. These have included financial and operational evaluations of Tier 1 suppliers, first at the time of onboarding, and then at six- or 12-month intervals thereafter; trigger-induced mitigation measures; and the maintenance of a business continuity plan, occasionally revised to accommodate the occurrence of an event.

New, post-COVID risk management practices are much less reactive than this. They involve the use of tools to evaluate risk regularly and proactively – not just for the immediate supply chain network, but for Tier 2 and Tier 3 suppliers also. They also include a business continuity plan that is much more forward-thinking, that anticipates new kinds of disruption, and that provides a Plan B for securing critical inventory if the worst comes to the worst.

Demand management

Standard approaches to demand management have included putting strategies in place to enable just-in-time manufacturing by keeping tabs on the production of goods in high demand. Historical data has been used to forecast future trends, and decision-making has once more been fairly reactive, “we’ll cross that bridge when we come to it.”

Attitudes to demand management are changing in the light of the pandemic. Predictive analytics and machine learning techniques are being used alongside a better early warning system at different points in the supply chain to derive insights into where demand might head next. More flexibility and frictionless models is being introduced to inventory movements to accommodate short-term changes in demand, and greater flexibility is being sought in production, too. As a result, supply chains are being recalibrated more readily in line with current needs.

Cost optimization and operational efficiency

Before COVID-19, cost savings and efficiency measures were considered the domain of procurement and supply chain teams, and not necessarily of the organization as a whole. There was little flexibility in the way resources were being used, whether that meant equipment, premises, or people. Most employees worked in buildings owned or leased by the company, and working from home was a rarity.

A new normal is now emerging. In areas where revenue is declining, operations are being reorganized and reprioritized – for example, by expanding a product line into new areas, by reviewing and adjusting the delivery model, and by automating parts of the supply chain so as to shorten time-to-market. At the same time, companies are realizing the importance of retaining and developing their talented people. There has also been a shift towards remote work, with greater interest in subscription-based office spaces and in the procurement of equipment for off-site use.

Fixing the roof

How can organizations build on these trends? In short, how can they fix the roof before the next monsoon?

In the next article in this series, we’ll be looking at steps they can take to future-proof their supply chains, and at how they can build in resilience and agility.

Read the Everest Group Research’s “Future-proofing Supply Chain Management: Building Resilience and Agility through Digital Transformation” report to learn more about how organizations can future-proofing their supply chain.

To learn more about how Capgemini’s Digital Supply Chain practice  can help your organization build a resilient, agile, and frictionless supply chain, contact: joerg.junghanns@capgemini.com

Read other blogs in this series:

Jörg Junghanns

Jörg Junghanns leverages innovation and a strategic and service mindset to help clients transform their supply chain operations into a growth enabler.

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