Supply Chain Do’s and Don’ts for 2020

2020 has been a madly disruptive year for supply chains worldwide. Firms and governments around the world were unprepared for the sudden changes in trading that arose from the global pandemic. This resulted in record delays in shipping as well as shortages in globalized industries. Firms with supply chains spanning several countries had to deal with newly implemented border closures and travel restrictions. Ease of doing business was no longer many nations’ priority. Some companies fared better than others, notably businesses that had a strong online presence and those that could easily adapt to the new demands of a post-pandemic environment. The importance of a resilient supply chain was undoubtedly one of the most important factors in overcoming the economic challenges brought by COVID-19. This article highlights a few tips and a few common mistakes in firms’ organization of their supply chains.

Do establish relationships with multiple suppliers, don’t opt for single-source supply strategies.

COVID-19 created intense demand for certain products, notably medical equipment and certain household products. Companies that had relationships with different suppliers could leverage all of those relationships at once to ensure the viability of their supply chains and obtain the best prices for what they needed. Oppositely, companies that relied on one supplier that happened to falter under the demand pressure experienced longer replenishment delays and, in some cases, bidding wars against other of their supplier’s clients. Supplier loyalty may be highly valued in some industries, but it isn’t worth no supply at all.

Do invest in supply chain visibility, don’t maintain traditional inventory strategies.

Supply chain visibility includes all forms of insight research and digitalization that can aid a company in trying to predict what will happen to better predict sales. This can include market indicators that track real-time fluctuations impacting the firm’s product’s specific context. Conversely, traditional inventory strategies try to predict sales based on historical data collection. In a stable economy, using past sales data to forecast sales in the future is a cheap and effective method to ensure a firm can supply demand adequately. In a massively disrupted economy, past sales are irrelevant in predicting the future. For example, companies that depend on tourism sales were devastated by the pandemic. The algorithms some of these companies had in place to fix prices and supply demand went haywire after demand sharply dropped. Instead of using models that are built from sales data from the past, they could’ve used indicators that offer a better grasp of real demand based on what is happening in the present.

Do focus on risk management, don’t fixate on cost leadership.

When designing a cost structure for a product for which transport costs are important, it may be tempting to opt for the cheapest modes of transportation. However, 2020 has taught us that flexibility is capital to having a resilient supply chain. Preparing for risks that could influence the whole of a product’s supply chain could mean investing a bit more money in transportation that offers that flexibility. Picking a shipping company that operates many trade routes and that has freight forwarding infrastructures in a variety of locations could help mitigate risks. The premium paid for lower risk is well worth it in a global economy in which international trading may never be the same.

Do align with company objectives, don’t stick to department objectives.

Logistics departments in many companies operating internationally evaluate their performance in terms of time, cost and performance. While optimizing these factors may afford middle managers a few bonuses, supply chain excellence may not beget company success. For a firm to be successful, it must create value for its customers. Creating value is not uniquely contingent on costs and delays, but rather on what utility is extracted from a product to answer a client’s needs. If reducing costs and delays is done at the profit of quality control or innovation, the value for the customer may be compromised.

Optimism for 2021?

The pandemic isn’t over and supply chains around the world can count on more disruption on the way. Companies can stay competitive by adapting their supply chain strategies to be more flexible, data-driven, risk-conscious and vision-oriented.