Supply chains must be prepared for post COVID-19
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Many Danish companies are currently doing a fantastic job of minimising the immediate effects of COVID-19 and keeping critical supply chains functioning – the overall impression is that leadership, decisiveness and responsible action are being shown.
The vast majority of companies, however, are - understandably - still in crisis mode and showing reactive response patterns. It will however be critical to how well you come out of the crisis, whether you are already supplementing your crisis management actions with post COVID-19 actions. Actions that will make you ready for the new conditions that will undoubtedly apply in the future.
1) Demonstrate strong leadership or disciplined and consistent adherence
Every part of the supply chain must know its role and be able to make a positive contribution to the community. Liquidity will be vital in the near future and not everyone is equally well-equipped for the new conditions. It is crucial for supply chain managers to proactively strengthen and guide the vulnerable parts of the chain, and it is necessary for the vulnerable parts of the supply chain to follow the lead in a disciplined and consistent way.
The natural pattern of reactions that we know from other crises is that each company is focused on its own interests.
The winners in this crisis will be those keep their supply chain intact and even strengthen it through the crisis. The strong must withstand the pressure to undermine the weaker by, for example, increasing the payment times on their own invoices and adopting other self-interested measures. Instead, they have to move into support the chain, possibly by paying bills earlier than they are contractually obliged to (as, for example, several strong companies already do). From a broader point of view, it is better to do this than having to spend resources on the consequences of a vendor's bankruptcy.
2) Conduct scenario reviews of how your industry looks post-corona, and then prepare
Few industries will be unaffected by the corona crisis and many industries will experience markedly new conditions. There are markets that will disappear, some will experience a decline, few will experience growth, others will have needs staggered over time, and some will resurface in a new form. It requires business and operating models to be rethought, service and product offers renewed, and supply chains need to be reshaped.
Managers must start today by looking at the right parameters. Strategic and tactical planning processes must look at new scenarios with different eyes, which could give rise to a number of actions that should already be in place today - for example:
- Should the supply chain be in more direct dialogue with customers and future customers?
- Should stock be built and capacity created to meet a large stock need within a tight time frame?
- Should the R&D pipeline be restructured with some projects to be closed down and others accelerated, and old products retired and phased out as soon as possible so that they do not unnecessarily affect the balance sheet?
- Are there changing needs for distribution channels and models where new capacity needs to be secured and old capacity phased out?
- Should the production setup be changed to a new product range and different volumes?
- What size and composition should the supply chain have, and has the impact of the COVID-19 crisis scared global companies away from global supply chains, and should there be regionalisation of supply chains or even nationalisation?
- What are some of the risks that need to be mitigated in the future, and how do you do this in practice?
Our directions for action should not be seen as exhaustive, but we would strongly urge those, who have the luxury of having capacity, to address it - in parallel with your crisis management. The future offers difficult - but absolutely essential – decisions and choices to be made to deal with the crisis in the best possible way, and hopefully even the chance to come out stronger and better on the other side.
Søren Graugaard Pedersen and Mads Brandt, supply chain experts at PA Consulting
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