The global pandemic has exposed hidden vulnerabilities in the global supply chain, and companies must now begin a long process of reevaluating and rebalancing the supply chain to create a new model. Michigan State University, in conjunction with global supply chain and operations consulting firm Maine Pointe, has released a new executive management and board discussion white paper: “Is Today’s Supply Chain Model Dead? Have You Got Its Replacement Ready?”
The white paper addresses the enormous pressure facing business leaders, which includes limiting short-term disruption, supporting mid-term recovery and ensuring greater agility and resilience in the future. The pandemic has become a catalyst for rethinking how companies organize their supply chains and will ultimately lead to a rebalancing of the supply chain that addresses many of the limitations of the current model.
Is the supply chain dead?
Simon Knowles, CMO of Maine Pointe and coauthor of the paper, answered the question, “Is the supply chain dead?”
“No, but a new model needs to be put in place that addresses weaknesses,” Knowles said. “A more resilient supply chain will be better able to withstand the next major disruption, whatever that may be.”
In the paper, the authors suggest that the purely cost-driven supply chain, which emphasizes cost savings above all else, is inflexible, ill-equipped to deal with major changes in demand — which can lead to serious shortages — and not as responsive as it needs to be.
“Existing supply chain models have been very efficient at driving down costs,” Steven Melnyk, professor of supply chain management and the paper’s coauthor, added. “But the pandemic has highlighted serious risks to the supply chain, and now is the time for companies to take a serious look at whether they can simply return to their previous supply chain model.
“2020 will be a washout for many firms,” Melnyk continued. “However, if companies want to hit their 2021 numbers, they need to start assessing their model and have rebalancing plans in place by October 2020 to build a more competitive and responsive supply chain model.”
What do companies need to do now?
The paper outlines several actionable steps business leaders must take to address both the short-term fallout of the pandemic-driven shutdowns and the need for a long-term rebalancing:
- Conducting a review to determine what went right and what was missing in the company’s response
- Reassessing the company’s global footprint, building in more agility, optimizing manufacturing production and rebalancing the offshore, nearshore and onshore mix
- Building in more optionality and de-risking, including a strategy to procure critical components from two or more locations to ensure continuity
- Digitizing the supply chain operation and realigning KPIs to optimize the supply chain for greater visibility, speed and agility
- Ensuring an improved end-to-end supplier process with greater transparency and uniform standards
- Realigning the organization to inspire a new culture of digital transformation and visibility
Additionally, the white paper addresses several ways the business world will shift after the pandemic. The supplier base will have to change to better balance the risk and, as a result, a purely cost-driven supply chain will have to be replaced with one that builds in greater optionality.
“This will still include a global factor,” Melnyk said. “But the long-term rebalancing will limit exposure by avoiding single-region or single-supplier sourcing. A balance of global, regional and local sourcing will prove to be less risky and more efficient in the long run.”
“The pandemic is one in a series of global risk events that have exposed supply chain vulnerabilities,” Knowles added. “It certainly will not be the last disruptive event, and action must be taken immediately to ensure resiliency in the future.”