The COVID-19 pandemic laid bare the weaknesses in the production and supply chain strategies of firms worldwide. Manufacturers everywhere are to revaluate their logistics and sourcing strategies. Corporations need to scrutinize their level of risk exposure and then consider ways to improve resilience. The supply chain shock waves in China in February followed by demand shock due to the global economy shut down showed that firms need to improve how to manage the supply chain. Trade restriction coupled with the U.S.-China trade war during the pandemic led to a shortage of essential products and economic nationalism. All these factors have heightened the competitive pressure for manufacturers worldwide to increase their domestic production. Organizations are now thinking about eliminating the dependency on risky sources, enhancing employment opportunities at their domestic market, and implementing lean manufacturing policies that reduce the stock held in the global supply chains. Companies must be more resilient with their supply chains without compromising competitiveness using the following strategies:
Expose and address the hidden risks
Manufacturing modern products are complicated since the process incorporates sophisticated materials and the use of particular technological skills. Therefore, it is difficult for one firm to have all the capacities needed to produce all the products it needs. A company manufacturing a particular product will require raw materials or other product components coming from another country. Manufacturing companies do well to partner with subcontractors and suppliers who focus on just one area of operation. These suppliers also rely on other suppliers to make their products. The advantage is that it gives manufacturers a lot of flexibility in what to include in their manufacturing process and to integrate the latest technology. Reliance on a single supplier within the supply chain to provide crucial material for production exposes the company to more significant risks. There added risk of single-sourcing is when the supplier is from one country and produces one plant component.
Identify the existing vulnerabilities.
Knowing the most significant risk that lies along the supply chain so that the business can protect itself requires a lot of research. The process of data collection involves mapping the complete supply chain that would entail transportation hubs and distribution amenities. Most firms chose not to take this route because it is costly and time-consuming. These firms use a direct strategic supplier to supply a considerable chunk of the manufacturing companies products. The problem with single-sourcing without mapping the risk is that a sudden disruption can prove costlier than research. Your company must ascertain how long it can operate during a supply shock without closing its operation doors. The company should also forecast its capability to quickly improve or shift to other alternative sites when the whole industry faces a shortage. Organizations have the flexible manufacturing capacity and those that can easily be reengineered as needs evolve to benefit from disruptions. Upon identifying the risk within the supply chain, you can use that information by diversifying or hoarding critical materials.
Diversifying your supply base
One way to solve the problem of over-relying on one factory, region or supplier that is a high or medium risk source is to have additional sources in the area not susceptible to the same supply chain risk. The U.S.-China trade war has compelled some firms to adopt a “China plus one” policy intended to divide production between China and Southeast Asian counterparts such as Indonesia, Thailand or Vietnam. This diversification is beneficial but not enough since all these countries are in the same region. A regional financial crisis or war can cause serious problem in the global supply chain.
Shifting to other countries can easier if the raw material of the product you are manufacturing is available where you are moving. The challenge is when the resources involve sophisticated machinery and electronics like those found in China, making it difficult for manufacturing companies to diversify.
Another challenge is that the process of building a new supplier infrastructure in another region or country will require money and time. The China example explains this challenge perfectly. In the 1980s, China opened its specialized economic zone, but it had local suppliers. It heavily relied on long-range supply chain and logistics to procure material the world over and then assembled them in china factories. Despite government support, it took the country 20 years to build a cable responsible for supplying lots of its electronic components, chemicals, auto parts, and drug ingredients necessary for home manufacturing.
Focusing on other southeast Asian countries also pose a challenge of specialized logistics. Different from China, these nations often lack efficient high-capacity ports that can accommodate large container shipments. The result is more shipment cost through other developed harbours such as Singapore and Hong Kong. In the end, it is disadvantageous to completely cut off China from the global supply chain as it boasts an efficient workforce, reliable transportation infrastructure, and large, capable ports. Presence in the China market equip firms to gain competitive intelligence.
Conclusion
The economic disruption due to the COVID-19 pandemic has laid bare the current supply vulnerabilities and thrown aspersions on globalization. Management world over should take the scare of this crisis to re-examine their supply chain network, discover the existing weakness within the chain and take correct or preventive measures to ensure continued operation. Leaders should steer their corporations to clearly understand the intricates of a supply chain and its challenges to take advantage of its benefits. In this new era, technology is advancing the way the world does business, corporations that embrace emerging technologies will reap hugely.
