The recent pandemic has affected every part of the value chain, from raw material sourcing to end customer. It is testing the commercial, operational, financial and organisational resilience of the majority of companies across the globe, and has highlighted risks and resiliency gaps for many organisations. CEOs are looking to get on the front foot when it comes to disruption and innovation, with 67% saying they will increase investment in disruption detection and innovation processes.
As the effects of COVID-19 continue to impact the global supply chain, how should businesses seek to build resilience into their supply chains moving forward? Below are some of the major disruptions affecting supply chains, and strategies that leading organisations are rapidly deploying to help build resilience and agility.
1. Logistics disruption
The ongoing global logistics disruptions stemming from the COVID-19 pandemic continue to impact businesses and consumers as the flow of consumer goods into key markets, such as North America and Europe, Southeast Asia and India, is restricted by the continued shutdowns of major global ports and airports, largely in China, South Korea, and the US.
The major logistics disruptions create a ripple effect across global supply chains that ultimately cause goods to pile up in storage, impacting ships on their way to ports — in the form of diversions or delays as they arrive at major transit hubs, restricting global trade flows and limiting access for businesses to import products and refill their inventory stocks.
Many reports highlight a high likelihood that the December 2021 and January 2022 festive seasons across the region will likely be severely impacted by restricted access to imported products. However, the challenge for many businesses within some of these markets is that it may go well beyond the next three to four months, as these disruptions look set to continue into 2022 and beyond.
Assuming that these disruptions recede, and access to sea and airfreight reverts to pre-pandemic levels, it will likely take some time before things return to normal. In the interim, consumers should expect to see higher prices (as excessive freight costs are passed down), and longer waits for retail shelves to be replenished (especially imported products). Consumers should reset their expectations, as items requiring repairs and maintenance could also be delayed in lengthy service queues.
Government and industry leaders are seeking to define strategies that build resilience and boost our domestic capabilities, to become less reliant on regional and global supply chains. Companies should look to redesign alternative supply chain flows, build inventory storage capabilities closer to their customers, and determine how to best enhance last-mile deliveries and returned goods.
2. Production delays
Production delays during COVID-19 have become headline news. Manufacturers are competing for limited supply of key commodities and logistical capacity, leading to empty shelves and long purchase lead times for consumers. However, it's not all doom and gloom. The pandemic has intensified the focus on supply chain evaluation and evolution with the industry evaluating and investing in long-term supply chain strategies to pave the way for a new post-pandemic normal.
The days of buffering inconsistent supply with excessive inventory at the lowest purchase cost are also quickly becoming a relic of the past as manufacturers evaluate risk as a key decision point in their supply chain development.
Through increased awareness and a need to maintain competitiveness, the industry is compelled to address many long-standing supply issues and re-engineer product specifications. Together, these are shaping more resilient and cost-effective supply chains that can position their respective organisations as leaders in this new normal.
3. Overreliance on a limited number of third parties
Despite the inherent risk associated with focusing on `one major trading partner', many businesses have strong relationships with just one major supplier, one large customer (or export market) and/or one major supply chain partner. As we emerge from the COVID-19 slowdown, many businesses recognise the need to better equip their supply chains by identifying alternative trading partnerships. They are actively seeking a broader list of suppliers, alternative markets/customers and alternative transport and logistics providers. Supply chain leaders are also turning the attention of their organisations to third- and fourth-party risk monitoring to address inherent and residual risks in near-real time and cyber and counterfeiting risks.
Businesses can build greater agility and resilience into their supply chains by working with providers who provide new capabilities as a service. New technologies, such as trading systems, planning and analytics capabilities, as well as additional logistics requirements provide variable cost solutions rather than long-term fixed overheads, enabling increased flexibility and better cost control. The outcomes can create a stronger, more diversified supply chain with greater potential for risk and cost mitigation in the future.
4. Doubling down on technology investment
The initial investments made in the previous 18 months by many companies were aimed at automating key nodes within the supply chain, such as intelligent automation used to enable efficient, effective and safe operations, including stores, warehouses, manufacturing facilities and even corporate office buildings. In 2022, you should expect to see an accelerated level of investment as businesses seek to enhance critical supply chain planning capabilities by adopting more advanced digital enablers, such as cognitive planning and AI-driven predictive analyticsm as well as adding greater integrity and visibility into secure supply chains with advanced track-and-trace and blockchain technologies.
One can observe that many supply chain managers are currently troubled by a lack of visibility across extended supply chains. Leading organisations are using advanced technologies to significantly improve visibility and boost response to major disruptions and variables within their domestic, regional and global supply chains.
5. Commodity pricing
Today, supply chain and procurement professionals are expected to be more than just negotiators. They also expected to have more knowledge of categories as well. A deeper understanding of commodities helps in leveraging the necessary levers and understanding the right price of purchase.
Spend transparency remains poor. While the category price is available, the detailed break-up of price in terms of material component, wastage, conversion, labour and premium added are not defined. Often category pricing is not indexed to the basic commodity price, which has led to category prices falling out of in sync with commodity pricing. For example, very few organisations have a scientific way of pricing paper-based packaging such as corrugated boxes. In many organisations, commodity purchase decisions are based more on experience than a structured mechanism. Timing of purchase and quantity becomes crucial while making these decisions.
To overcome these challenges, teams are focusing on digital transformation and technology to enable a seamless flow of information across value chain and efficient insights-driven decision-making. Organisations are leveraging spend analytics tools and software packages to increase visibility of where, how and when they spend. Consolidation of spend is enabling improved buying leverage and negotiating power to help drive value or push for improvements. Often, spend consolidation is a precursor to vendor consolidation and ESG segmentation and helps in reducing the variation in quality and pricing for the same type of product/service across geographies.
6. Workforce and labour
The COVID-19 period has been riddled with uncertainties, and labour market shortages have further complicated post-pandemic recovery for many industries. Apart from labour constraints, organisations should look into several other non-COVID-19-related factors to mitigate staffing issues.
The onset of new technology has fundamentally changed the way supply chains operate globally. Consumers are becoming more demanding, transforming supply chains at a faster rate. Modern operations are focused on technology and innovations, complicating supply chains. These forces are blurring the lines between skillsets of blue- and white-collared professionals with supply chain and manufacturing operations demanding a blend of both physical and technological skills to sustain and grow at present and in the future.
The changes in demographic are also impacting the overall resource pool. Organisations should rethink their approach to recruiting and engaging Gen Z, who will form a significant part of the workforce in the near future. The motivations and aspirations of new generations should be considered to keep the younger cohort of workers inspired.
With these aforementioned supply chain issues dominating board-level discussions, many organisations have experienced a resulting loss of focus on existing transformation mandates. Driver shortages, logistics provider capacity issues, inflation, shipping delays, increased freight costs, depleted inventory levels, labour shortages and demand peaks are driving discussions and require attention. Operational leads have been asked to shift their focus from large change projects to day-to-day operations and staff and customer needs. Boards are now learning how to balance the oversight of crisis response with the strategic thinking required beyond these immediate challenges.
The successful implementation of transformation mandates will likely determine an organisation's success post-pandemic. It is now more important than ever to ensure operations are flexible and resilient, with projects carried out, operations kept up to date and unnecessary added cost avoided.
Managements should ensure they adopt a scalable crisis management process, have sufficient leadership capabilities in place, and document their experiences and learnings throughout the pandemic so they are able to balance short- and long-term priorities.
Several considerations can assist companies amid these challenges:
- Operations should be flexible and resilient to adapt and adjust in real time to changes in trade flows, new regulations, the impact of COVID-19, climate change, trade tensions and other geopolitical movements.
- Technology should be effectively utilised to help reduce operating costs, provide visibility and diversify the way customer needs are met.
- Capability to adapt to digital operations and drive actionable improvements from data is important.
- Fleet management and supply chain networks should be responsive to increasing customer requirements.
- Collaboration and supplier partnerships and ongoing risk monitoring are needed to de-risk the supply chain.
To address rigidities, companies should focus on building a network of trusted vendors (customers, supply chain partners and suppliers) to help manage disruptions and support business continuity. Cultivating a resilient supply chain enables an organisation to better anticipate, react to and plan for the unexpected by enabling cross-functional integration and collaboration with its ecosystem of vendors.
KPMG professionals work with clients to develop detailed supply chain strategies. These strategies facilitate full gap analysis and implementation of tested approaches through the integration of target operating models. Strategic elements include evaluation and recommendation of alternate sourcing markets, inventory reduction strategies, service-level time improvements and adoption of strategies that build in supply redundancy and incentive-based supplier performance criteria.
KPMG Powered Enterprise | Supply Chain is an outcome-driven solution designed to support your organisation in addressing the challenge of organising a complex, dynamic supply chain. It helps you to better meet the demands of customers and respond to market changes, while striving to maximise efficiency gains both now and in the future. A helpful jump-start to your digital transformation, enabled by technology and real-time insights.
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