Nelson Chow, the Supply Chain and Operations Consulting Partner at EY Advisory Services, on how supply chains can better navigate future disruption by preparing today
There is no question that the pandemic has reshaped the relationship between business and society. The general population now views businesses as not only providers of goods and services, but as organizations that have a vital role to play in solving humanity’s greatest challenges. This heightened scrutiny means capital and talent will shift from organizations that create value only for their shareholders to those that create value in the long term, across a broader group of stakeholders, including employees, consumers and society.
As the new normal emerges, economic and societal issues such as climate change, inclusivity, human rights will again dominate the agenda, and businesses will be expected to play a role in addressing them. As the backbone of every business, supply chains should be prepared to assist their businesses to deliver those long-term values.
Here are three things that businesses can do now to reframe and transform their supply chain.
1. Use data analytics to increase end-to-end supply chain transparency
A modern supply chain needs to be data-driven. With advancements in technology, data is now a key building block in many modern supply chains as opposed to just a supplement to traditional models.
COVID-19 continues to teach businesses the need to adapt. Working from home is more commonplace, and personal protective equipment and masks are deemed by many as the most valuable product of the year. Yet, many companies face difficulties in meeting changes in demand led by differences in a customer’s income, consumption patterns and the desire to spend. One cannot rely entirely on human intelligence to forecast the supply required from businesses to meet market demands.
This is where data can help. By gathering and analysing big data from online (e.g. e-commerce and social media) and traditional channels (e.g. transactional records), businesses can have better visibility to forecast and model market demands. Such visibility allows companies to gain meaningful and actionable insights such as a supplier’s financial health, material availability, and market and economic indicators.
These insights are especially important in uncertain times like today because they not only support but also guide decision-making on how businesses can plan workforce, optimize distribution channels, rebalance production mix and identify proactive changes in customer demands.
2. Optimize the supply chain operating model
Many linear supply chains’ operating models are no longer effective today. In order to sustain profitable growth, supply chains must meet changing consumer demands and companies reconfigure their operating models.
For example, a major grocer in Mainland China has demonstrated the importance of continuously optimizing its business and supply chain model to overcome challenges in an ever-changing market environment.
During the pandemic, there was a wave of panic buying of daily essentials before the city went into lockdown. The grocer would not have been able to satisfy the surge in demand if it had kept the traditional linear procurement model of purchasing from its line of wholesalers and purchasing agents. In order to shorten their procurement lead time, the grocer expanded their sourcing channels and boosted transportation speed. They set up direct buying channels with suppliers to ensure goods and services could be sourced and delivered to their retail stores in a more timely manner.
Of course, this operating model is not meant to be around forever. The grocer will eventually need to recalibrate when the pandemic ends in order to create long-term value. The key is that operating models should align with business strategies and be flexible in navigating uncertainties.
3. Incorporate digital innovation to achieve operational excellence
In principle, an effective supply chain sources, plans, makes and moves to fulfil customer needs. What used to be a rigid and linear supply chain is now being replaced with a collaborative and interconnected supply chain network. In this ecosystem era, we recognize the importance of incorporating innovation and digital into a supply chain.
We should be continuously challenging ourselves with “what if” questions: What if we can deliver products and services that satisfy our customers in half the time and at half the cost? What if two-hour delivery and 100 percent service levels are required for survival? What if bots negotiate on behalf of the company? What if tax rates increase due to sustainability requirements and trade barriers?
These are all valid scenarios that will one day be realized. What companies can do now is to start building “new infrastructures” into their business, such as process automation, 3D printing for rapid prototyping, artificial intelligence for budgeting and forecasting customer demand, blockchain for intellectual property management and contract management, etc.
Uncertain times like today should serve as a wake-up call for many companies to start their transformation journey. Leaders of a company, no matter the industry, can take the lead to make a difference today for their business and help it to be better equipped to handle digitally disrupted markets. These are some critical questions senior management would need to constantly consider in the era of today’s “new normal.”