Global supply chains were among the first to register the business impacts of the COVID-19 pandemic, and they remain severely strained across a broad range of industries.
In the latest episode of our podcast, BTG Insights on Demand, supply chain and manufacturing specialist Rosemary Coates joins Business Talent Group’s Leah Hoffmann to discuss how companies can address the disruption and stabilize their supply chains.
Listen to the podcast to hear Rosemary’s advice for building more resilient operations. You can also read our lightly edited transcript of the chat.
We spoke to you in late February for a piece about COVID-19 related supply chain disruptions. At that point, responding to the coronavirus outbreak mostly meant dealing with disruptions to Chinese manufacturing. Now, just over a month later, the situation has changed.
Yeah. The landscape is sort of barren these days.
In February, you talked about the need for companies to look beyond China at alternate manufacturing sites. Have the intervening weeks changed that advice?
That’s still applicable, but it’s now clear that companies must make a strategic plan for alternate manufacturing locations, alternate ways of distributing products—I mean, there are all kinds of changes that we’re going to see coming out of this. I think most companies are going to make progress by inches, because we’re facing a very long recessionary period. But that doesn’t mean that we should stop making plans. It’s quite likely we’re going to have a second wave of this next winter. As a result, companies need to plan for that and what they’re going to do.
According to the Institute for Supply Management, 75% of the companies in late February had reported some kind of disruption, and 44% of them didn’t have a plan to deal with it.
I’ve been working with clients for quite some time, and I always try to emphasize the need to have a plan B. Even when times are good and shipments are moving and so forth, you never know what’s around the corner.
When the Section 301 tariffs on Chinese imports and Section 232 tariffs on aluminum and steel were put in place, companies woke up and started thinking about how they might manufacture someplace other than China. But it was almost halfhearted, and people thought, you know, “It’ll be over soon” or “The trade war will stop soon.” Now, I think it’s pretty obvious that you have to have alternate plans in place. And I don’t mean just for China. What are you going to do when these kinds of things happen again? Do you have alternate sources? Can you source from different places? Can you move your business in a different direction?
In a global pandemic of this nature, how can companies deal with the fact that one of those alternate sources might be a different country at a different stage of its pandemic?
You should always look at alternate countries where could you move production. So instead of China, maybe it’s Vietnam or Taiwan or Indonesia or Mexico. But you have to balance that with demand, as well. It’s not good enough just to figure out how to get a lot of inventory in place or get more parts to a specific region. You have to understand that demand is probably going to be reduced, too. You need to re-optimize the number of products you make based on what you think will sell. The first step is to look at your global landscape and identify what are the most strategic or most important things and how that’s going to balance your incoming supply chains with your outgoing shipments to customers.
Another gap that this pandemic seems to have exposed is the visibility big companies have into their supply chains. According to another survey I read, 70% of the companies impacted by the pandemic in January and February were still in data collection mode, manually trying to figure out which suppliers were going to be affected and how that might move up the chain.
In January, when Wuhan went on lockdown in China, it affected specific industries like automotive parts and some other industries related to metal fabrication. But very quickly, you could see how it spread across China. Because shutting down metal fabrication in the Wuhan area could affect a product that was being made in southern China, in the Pearl River Valley and in Guangzhou, Dongguan, and Shenzhen, and pretty soon those companies were being shut down as well. And then, eventually, the Chinese government pretty much closed all factories for a few weeks, which affected everything else.
As a general rule, most companies in the U.S. have about 30 to 60 days’ worth of inventory. So they kept going, and it didn’t feel like there was that much effect. But now we’re in April, and those inventories are all gone. Companies have produced their products, and there isn’t much left.
So now what do they do? If they are continuing to manufacture—and a lot of companies are considered essential industry—they can’t get supplies, and they’re scrambling for places to source things. But these are the kind of ideas that you have to think through and be prepared for. I mean, even though demand is reduced, you’re still going to have some companies that are going to need your products. And how do you produce those if you don’t have the raw materials or the incoming supply chain items to do that?
It does seem like a very good wake-up call for companies to invest in the creation of more precise and detailed supply chain plans.
Yeah. If nothing else, this should have sparked a little bit of care in companies that they need to have alternate plans. Now is the time to think that through and come up with a roadmap for working your way back to normal commerce when this is over.
How do you think this is going to play out in the near to medium term? I gather that some Chinese factories that are starting to come back online, but now the rest of the world is involved and there are quarantines and lots of other things to navigate.
Some of the Chinese firms are coming back and starting to supply things like masks and other critically needed items at this point. But it was also a wake-up call for companies to understand how dependent they were on manufacturing in China, including things like ventilators and medical supplies and also pharmaceuticals. So it’s time for those companies to think through that strategy and figure out how do they either bring manufacturing back to the US or move it to different places in the world.
Some people are starting to criticize what this says about our reliance on outsourcing and just-in-time inventory, especially for those critical items you mentioned, like masks and ventilators. What do you make of those critiques?
Well, these are treacherous times, and I think a lot of people make statements about this or that. Even on TV, you hear people throwing around the term or talking about “supply chain,” and they don’t really know what they’re talking about. They don’t know how complex it is or understand the processes for importing and all the component steps you have to go through in order to make supply chains effective and real. So you get a lot of hype and different ideas. I think it’s really important to work with somebody who has enough experience to know how supply chains really happen.
This pandemic is almost certainly going to change the way people work and shop. How do you think it will change global supply chains?
There’s no question in my mind that we’re going to move towards a more digital kind of work environment, using software to understand where in the supply chain our products are moving. When I began my career, 25 years ago, we didn’t call it “supply chain.” We called it “operations,” and it was about moving boxes off the shipping dock. In today’s environment, supply chain is really about moving information. It’s less about looking for particular boxes and more about knowing what is in your supply chain, what’s coming to you, what’s going out, and how you make that flow happen or rebalance it so that it moves in an orchestrated way across the world.
And while I think we’re definitely going to see a move towards more digitization, this has also been really interesting for people who can work from home and work effectively from home. In the past, it was sort of a luxury. But now I think it’s going to be more the norm than the exception, and that’ll change the way people communicate and the digital tools they use to make things happen.
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