This Pandemic Won’t Last Forever. What Will You Do When It’s Over?
Ah, the good-old days, when a manufacturer produced the majority of its parts itself, and any suppliers it needed were just a short drive across town. Of course, no one reading this article was alive during that industrial golden age, and the parts and components going into today’s products have gotten so specialized and complex that OEMs have to rely on a worldwide network of suppliers.
Unfortunately, we’ve seen what happens to that network when a little (but too often lethal) virus gets into the mix. We’ll get to the other side of the pandemic, of course. But that doesn’t necessarily mean everything will get easier.
Even after we can safely throw away the face masks, “Manufacturers worldwide are going to be under greater political and competitive pressures to increase their domestic production, grow employment in their home countries, reduce or even eliminate their dependence on sources that are perceived as risky, and rethink their use of lean manufacturing strategies that involve minimizing the amount of inventory held in their global supply chains,” predicts a new article from the Harvard Business Review, “Global Supply Chains in a Post-Pandemic World.” (A recent study attached a price tag to all that potential reshoring.)
Meantime, consumers are still going to expect the lowest prices possible, even if more manufacturing jobs become available in the United States and other Western countries.
How do you thread that needle?
HBR recommends you start the process by identifying your hidden vulnerabilities. It acknowledges that mapping your supply chain will be “time-consuming and expensive,” but you need to understand the potential impact if a second- or third-tier supplier is disrupted — and, how vulnerable they are to disruption.
Next, diversify your supply chain. “Managers should consider a regional strategy of producing a substantial proportion of key goods within the region where they are consumed,” HBR recommended. “North America might be served by shifting labor-intensive work from China to Mexico and Central America.”
Of course, that will be neither easy nor inexpensive. HBR pointed out that it’s almost like viewing China’s recent industrial growth in reverse: “When China first opened its special economic zones in the 1980s, it had almost no indigenous suppliers and had to rely on far-flung global supply chains and on logistics specialists who procured materials from around the world and kitted them for assembly in Chinese factories. Even with the support of government incentives, it took 20 years for the country to build a local [manufacturing] base.”
It shouldn’t take that long to diversify your supply chain (let’s hope not), but as you rework your network, consider holding intermediate inventory or safety stock until new suppliers are found. That’s a big change from the JIT mentality, but can you afford a repeat of what’s happened in 2020?
Fortunately, there are tools to help you on this journey. HBR recommended you and your organization take advantage of process innovations. These include ever-advancing automation, processing, continuous flow and additive technologies.
Finally, ask yourself: Do we really need all those SKUs? “A case in point is the U.S. groceries market, where companies had difficulty adjusting to the plunge in demand from restaurants and cafeterias and the rise in consumer demand,” the article observed. “SKU proliferation — the addition of different forms of the same product to serve different market segments — was partly responsible.”
Of course, you could file all of these strategies under “easier said than done.” But, as HBR pointed out, “Managers everywhere should use this crisis to take a fresh look at their supply networks, take steps to understand their vulnerabilities and then take actions to improve robustness.”