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Supply Chain Management Shifts Due to COVID-19

Supply Chain Management Shifts Due to COVID-19

Sept. 30, 2020
Companies are rethinking sourcing from the lowest-cost supplier and 62% expect the focus on just-in-time (JIT) manufacturing models will decrease.

Two survey findings suggest a potentially transformative shift in the way manufacturing executives typically think about their global supply chains: from a focus on low costs and lean inventory, to one that prioritizes stability and resilience.

One survey, by law firm Foley & Lardner LLP, Global Supply Chain Disruption and Future Strategies Survey Report, interviewed 150 manufacturing companies about general trends in supply chain management.

The other survey, Accelerating Trends: Assessing the Supply Chain in a Post-Pandemic World looked specifically at a shift in supply chains away from China as well as how companies are using new technologies to improve efficiency.

Seventy percent of respondents agree that, as a result of COVID-19, companies will lessen their focus on sourcing from the lowest-cost supplier and 62% expect the focus on just-in-time (JIT) manufacturing models will also decrease.

 “The survey findings point to a significant shift in perspective, but not necessarily a new one,” said Vanessa Miller, co-chair of Foley’s Coronavirus Task Force and the firm’s Supply Chain Team. “After the Great Recession, we saw calls for sweeping change, albeit on different issues, only to find that some of it was easier said than done. But 2020 is not 2009, and we may very well see companies follow through this time – especially if they see continuity of supply begin to overtake price as a key driver for success.”

As manufacturers review supply chain processes to mitigate future risk, the Accelerating Trends report details categories that can be analyzed through Foley’s Resiliency Review assessment tool, including reliance on JIT models and assessing contractual allocation of risk.

A Push for Supply Chain Visibility and Transparency

Manufacturing executives are taking prudent steps to manage risk in their supply chains, with strengthening relationships and increasing transparency with suppliers and buyers as the top strategy identified by survey respondents. In addition, the vast majority (92%) are taking at least some action to create more visibility within their supply chains, including requiring more information on suppliers’ own risk management and continuity strategies.

“In the COVID-19 environment, more questions are being asked within the supply chain, and companies are sharing more information about their capacity with customers,” said Ann Marie Uetz, head of Foley’s Coronavirus Task Force. “Whereas, prior to the crisis, customers might request information and not get it, in the midst of the pandemic it is no longer acceptable to not show your cards or be uncommunicative with buyers.”

Rethinking China

The Foley reports also analyze the extent to which COVID-19 has accelerated the movement of production and sourcing away from China. Of the survey respondents who have operated in the country, 59% have either already withdrawn operations, are in the process of doing so, or are considering it.

“Companies that previously diversified their international supply chains in response to the U.S.-China trade war were better positioned to mitigate the effects of the pandemic,” said Kate Wegrzyn, co-chair of Foley’s Coronavirus Task Force and the firm’s Supply Chain Team. “That said, companies may also benefit from retaining certain processes in China while relocating others in a strategic manner that disperses risks of disruption.”

For manufacturers and suppliers that decide to reduce their reliance on China, the question remains where to go next. The Accelerating Trends report analyzes the key costs, benefits, and risks to consider in several regions that present alternatives to China. According to the survey findings, the result of this analysis has increasingly led companies to move (or consider moving) supply chains closer to home: to the U.S. (74%), Mexico (47%), and/or Canada (24%).

Technology and Supply Chain Innovation

The COVID-19 pandemic is also speeding up the adoption of new technologies and innovative business processes that improve supply chain efficiency and resilience.

The Accelerating Trends report identifies eight specific areas that are expected to see greater investments and provides guidance on how they stack up against each other in terms of resilience, cost, and maturity. In addition, survey respondents identified the top technologies they are considering as new tools or applications that improve supply chain visibility and tracking (47%) and operational analytics to better track business metrics and indicators (39%).

“As companies adopt more technology and automation into their production processes, realizing the benefits of these initiatives will require that efforts be structured for success from the outset,” said James Kalyvas, Foley’s Chief Innovation Partner and chair of the firm’s Technology Transactions & Outsourcing Practice. “That means identifying clear business objectives, tying payment to outcomes that achieve those objectives, and ensuring effective internal management of the implementation.”

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