Thoughts on what the impact of COVID-19 has had on our current supply chain and procurement practices.
10th June 2020
Many businesses are re-evaluating their long, potentially geographically dispersed and complex supply chains following disruption faced from the Covid-19 pandemic. Organisations are asking whether they should consider bringing their supply back home (known as onshoring or nearshoring their production) to reduce risk and improve resilience in their operations. A new period of nationalism may be seen as an opportunity where pre-virus lean inventories need reconsideration.
But first, organisations should consider their position right now. Work out your risk compared to a perception of risk brought about by Covid-19? What is your expectation of the duration of the crisis? Do you think it is structural and long term or do you believe that people have short memories and that the new normal will simply revert to the old normal? Some organisations are benefiting from accelerated rates of change (where they had planned to evolve and have been forced to do so much more quickly) but ill-considered reactive change may not be a good thing.
If you are worried that your supply chain is not resilient and you may benefit from bringing production closer to home, first, consider your production location drivers (why did you originally decide to source from the original location? Do those reasons still apply?) Second, think about any implementation considerations (does a move undo years of hard work with suppliers or have exit or entry costs?) Last, have you considered contingency factors (related to the size of the firm and product, your competition, the price point etc).
So, what is your risk appetite? How important are costs to your business? What infrastructure do you need in place for your supply chain to operate effectively? Who has the knowledge to develop and manufacture your products (and where are they based?) What are your competitive priorities in the market? If a cost-based logic has not over-ridden a quality or knowledge-based logic then consider your next steps carefully as sustaining your business is key in these uncertain times. What are your business values and what do your consumers want? If this hasn’t changed and the disruption to your supply chain is temporary is this about getting back on your feet or remapping the supply chain entirely?
Written by Dr Rosanna Cole of the University of Surrey