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Aeolus Perspectives 16th Edition: The "bittersweet" lesson of Coronavirus, more control and risk analysis of the supply chain

24-07-2020

View from above on truck parking

The Covid-19 pandemic has highlighted the "fragility" of global supply chains, made up of multiple interdependent links widely geographically spread, which are difficult to control. Increasing the visibility of the supply chain and adopting a risk-oriented approach will be more essential.

Covid-19 has dramatically impacted almost everyone's life around the world. But most agree not to consider it as a real "game-changer". The pandemic has simply brightened some pieces of evidence and rushed trends and changes already ongoing. Many of these deal with the digital evolution of global consumption. Since the first days, the demand for ecommerce and home delivery service exploded putting quickly in crisis the global supply chains. The emergency has also set the ultimate key role of the logistics function for supporting Industry and Retail in serving the market. At the same time, however, emergency management has put on the spotlight some limits of Transport and Logistics (T&L).

The first one refers to globalization. The modern evolution of value chains and stronger price-competition have gradually pushed companies to delegate and relocate increasing parts of their core activities to first, second, and third-level suppliers, so trying to achieve considerable economies of scale or purpose. The progressive opening to international markets by even medium-small companies has also led to adopt global sourcing policies. As a consequence, by now it is not so uncommon finding companies of which even 80% of turnover is made up of purchased materials, and suppliers are widely spread out and located in really remote areas all around the world.

All these transformations have impacted on the stability of the supply chain that became global, longer and therefore intrinsically less transparent and controllable, increasing the dependence of companies by critical infrastructures, reducing the supply options, and therefore the resilience of the value chains in case of perturbations and unpredictable events such as the recent pandemic. During the Covid19 emergency, the fragility of this type of management has become dramatically evident. Long and uncertain lead times, extreme inflexibility, difficulties in international transport, low transparency, and visibility on the supply chain have seriously compromised the business continuity.

Because of the duration of the global emergency, the global market could be now characterized by the so-called “dance phenomenon”, in which “leopard-stained” lockdowns alternate for containing new outbreaks. Therefore, the trend could remain to fluctuate since each element of the supply chain could still interrupt its business in an asynchronous and not easily foreseeable way. Thinking about risk analysis and assessment should become a crucial attitude from now on. Companies can find in the supply chain risk management an important tool for knowing in advance the impacts that could be generated in case of crisis. However - here the second limit rose out during the pandemic experience – really few companies regularly implement them. The consultant company McKinsey has found greater and more significant benefits, during the pandemic, for those companies that had already adopted and used supply risk management tools harmoniously and regularly.

The first step is a full evaluation of the supplier since the winning fruits of the relationship, the containment of negative impacts, and the speed of recovery in the event of disruptions strictly depends on the reliability that the individual relationship can guarantee. It is also fundamental to have a complete and accurate map of all suppliers, considering the specific characteristics of the companies and the social, economic, political context in which they operate, and regularly monitoring trends and evolution. Analyzing the risks in the country in which a supplier operates can also highlight the need not only to adopt an alternative supplier but also to research and activate another one in a different country. Having a network of back-up suppliers can help to counteract the effects of excessive addiction. Finally, the collaboration between the various players in the supply chain must be considered as an essential value: the risk management during the Coronavirus experience has confirmed even more the importance of building a solid collaborative relationship with business partners.

So, the future supply chains are called to be not only faster for serving a time-stressed market led by digital consumption, but even also shorter, more transparent, flexible and resilient to face sudden and unexpected gear shifts like the Covid-19 pandemic one. Besides, added to effectiveness and efficiency, risk should be now considered as a new metric for evaluating the performances of the supply chain.

TAGS: Aeolus perspectives, Logistics, Supply Chain
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