What’s the Secret of Companies Able to Pivot Supply Chains During Pandemic?

What’s the Secret of Companies Able to Pivot Supply Chains During Pandemic?

April 22, 2020
"One core competence of firms that can flexibly respond is innovation," says Professor Ted Stank of the University of Tennessee.

By examining the various ways the manufacturing is adjusting to the new reality of business brought about by the pandemic,  manufacturing can discover some best practices. 

IndustryWeek asked Ted Stank, professor of supply chain and logistics at the University of Tennessee's online Masters of Supply Chain Management program, and faculty director of the Global Supply Chain Institute, for this take on the situation.

Q:“When you look at all these companies who are rapidly pivoting to make much-needed supplies, what about their supply chains enables them to be agile/flexible enough to make such a shift?”

There are a lot of issues that play into this answer.  The first is the nature of the product line/service the company offers.  Some companies are engaged in making products that simply don’t align very well with the kinds of products emerging as critical shortages during this crisis.  Paper products, hand sanitizer, medical disposable supplies (cotton swabs, gauze, etc), masks, ventilators, etc. can be made by some companies from components for which their supply chains already have sources and conversion processes in place, while others simply don’t have the vendor connections or the conversion processes that can readily be converted to making such products. 

 For example, we work with a number of consumer packaged goods firms that have access to paper supplies and textiles and whose manufacturing facilities and processes can be redirected into making masks and hand sanitizer, while a heavy equipment manufacturer and furniture manufacturer cannot really do that. 

That said, a number of our partners do have some components that can be converted; the heavy equipment manufacturer, for example, is making masks on a production line that is typically used for making engine air filters.  Similarly, a flooring manufacturer has been making composite floors for ad hoc emergency medical facilities that are being constructed in convention centers, gyms, etc., to deal with overflows from hospitals.  So even if the main product flow cannot be directed toward such emergent needs, an innovative firm can likely find some small part of its operations that might be useful in aiding the crisis.

 So that points out one core competence of firms that can flexibly respond – innovation.  Usually, ideas for such innovation as mentioned above come from the bottom of the organization up rather than the top-down and if an organization does not have processes – or culture! – in place to support that kind of innovation it is unlikely that the top floor corner office is going to envision the kind of ground/line level operational changes that can flexibly respond to these kinds of needs. 

It also bears mentioning that still today, despite all of our talk about robotics and digitalization, PEOPLE are the best innovators and if a firm’s production is heavily automated that is much more difficult to adapt than one that is more labor-intensive.  And that means that an organization has to have a culture of protecting its people and keeping them safe so that they can be free to innovate.  Our partners are reporting some very stringent adherence to CDC guidelines for keeping employees safe when they come to work – temperature screening, social distancing, installing screens between workstations, daily disinfecting, separation of shifts, facility shutdowns if a worker becomes sick, etc.

I would say another key to being able to make this kind of response is their relationships with both goods and service providers.  Most of the companies with whom I am familiar that are taking Herculean steps during this crisis are conducting daily multi-level war room exercises with their key goods and service suppliers, reviewing needed actions, discussing pain points and challenges, and cooperatively devising ways to get the job done.  I’ve got to say that it is truly inspiring, and I think that the relationships that rise to this challenge are going to be big winners when we return to the “next normal.”  Many manufacturing and retail firms that I’ve talked to are reporting that they are working with whatever vendor can step up and provide them with a good solution regardless of contract structure at this point.

Q: What lessons learned can manufacturers leverage to improve their supply chains going forward?

1.- A culture and structure to support bottom-up innovation; the further a manager rises away from the shop floor, the more isolated/insulated they get from what is really happening inline-level operations and therefore how it can be innovated.  Let those people who come to work on the line or on the shipping dock or in the truck every day come up with the ideas – it is a guarantee that they have them; they may not all be good, but then again there is likely one or more that are game-changers

   a-Take care of your people!  Let them know that management is there to ensure that they are safe (and employed) so that they can innovate and do their jobs

2.- Leverage the supply base, both goods suppliers and service providers.  Similar to the perspective in point #1, they tend to have better ground-level knowledge of their corner of the operating realm and can see solutions that someone else might not.  The kinds of workarounds that are happening in transportation today to move products through a broken and disrupted global supply chain are amazing.  And these kinds of solutions are facilitated by strong networks and relationships.

3.- Maybe the most important as the others are responses to crisis – start taking risk management seriously so that perhaps we can avoid crises instead of responding to them!  My opinion:  A robust and rigorous Supply Chain Risk Management process should be as important to an organization as Integrated Business Planning, resource planning, financial planning, etc.  Far too many big firms still just pay lip service to SC Risk management, and far too many small and medium-sized firms pay no attention to it at all.  That said, maybe no one could have predicted a Global Pandemic, but there were indicators that this was possible and a universal truth is that forewarned is forearmed.

Q: How can supply chain professionals identify the strengths, weaknesses, opportunities, and risks they face in their respective industries and regions so as to best mitigate the impacts of crises like the COVID-19 pandemic?

1. This reflects back to point #3 above, but to me, the biggest lesson is to engrain SC risk management into the culture of senior SC leaders and down through the organization.  This should involve SWOT analyses at multiple levels of the organization and cover a lot of the points I’ve made above.

2. My strong suspicion is that as the result of better SC risk planning, we are going to see the acceleration of the global regionalization trend that has been slowly building for the last 5-7 years.  I.e., companies should truly commit to building regional supply chains to support regional demand markets, including sourcing, conversion, and logistics networks in-region.  The forces that have driven globalization over the last 70 years appear to have reached a zenith and now seem to be trending back toward a more happy medium position where commodities may be sourced globally (or in multiple global locations) but more value-added elements of the supply chain are located in geographical regions to support regional demand.  We are certain to lose some efficiency in certain operational areas, but I believe that robust total costing that includes the costs of disruption will prove that the decision is financially as well as operationally advisable in the long run.  

Note: The soon-to-be-released EPIC Global Supply Chain Risk Assessment White Paper, sponsored by UT, CSCMP and IHS Markit addresses in significant detail this issue. 

3. So my last point above requires improved analytics and financial models, which requires better, more transparent and timely data, which means that we need to continue to invest in digital technology to achieve this.  It is not by accident that retailers renowned for their digital prowess, e.g., Amazon, Alibaba, Walmart, etc,. are realizing huge revenue spikes during this crisis (their business models help, but imagine if Walmart had not invested so heavily in digital technology and by online, pick up in-store – BOPIS – prior to this crisis?). 

a.   I think that e-commerce will be a far more significant part of retail sales going forward – it has been in the low teens as a % of US and global retail sales; my bet is that it will jump to the ’20s and maybe 30’s as a percent of sales during this crisis and stay there.  Woe be the company not prepared to deal with that.  I could cite a few that my wife and I have purchased from during the last month that failed miserably and that experience will stick with us as it will with other consumers.

b. Social media is where the world lives today – we must get better at using that information in demand plans, risk plans, operational plans, etc.

4. Companies will invest more in temperature-controlled infrastructure home delivery of groceries and pharmaceuticals rises dramatically

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