Supply Chain Executives across the globe are perplexed! For years companies have been designing their supply chain strategies with the assumption that materials will be easily available from anywhere across the globe. But the procurement challenges during COVID 19 have taken a new turn as this reality changes faster than anyone could ever imagine.
An Institute For Supply Chain Management survey conducted in March says that 75% of companies suffered from supply chain disruptions stemming from transportation restrictions due to the coronavirus. This figure is only expected to rise in the near future. The survey also brought into the spotlight how companies lack a contingency plan to deal with supply chain disruptions leading back to China.
The world is trying to grapple with this crisis and with an increasing focus on saving human lives, the focus is rightly on protecting employees and trying to minimize the health impacts. Various factories & warehouses have shut down or are operating with less than half of the original capacity. These developments have disrupted traditional supply chains and have brought their vulnerabilities in light, even as they continue to remain the backbone of an economy.
Consider a car manufacturer that had to close down seven of its factories as the company’s existing vendors could not supply vital raw materials to produce wire harness for the manufacturing process. The reason? Suppliers were from China’s Hubei province and where the government implemented a complete lockdown as it was the center of the coronavirus outbreak.
So what are the procurement challenges during COVID 19 that have left procurement leaders in a fix? What should be their focus and action points now and how technology plays a role in this? Let’s find out.
What are the immediate procurement challenges during COVID 19 ?
Challenge #1 China’s role in the global supply chain
China now plays a critical role in global trade. To put it in perspective, in 2003, when the SARS virus struck, China’s contribution to the global GDP was 4%. Today, the same number is around 17-20%. It forms an indispensable part of the global supply chain as a producer of products & components, a global consumer of industrial goods, and the consumer marketplace of the future.
As 90% of the Fortune 1000 companies have suppliers in regions of China, the COVID-19 pandemic has had a huge impact on their supply chainsDun and Bradstreet
It’s also important to note that not having any direct suppliers in regions of China is going to protect you from the outcomes on your own supply chain. This brings us to our second and most important point.
#2 Lack of visibility beyond tier 1 suppliers
65% of Chief Procurement Officers lacked the required visibility beyond Tier 1 suppliers.Deloitte survey, 2018
This is bad news for the current circumstances. The chain of events that are arising today from plant closures & supply shortages can amplify procurement challenges during COVID 19 if supply networks are not traced end-to-end.
If you want to get a complete picture of your procurement risks, you just cannot afford to leave out your suppliers up the chain. It’s extremely important to gain complete visibility into your tier 2 and tier 3 suppliers. Even if you think that they are small in size, don’t underestimate the impact they can have on your production schedules.
#3 Supplier and geographic concentration for cost-optimization
Many companies have so far kept low costs & efficiency ahead of risk management and they depend on a single supplier or single geography. Since China falls under the low-cost regions along with other countries like Taiwan, Vietnam, etc, a lot of companies chose these areas to look for suppliers. As the pandemic started to spread across China and hit other countries as well, the ones reliant on a single geographical location were hit hard and realized the need for geographical diversification of supply chains.
How can technology overcome procurement challenges during & post-COVID-19?
The idea is simple – traditional procurement strategies will not be able to handle today’s disruptions. Our present supply chains are designed to be cost-optimized with vendor & geographic concentration, have minimum to zero visibility beyond Tier 1 suppliers, and are linear & rigid. These factors trade supply chain resilience with low costs, which may prove further costly in a high-risk environment of today.
Procurement leaders had to endure shortages in raw materials and parts because of COVID 19. To visualize the impact of a disaster, consider when a series of earthquakes hit Japan’s Kumamoto, a global electronics manufacturer had to witness a 16% fall in revenue and a 66% drop in net income in 2016. Such is the economic impact of disruptions in the supply chain.
Some of the top companies are responding to procurement challenges in COVID 19 by investing in building resilient supply chains to mitigate the risks involved and boost efficiency. The thought process of a linear supply chain and optimization is being replaced by digital supply networks that enable end-to-end visibility, responsiveness & agility. These digital supply chains are well-equipped to predict the impacts of disasters and re-configure to mitigate them.
Let’s look at a few ways in which technology is creating a competitive advantage for procurement by solving the problems we mentioned in the previous section.
#1 Digital & automation solutions
Procurement leaders are turning to cloud-based supply chain applications, platforms & tools for better collaboration and information sharing. These platforms enable fast and better decision amongst organizations and their suppliers and partners in a secure environment. Leaders are also turning to automation & robotics to make their supply chains more self-governing and including more local suppliers for business continuity.
#2 Real-time global visibility & insights
Control tower solutions combined with Artificial Intelligence are solving the problem of real-time, end-to-end visibility in the supply chain. Insights from unstructured real-time data are used to anticipate risks & disruption points enabling near-real-time visibility using AI. Control towers consolidate the data across the supply chain with the help of AI, 5G, and blockchain technology. Control towers also anticipate the upstream & downstream impacts that disruptions will have on the supply chain so that procurement leaders are equipped with actionable insights to respond in advance.
The real world is full of uncertainty and even one small event can significantly change your #supplychain structure. hence, resilience is key!
Traditional, linear supply chains with little to no visibility will not suffice anymore. In a world of uncertainty where even a single event can cause massive changes to supply chains, having real-time, event-driven systems is the answer.
#3 Data, AI & Machine Learning
Procurement leaders should strive to maintain a competitive edge with data, AI, and Machine Learning. Big data analytics of internal as well as external sources of data will help procurement leaders to stay ahead of disruptions by predicting them in advance. The role of AI & Machine learning becomes evident in developing early warning systems, modeling risk scenarios, and instituting pre-programmed responses.
When it comes to using the power of data, taking the case of Toyota is a good idea. The company developed supply chain resilience by building a database to visualize supply networks for every component to overcome the problem of geographic & supplier concentration.
At the time of disaster, the database would inform the company about components that came only from one supplier and were tough to replace. This would allow Toyota to decrease dependence on individual providers by decreasing the number of unique designs & recognizing other parts production facilities to team up with.
#4 Supply chain intelligence & analytics
To support active visibility into all the layers of your supply chain, an appropriate supply chain intelligence and analytics platform will go a long way in mapping interdependencies & data to anticipate potential procurement risks. This combined with AI, data sharing & visualization platforms can help to simulate future scenarios, re-evaluate sourcing strategies, and allow complex permutations and combinations to be factored in.
To better manage demand forecasts, the right information should be at hand for businesses. Keeping this need for relevant data & insights in mind, Knoldus created a COVID-19 dashboard to represent the impacts of the pandemic on various countries in a single view.
If you want to create a similar platform customized for your supply chain needs, we are here for you. The supply chain intelligence solution will help you track all tiers of your supply chain by monitoring KPIs, market intelligence, and risk indicators.
Knoldus can help you navigate the COVID-19 crisis with the right technologies…
At Knoldus, we believe that collaborative efforts will go a long way in managing and responding to this crisis. We highly recommend you to better serve your customers by enhancing the support of digital solutions & prepare for the next normal. Our digital transformation solutions include technologies like Reactive microservices, Fast Data, Artificial Intelligence, Real-time Data Analytics at scale and more.
Knoldus has brought together insights and solutions to help you overcome the COVID-19 business challenges you currently face and help you prepare for the future.
We are also helping our customers in these tough times with Pre-assessments of their current IT infrastructure. If you’re looking for similar solutions to determine gaps to automate your operations, reach out to us. Get in touch with us to schedule a call with our expert or drop us a line at firstname.lastname@example.org.