The post COVID-19 environment clearly points to a number of trends companies must consider as they embark on the process to reassess their supply networks and product architecture:
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Significant amounts of manufacturing will leave China and be distributed in the 3 global economic blocks. As localization occurs, COGS are anticipated to increase (approximately 15%), supply chains will grow shorter. Companies will need to perform a structured and repeatable balancing act to make decisions.
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Manufacturing will be simplified in terms of the SKUs that will be offered to the localized marketplaces. Engineering, purchasing, supply chain, quality and other functions need to reinforce their global strength while simultaneously building regional capabilities to support the more localized supply network. This will necessitate SKU’s to fulfill multiple applications or to be subcomponents in multiple solutions.
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Single sourcing will be reduced to allow global economic regions to be self-sufficient and to enable alternative supply paths within the network. The balance must be struck in the distribution of purchasing volumes to suppliers in order to retain as much purchasing power as possible.
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Supply chains will become more efficient and shorter within each economic block; however, they will grow longer and more expensive across the 3 zones. Comprehensive re-negotiations with packaging and transportation vendors will be more frequent.
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Quality systems and product development capabilities will be severely tested as new supply streams are created, resources stretched, and expertise shifted. Some suppliers ramp down while others ramp up, and capabilities are duplicated.
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Companies will increase M&A activity looking for solutions to gaps found in their assortment, supply chain, or geographic demand. Other companies will be looking for distressed assets to faster fuel growth and efficiency.
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Collaboration between the supply chain players is going to be simplified, automated, and universal to provide global views of inventory and demand. Institutions will need to learn how to “buy sideways” from other players as critical demand dictates. Technologies like logistics blockchains will become the new norm to increase supply network transparency.
How can you address these challenges?
Some of the processes described below may already be part of the protocol of your company. If not, the following section lays out processes for your consideration. If these processes are already in your organization, make sure to build the muscle and discipline necessary to very quickly and flexibly execute the overall workflow:
Our perspective is that the product planning and the global network / supply chain vectors of an organization need to work together much more harmoniously than in the past, involving the financial teams in every step to ensure correct decision-making. The 7 steps described provide an overview of a process for addressing many of the supply chain challenges COVID-19 has created (Please note this is an overview and not an exhaustive list). This intersection of global strength and local capability where companies will suffer or thrive.
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Visualize current architecture within each economic block and globally
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Segment product offerings to secure demand: products that enable/destroy value, strategic products.
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Align scarce resources to highest value generating SKUs, align incentives for those SKUs
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Decide on product strategy for every application / market segment, including service and aftermarket
Go to Portfolio Management to Learn More
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Understand the complete supply network at the tier 1, 2, 3, 3+ level in each economic block and globally (including raw materials)
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Assess financial health and physical supply locations for each level
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Develop a clear understanding of the ownership structures of suppliers and key raw materials providers to avoid building unknown risk
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As appropriate, define alternative suppliers for complete vetting and sampling
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Define and later execute M&A where value can be created through capacity, costs , service, speed
Go to Supply Chain Optimization to Learn More
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Run “War game” scenario modeling under different conditions. Decide on multiple sourcing and other strategies as required
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Secure transportation modes for alternative scenarios
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Develop long-term SIOP based inventory and production scenarios
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Balance risk mitigation with financial consequences (based on total cost of ownership)
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Understand how adjacent industries will influence your network as they diversify, re-locate, etc.
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Perform value engineering projects (VA/VE), which include component standardization, customer application coverage, modularization, etc. to offset supply changes. Involve cross-functional teams from different regions, and allow strong input to interpret local requirements by local specialists
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Ensure inflow of “6 idea sources”: function analysis, sourcing, supplier input, performance teardown, benchmarking, design-for-manufacturing / design-for-assembly (DfM / DfA)
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Actively involve suppliers locally and globally
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Align product cost reduction opportunities with potential material cost increases from multiple sourcing options
Go to Value Engineering to Learn More
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Evaluate along the 5-level continuum of vertical integration to make relevant make/buy decisions. Integrate decisions into network plan
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Prioritize high-value / unique raw materials and parts
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Align vertical integration with financial returns
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Build contingency plans for different vertical integration levels per geography, supplier, part family, part, etc.
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Where applicable, plan for in-house production and footprint consequences
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Include pricing policies into the plan for every part (PFEP)
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Visualize the complexity of all changes on various consolidation levels
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Develop process and mechanisms for all supply chain partners to provide updates
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Develop full transparency of transactions by the various supply levels from order acknowledgment to delivery to warehouse or customer. Use newest technologies if appropriate, f.e. logistics blockchains
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Create / amend the master service agreements (MSA) with all suppliers to include the periodic supply chain reviews into their scope
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Build “command centers” into the execution strategy
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Educate, build, and drive accountability of actions
Go to the Argo Crisis Command Center to Learn More
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Establish a steering team and a assemble a working team to review and drive improvement loops back into the steps
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Re-visit the process periodically for new / other parts & products
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Standardize and adjust process flow
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Periodic (f.e. bi-annual) review of network design to react to new supply and demand