COVID-19 has made it clear that the supply chain is prone to failure and exposed its pain points. A survey by Supply Chain Magazine among 143 supply chain decision makers in Europe shows that 78 percent have experienced negative short-term impact (March, 2020). According to the research, the main bottlenecks were inbound goods flows from suppliers and the lack of visibility into customer demand. What impact has this had on the collaboration with suppliers? Is it under pressure or has the relationship been strengthened? In this insight, we provide our view on this, among other things.
Globalization and efficiency
Globalization has ensured that every part of a product is made where it can be done best and cheapest. The disadvantage of this is: if a country can no longer supply, production in the entire chain stops. Where companies have become increasingly efficient in recent decades, this has been at the expense of buffers in the supply chain. Chains are often too fragile (Consultancy.nl, 2020). At the moment, organizations are increasingly choosing to produce products themselves. An example of this can be found in Spain, where they decided to produce mouth caps themselves. Spain no longer wanted to depend on China, supply itself and build up a reserve (Volkskrant, 2020).
Procurement professionals are therefore calling for a more robust supply chain, in which the focus is no longer only on the cheapest and fastest option. The view on the short and long term and less dependence on one supplier are just as important (FD, 2020)(Consultancy.nl, 2020).
Emergence of Sudden Challenges
The disruption in the supply chain started when COVID-19 broke out in Asia. The question 'how do we get product parts from Asia to us' kept many organizations busy. At that time it was important to secure deliveries so that production could continue and the customer would not suffer as a result. The virus then spread further around the world and the Netherlands was also affected. The virus quickly spread across our country and the Prime Minister announced an intelligent lockdown. Contamination-sensitive sectors, such as catering, tourism and culture, were shut down. People were able to consume less due to contact restrictions and consumers and producers lost confidence in the economy. In addition, the demand for various products, such as foodstuffs and medicines, increased. Organizations were also unable to run at full capacity due to higher absenteeism and contact restrictions. In addition, they faced logistical challenges due to travel and border restrictions. Those are quite a few challenges that suddenly arose.
Collaboration with suppliers
COVID-19 and the measures taken by the cabinet also had a major impact on the cooperation with suppliers. Speaking face-to-face with suppliers was not possible due to the home working regime and travel restrictions. Digital communication made collaboration more difficult. Certainly when it came to suppliers in other parts of the world, such as Asia. We therefore expect organizations to have repair work to do in the relationship with their suppliers, as soon as travel becomes possible again. In addition, organizations need to be alert to the failure of suppliers, so that they are not faced with even more unexpected challenges. We have the idea that this peak will come this fall and next year.
Research by Nevi (June, 2020) shows that when asked 'What do you think you will do differently?' the number one answer is: reviewing sourcing strategies. Also, a global questionnaire by Kearney & the World Economic Forum (2020) of 400 procurement, supply chain and operations managers shows that nearly half of the organizations surveyed want to review their entire procurement and supply chain strategy. This is related to what was mentioned earlier: the fragile supply chains. Organizations want to build in more certainty and have a long-term vision. In addition, the Nevi research also highlighted the strengthening of collaboration with (core) suppliers and increasing flexibility in processes and chains as lessons learned.
Our experience also shows that it is essential to look at the long term in supplier and contract management. Traditionally, planning processes are often short cyclical, but it is good to broaden this and to be able to provide a forecast to (core) suppliers. In addition, incorporating flexibility and transparency into contracts is also a great wish of organizations. In addition, we see that organizations want to place more emphasis on the supply chain in the future and want to use multiple sourcing, for example. Finally, organizations should consider whether organizing everything on the basis of efficiency is wise.
The impact of COVID-19 will only really become clear in the coming months and years and we will see whether the measures and changes of direction of organizations will really work.
Would you like to know more about contract or supplier management? Or do you want to discuss which sourcing strategy works best for you? We like to think along with you! You can contact us at firstname.lastname@example.org or +31(0)88 0555 999.
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