Supply chain and procurement resiliency is at the top of the task list for supply chain management professionals and multinational corporations.
Nov 27, 2020
Oliver Freeman

Supply Chain Resilience is a Priority after COVID-19

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covid-19
Supply Chain
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77% of organisations recognise the need for change and are accelerating investments in supply chain sustainability over the next three years...

More than 80 per cent of organisations have reported their supply chains being negatively impacted by the COVID-19 crisis, with a vast majority struggling across all aspects of their operations. This is according to new research from the Capgemini Research Institute, “Fast forward: Rethinking supply chain resilience for a post-COVID-19 world.” The pandemic has forced organisations to prioritise supply chain resilience, with two-thirds (66 per cent) stating that their supply chain strategy will need to change significantly in order to adapt to the new normal. Only 14 per cent of organisations are expecting a return to business-as-usual.

There is growing awareness that supply chains need to be more flexible and agile so they can react and adapt quickly to potential disruption. In fact, 68 per cent of organisations said the current crisis has forced them to adapt their business models while increasing supply chain resilience post-COVID-19 is cited as a priority for 62 per cent.

 

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Over the past year, organisations have struggled to quickly respond to increasing disruptions and restore their operations to a steady, reliable state. Organisations surveyed across retail, consumer products, discrete manufacturing and life sciences reported multiple challenges across their supply chains. The majority have found challenges across all aspects of their operations, including shortages of critical parts/materials (74 per cent), delayed shipments and longer lead times (74 per cent), difficulties in adjusting production capacity in response to fluctuating demand (69 per cent), and difficulties planning amid volatile levels of customer demand (68 per cent).

From a sector perspective, only 30 per cent of life sciences organisations in the survey reported a negative business impact due to the crisis, compared to over 80 per cent of organisations in other sectors (retail, consumer products, discrete manufacturing). Furthermore, 68 per cent of consumer products and retail consumers prefer locally produced items in the wake of this crisis, and sustainability is influencing the purchase preferences of 79 per cent of customers.

The obstacles presented by the pandemic, however, also provide an opportunity for organisations to build a more resilient, flexible and agile supply chain that is ready to withstand future disruption and global crises.

Few Organisations Have the Capability to Withstand Another Crisis

As many as 55 per cent of organisations have taken between three to six months to recover from supply chain disruptions this year, while another 13 per cent expect to take six to twelve months to do so. Inevitably, this means few organisations are prepared for any further potential disruption that may lie ahead. Capgemini’s research finds that to cope with a similar crisis in the future, businesses must focus on seven key capabilities for crisis-resilience; identifying the areas that need the most significant, and urgent, improvement is critical for building a resilient supply chain. Only a minority (less than 4 per cent) demonstrate strengths across all of these areas, covering both planned actions and the current state of organisational preparedness.

 

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Capgemini’s report explains that a resilient supply chain is one that has:

  • Contingency planning: anticipating crises and running simulations to improve crisis response  
  • Localisation: prioritising localisation as well as regionalisation of supplier base and manufacturing footprint
  • Diversification: prioritising diversification of supplier base, manufacturing and transportation options
  • Sustainability: prioritising sustainability across the supply chain to withstand environmental and regulatory disruptions and meet evolving customer expectations
  • Agility: prioritising flexibility in production and decision making, and displaying agility in shifting to new business models
  • End-to-end cost transparency: accounting for costs with a clear picture of risks associated with low-cost strategies
  • Visibility: emphasising on data-sharing with partners and having full visibility of the supply network

 

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A significant proportion of organisations are taking the necessary measures to build capabilities around the first three dimensions, with 84 per cent citing improving crisis-preparedness as a priority post-COVID. In addition, 65 per cent of organisations are actively investing in localising or regionalising their supplier and manufacturing base to reduce risk and be closer to their customers. As many as 65 per cent of organisations are actively investing in localising or regionalising their supplier and manufacturing base in order to reduce risk and to be closer to their customers Diversifying the supply chain is also front of mind; 68 per cent of businesses are investing in diversifying their supplier base and 62 per cent in diversifying their manufacturing base.

However, Capgemini found that only a small proportion have the necessary levels of supply chain agility (21 per cent), optimisation of end-to-end costs (20 per cent) and visibility (9 per cent). Building resilience across an entire product range is expensive, time-consuming and often impractical. Instead, organisations should identify the areas where building resilience is critical and create an end-goal of building a resilient mindset throughout the entire product lifecycle.

Investment is Key to Building Supply Chain Resilience

A resilient supply chain requires investment and businesses are starting to recognise this, with 57 per cent planning to increase their investment in improving supply chain resilience. In addition, organisations are investing in technologies that make supply chains more autonomous and intelligent. Both are key enablers of resilience, allowing supply chains to sense and adapt more quickly to changes or disruptions. Almost half (47 per cent) of organisations are accelerating their investments in automation and 39 per cent in robotics, with the Internet of Things (IoT) and Artificial Intelligence (AI) also among the top focus areas. Investments in certain technologies which are critical for building long-term resilience, such as control towers that enable increased visibility and digital twins that support contingency planning, are expected to accelerate at a slower pace than others – a gap that organisations must address.

 

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Sustainability Will Also See Significant Investment as a Result of the Pandemic

More than three-quarters of organisations (77 per cent) recognise the need for change, saying they are accelerating their investments in supply chain sustainability over the next three years, with logistics and manufacturing the key focus areas. This shift is not just crisis-driven; businesses are increasingly recognising changing consumer preferences in favour of green alternatives and the fact that they are willing to back this up with their buying decisions.

“Enterprises must rethink their supply chain strategy and determine the right level of resilience that they are prepared to build into their value chain, ensuring that this is embedded throughout research and development, planning and execution,” says Roshan Gya, Managing Director, Global Head of Operations Transformation for Capgemini Invent. “Beyond efficiency, managing resilience and sustainability will become key targets for leadership teams.”

Capgemini’s Research Methodology

Capgemini’s research followed a two-pronged approach. One thousand supply chain executives at director level or above were surveyed between August and September of 2020; each was from an organisation reporting revenues of more than US$1bn for the last financial year. Organisations surveyed were from the United States, France, Germany, United Kingdom, India, Italy, Spain, Netherlands, Sweden, Norway and China and were across four industries: consumer products, retail, discrete manufacturing and life sciences manufacturing. In addition to the survey, Capgemini conducted more than ten in-depth discussions with senior supply chain executives. These interviews discussed the impact of COVID-19 on supply chains, the path to recovery, and how organisations can be better prepared for future disruptions.

For further information and the recommendations based on the research, access the full report here.

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