Supply chain architectures for the ‘new normal’

As we approach a post-pandemic world, many companies are examining their supply chains in new ways. We all laugh about the toilet-paper/paper towel/disinfecting wipe shortages experienced a year ago, but there are more lessons to be learned than buying these items in bulk and keeping a little extra in the pantry.

Supply chains extend around the globe in complex sequences with multiple variables that can affect their structure, resilience and flexibility. Many companies are considering making major changes to their supply chains, but this is not a simple or quick process, and involves analysing the current state before launching re-design projects that can be costly and take considerable resources and time to complete.

Supply chains have evolved over the last 20 to 30 years from events such as 1992’s NAFTA agreement, which made trade with Mexico easier, and allowed companies to outsource high labor content parts and assemblies for solid savings. Companies then ventured into countries like Singapore for low cost labor, and an English speaking, technically educated workforce. From there, work migrated to various other Asian countries including China and India, where the population size offers huge markets and growth potential.

At the same time, contract manufacturers (CMs) became a mainstay for circuit card assemblies, then sub-assemblies and eventually turn-key manufacturing in locations around the globe including Latin America, Asia and Eastern Europe. Companies such as Apple formed their manufacturing strategy to utilise CMs to outsource production while maintaining design and marketing as core competencies, and further reducing the size of the direct workforce.

As the awareness of the pandemic hit, with shortages in paper goods, personal protective equipment and other staples, many people began to understand supply chains a little better. And a realization of just how many items were produced overseas started to sink in. Managers and executives who were not initially concerned about a virus in China because “we don’t buy anything from China or Asia” discovered that although their purchase orders weren’t issued to Asian companies, many parts and components contained within their purchased parts and subassemblies originated in Asia, and many were becoming scarce.

Moving forward and beyond the pandemic, companies are or will be examining their supply chains more closely, mapping out not only their direct or Tier I supplier’s locations, but those of critical and important Tier II and Tier III suppliers with a goal of identifying risks. As a result of the pandemic, there is heightened awareness of and broader definitions of risk than pre-COVID, including highlighting every single and/or sole source, investigating suppliers’ financial stability, available capacity and utilisation, while undertaking more extensive market analysis for current and potential suppliers to evaluate risks.

After reviewing all these elements and establishing a clear picture of “what is,” a cost analysis is needed to help determine where potential changes can be made. Comprehensive and mature risk-based thinking holds that every risk and associated mitigation strategy should be accompanied by financial projections of the cost of impact. Consideration should also be given to potential savings and benefits achieved through removing or mitigating the risk.

Once the analysis is complete, prioritization of potential supply chain alterations can begin. Without a thorough and complete analysis, ineffective or incorrect decisions can be made, and an even weaker supply chain can result. Much more effort will be needed to undertake a complete re-design, but without in-depth understanding of the current architecture modifications won’t yield optimal results.

To gain more knowledge into how the global supply chain is changing, with a particular focus on the APAC region, join Jane at the Vitafoods Insights Virtual Expo (main stage) on Wednesday 12 May 6:00am BST.

Learn more and register for free to attend the Vitafoods Insights Virtual Expo.

Jane Tierney founded purple link in 2015 to support clients in discovering innovative ways to address their supply chain efficiencies. She holds a degree in industrial engineering and an MBA, and is a certified green belt in Lean & Six Sigma. Tierney teaches Supply Chain Management and Supply Chain Strategies at California State University – Northridge, and is an active speaker and author.