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How to optimise your supply chains

By Dr. Ian Selby Vice President – Global Management Accounting Research and Development

The pandemic is revealing major business vulnerabilities. Ask yourself these questions to build more resilient, shockproof supply chains.

Just-in-time and globalised supply chains can become highly vulnerable in unusual economic environments and global crises, as the initial months of the ongoing pandemic have demonstrated.

The levels of vulnerability vary between sectors, but the pandemic has exposed how socio-economic shocks may severely impact business operations, finances and business viability, particularly in respect of supply chains and their reliability.

Members in business from around the globe have highlighted some essential questions that a finance team or leadership team should ask itself about its supply chains:

a) Can we clearly identify the problems our supply chains encountered in the COVID-19 economic environment?
b) How can we rethink and improve our supply chains and their resilience? Will purposeful analysis, wider communication and engagement across the business enable stronger reliability and better optimised supply chains?
c) Should just-in-time be diluted? And should we enable a debate about onshoring? Within our portfolio and risk management perspectives, what elements of our supply chain could be onshored, particularly in a post-Brexit UK economy?

We created this guide to give finance professionals and business leaders an initial framework for considering how they might rethink their approach and create a more balanced or optimised supply chain.

This guide also poses questions on the subject of onshoring, which has become a key debate amongst some of our members.

Initial rethinking

  • What are the key characteristics of your supply chains — the shape, chain length and processes underpinning their current supply chain structure?
  • What are the main supply chain issues that have arisen in the COVID-19 economic environment?
  • What initial solutions have you created and how have these been sourced?
  • What are the vulnerabilities of these reorganised supply chains?
  • What supply chains are now unreliable or have collapsed, requiring complete replacement?
  • What key lessons have you learned in discussions with your supply chain partners?
  • Has the COVID-19 environment changed your organisation’s risk appetite towards supply chain resilience?
  • How have supply chain issues impacted stakeholder and customer value?

Rebuilding and onshoring

  • What solutions have you created in the last two months that could become permanent?
  • If any of these new supply chains are themselves vulnerable or weak, what can you do to remove weaknesses and replace them with more permanent solutions?
  • Review the shape, chain length, processes, locations and stretch of all supply chains that includes these questions:
    • Where does just-in-time now sit in your supply chain portfolio management?
    • What questions need to be asked around efficiency vs. cost over your supply chains?
    • Perform a set of scenario planning exercises around shortening supply chains. Include efficiency vs. cost benefits analysis.
    • Is onshoring some of your supply chains a realistic and viable option for your company?
    • Define what onshoring would look like in your business and to what extent can you bring it all ‘home’ (home capacities)?
    • Can you develop easy onshoring wins in terms of tackling key vulnerabilities?
    • Define what the nature of home capacity could look like in terms of supply chain — chain length, processes, locations and stretch.
    • Are there home capacity options — firms that can meet the supply demand — to engage with locally, regionally or nationally?
    • Research and source the home capacity market, so you understand the supply chains of potential new suppliers. Does your new supplier have very extended supply chains themselves, effectively restoring your vulnerabilities?
    • Can you pilot a few onshoring operations and if successful build these up?
    • Can your company be the catalyst for a regional onshoring operation that provides just-in-time?
    • Can the new supply chain solutions you adopt create greener supply chains and reduce the carbon footprint of your business?
    • Is it possible to diversify your approach by mixing different levels of supply chain activity, some onshore and some offshore? The French Government is encouraging this sort of diversification – onshoring at home in France and regionally across the EU.
    • What are the advantages/disadvantages to scenarios where you onshore 20%, 40%, 60% or 100%?

Going forward, the medium- and longer-term optimisation of a supply chain will mean regular reviews. Optimisation will provide efficiency, durability, reliability and options for potential expansion, as well as some element of shockproofing.

Longer term optimisation and shockproofing

  • Can you increase the frequency of the reviews of your supply chains?
  • Can you periodically engage with your suppliers to stress test the supply chain, uncover vulnerabilities and find a mutual fix? Regular stress testing can expose weaknesses and vulnerabilities that you can analyse and address, making supply chains more resilient and shockproof.
  • Develop a deeper financial insight into your suppliers as part of your risk assessment and consider options.
  • If you develop an onshoring strategy, are there options for business partnerships and local skills strategies to grow? Can they be leveraged through local trade and business bodies?
  • Can your business encourage a new regional skills and training approach — through business bodies and regional government — that reinforces the local supply chain solutions you’ve created?
  • Over the medium- and longer-term, can you create more sustainable and eco-friendly supply chains which gives your business a more attractive appeal for its customers and wider stakeholders?

The pandemic crisis has created a unique economic environment and revealed major vulnerabilities in the supply chains of tens of thousands of business around the world. Ultimately, businesses should move to create a set of more resilient and shockproofed supply chains. To achieve long-term success, your business must envelope this outcome into a better and more insightful portfolio management procedure.

For more detailed, big-picture strategies for how you can reopen your business, check out our extensive post-COVID-19 recovery tool.