Many companies are adjusting their supply chains to handle the next pandemic. While that may seem to be the right course of action, many are just tailoring operations to answer the specific weaknesses uncovered by the COVID threat—focusing on such thing as the truck drivers who had to stop operations until they had a 25-cent mask.
Good supply chain leaders, however, are using the pandemic as a strategic call to action by focusing on on geo-diversifying their supplier pools and transportation routes. They are reassessing their logistics capabilities across a market basket of values. They are also tapping into a wide swath of data sources, such as the World Health Organization, the Cybersecurity and Infrastructure Security Agency, the U.S. Department of State, the Council of Supply Chain Management Professionals, and any number of risk assessment sources.
As they make these assessments, the weaknesses revealed can be startling. Consider pharmaceuticals, which is top of mind in the era of COVID. With an estimated 80% of key active pharmaceutical ingredients—at least in large production quantities—originating in China or India, there is serious underlying risk to the U.S. supply chain.
How should firms design networks to manage that risk? Buffer stocks may not work because many pharmaceuticals have shelf-life limitations. Even without these shelf-life concerns, building a large enough buffer against a pandemic is not economically practical. Moreover, relying on China as a trusted partner might be a fool’s bet.
Traditional offshore sourcing from China and India may deliver a low cost, but it clearly does not yield a resilient solution. The India/China foundation can be inflexible, at least against the spikes associated with a pandemic. These sources are inherently risky, especially in the context the continuing political tensions related to China.
The answer lies in addressing risk as well as cost. The best supply chain designs no longer focus on cost alone. Optimally, pharmaceutical companies will move toward a focus on “best value,” balancing cost against considerations such as flexibility, reliability, and resilience.
An example of how one company has performed this balancing act is Zara. Zara is a successful “fast fashion” retailer. Product assortments in their retail locations link with localized sources of supply, an approach they pioneered at the turn of the century. They explicitly balance nearshore and offshoring sourcing for their assortment of goods based on market conditions. Speed to market requires shorter lead times and the possibility of ordering small batches with rapid fulfillment.
Retailers in Europe and the United States are adopting the Zara approach, and apparel manufacturing is incrementally “returning home.” Companies are realizing that forecasting for items that have a long lead time and are sourced offshore is risky. Relocating sources of trendy items to closer locations reduces complexity and risk, while increasing speed to market and value.
Reconfigure on the fly
Sometimes you need to reconfigure your supply chain and how you create value on the fly. Take Manolo and Son, for example, a family-owned and -operated seafood company in Alexandria, Virginia. Founded in 2006 by the Ribadulla family, the company served area restaurants high quality seafood with unmatched customer service.
Then COVID hit. The pandemic shut down area restaurants, which in turn shut down Manolo and Son.
The family went to work. They understood that people still wanted to eat great fresh fish. They just had to figure out how to connect and sell to them. Beginning with a promotional campaign over Facebook and Twitter and through direct emails, the family began selling directly to consumers, while concurrently serving traditional restaurant customers as they struggled back to life. They started by taking orders via email and leaving them in coolers outside of their wholesale location. Manolo now runs a fish market storefront, with wholesale processing in back. They’ve rearranged their go-to-market strategy and rebuilt their infrastructure on the fly in six months.
Often companies are overly committed to a one-size-fits-all model that has failed before and will fail again. To survive in tough times, however, we need to cultivate resilience and adaptability. While our competitors melt down, we need to empower our workforce to adjust on the fly, just like the Ribadulla family did.
Steve Geary is adjunct faculty at the University of Tennessee's Haaslam College of Business and is a lecturer at The Gordon Institute at Tufts University. He is the President of the Supply Chain Visions family of companies, consultancies that work across the government sector. Steve is a contributing editor at DC Velocity, and editor-at-large for CSCMP's Supply Chain Quarterly.