When the manufacturing industry comes to review its response to the Covid catastrophe, there will be plenty of recommendations and “lessons learned” about how to avoid future failures when disaster strikes. But will they get to the root cause of the problem: that supply chains themselves are no longer fit for purpose?
Over the last few decades manufacturers have created supply chain networks based around ‘just-in-time’, and they’ve done it brilliantly. But while they have ruthlessly optimized cost-efficiency and helped keep prices low for consumers, Covid has shown us how vulnerable these models are to fast-changing, worldwide crises. Supplier relationships may look strong on paper, but one broken link can cause a chain reaction that paralyses activity everywhere.
Like almost every industry, manufacturing is having its digital transformation moment. If there’s one lesson from the pandemic, it’s that these initiatives will be worse than useless if they leave supply chains exactly the way they are, and will simply bake the same mistakes into their new digital platforms. That’s a situation no one - manufacturer, supplier or customer - ever wants to see again. So let’s examine what forward-thinking manufacturers are doing to ensure that future crises need never again lead to disaster.
Bottlenecks threaten recovery
Remember when economists were deploying every letter of the alphabet to predict the shape of the post-Covid bounce? Optimists fancied a V-shaped recovery, while those of a more gloomy perspective suggested advanced economies would have an L of a time.
But the real “v” of the recovery has been volatility. In Tradeshift’s Q2 Index of Global Trade Health released this summer, we found that total order volumes on our platform rose 35% in Q2 compared to the previous quarter. But the initial post-lockdown boom in demand for manufactured goods quickly ran into production problems. These ranged from the struggle to obtain raw materials and components such as computer chips to logistics problems like the UK’s lorry-driver shortage, to payment delays (the total volume of supplier invoices processed rose just 2% in Q2). These problems then send shockwaves throughout the supply chain: Tradeshift’s Q3 Index will show how orders peaked as bottlenecks in the system influenced buyer behaviors.
Most of these factors are beyond manufacturers’ control - at least, in the context of their existing supply chains. What can they do to create a global supplier network that is more reliable, efficient, and bottleneck-free? The answer lies in embracing digital tools that will make collaboration easier, while laying the foundation for new, more agile models of procurement.
The ties that bind
To stay ahead of the curve and ward off barriers to production, manufacturers need to create stronger, more valuable ties - not just their existing suppliers and buyers, but with a wide and ever-growing network around the world.
One of the problems with just-in-time supply chains is how well they’ve always worked when times were good. This meant there was little incentive for manufacturers and suppliers to expand their stable of relationships, and to build new and existing relationships on effective communications and the effective sharing of real-time information.
To avoid a repeat of the last two years, manufacturers must create much tighter, digital-first ties with their suppliers, where both parties are clear on expectations and have access to real-time data regarding materials, shipping, and payment. And not just your tier one suppliers, but their suppliers...and so on, all the way back to the source. Aside from helping identify potential problems before they bring the supply chain grinding to a halt, this enhanced visibility is invaluable for informing customers about potential delays in a timely and transparent manner, while enabling organizations to be sure of the provenance of every material or component in their supply chain.
By keeping everyone informed about the current state of orders, manufacturers can create a process founded on mutual trust and understanding. They will not only find more satisfied buyers and suppliers but also will enjoy a supply chain built more deeply around collaboration.
Building tomorrow’s supply networks today
There are two central lessons from the last two years: first, that the manufacturing industry needs a shift in its thinking away from supply “chains” to the idea of building an agile supplier network. The second is that a strong, collaborative, resilient supplier ecosystem demands a digital foundation. This won’t be achieved overnight. Manufacturers don’t need to work toward these goals on their own; they can harness a range of digital tools and platforms to help them connect more closely with their partners.
Obviously, not all platforms are created equal. Here are the functions you should look for when assessing digital tools or platform to power your supply chain transformation:
- Networking and communication features — the best digital platforms and tools help you to connect with other suppliers and buyers, expanding your professional network. Additionally, a strong digital platform consolidates your communication channels enabling you to more accurately store and reference information.
- Automation capabilities — we’re all busy, and many of us don’t have the time to handle all the time-consuming and tedious tasks we have in a work week. The digital tools and platforms you invest in should have automation capabilities to help you complete these tasks, and be fully customizable to your needs. Whether you want to start slowly with a little light automation of low-risk processes, or go at it guns blazing (or anywhere in between), automation must enable your business to delegate the specific tasks that will bring real value to the organization so you can concentrate on critical business outcomes.
- Early payment plans — one of the biggest challenges that all businesses face is securing payment for their goods and services in a timely manner. Look for a digital platform that not only supports early payment strategies but also rewards buyers for paying faster.
Like every crisis, Covid is an opportunity to learn. Manufacturers have a chance to review the last two years, to identify why supply chains seized up during lockdown what factors helped stall recovery. An honest appraisal can only conclude that digitizing relationships is the beginning of making the supply chain fit for the future: from the vulnerability of just-in-time to new networks based on automation, agility and end-to-end visibility that can cope with the world’s next Black Swan.