lessons

Supply chain lessons learned in 2020

Posted by Elizabeth Allcock on December 28, 2020 08:30:00

The pandemic has tested supply chains to their limits and highlighted supply chain weaknesses, resulting in massive disruption to their operations. In fact, 94% of Fortune 1000 companies are seeing supply chain disruptions from COVID-19. However, as supply chains start getting back on their feet, many businesses are taking a long, hard look at their supply chains to mitigate the risk of future disruptions and ensure resilience for the future. Here are supply chain lessons that we can all take away from the experience and apply in 2021 and beyond.

Global vs local supply chains

With the pandemic hitting China first, this disrupted supply chains across the world and brought to attention the world’s over-dependence on China as a source for raw materials and goods. When incidents occur that disrupt your supply chain, the time it takes to get finished goods to your facility is critical. Supply chain leaders now realize they must look closer to home. Finding local or regional sources can reduce your transportation time and allow you to acquire products in a matter of hours versus days or weeks.

Supply chain visibility is critical

Supply chain market research shows that the majority of companies (69%) don't have complete visibility of their supply chains. Visibility is often described as the baseline for understanding the supply chain, helping organisations uncover blind spots. But many organisations experience difficulty attaining the level of visibility they need to optimise operations.

Many organizations rely on Excel spreadsheets, emails and phone calls to share and manage information. Others find they need to access a wide array of different data systems – making it difficult to correlate and integrate data from different trading partners or even different parts of their own organization. Both of these approaches are not only labour intensive and prone to human error, but they rarely provide the bigger picture needed to actually make better decisions.

Do your research on new suppliers

Many organizations abandoned their policies and procedures to stay afloat, this included the process for changing and finding new suppliers. It’s always important, particularly if you’re going into new regions and different parts of the world, to do some due diligence to evaluate suppliers and understand the risks of any potential new relationships. Particularly if you have been dealing with the same suppliers for a long time, recognize the impact that starting with a new supplier could have on your supply chain. 70% agreed in a Foley & Lardner LLP’s Global Supply Chain Disruption and Future Strategies Survey, that as a result of COVID-19, sourcing from the lowest-cost supplier will no longer be the sole focus in making decisions. Instead, companies will place greater emphasis on partnering with suppliers that have more resilient and flexible processes to ensure continuity of supply.

The need for better collaboration with your suppliers

The pandemic exposed the lack of collaboration in the supply chain, causing a negative effect on business due to the increased time it takes to make critical decisions and mitigate risk. Companies were often working in silos between various departments or geographical locations. To collaborate better going forward, organizations need to eliminate the many email threads, spreadsheets, PDFs and embrace a collaboration platform. Complete end-to-end supply chain transparency is essential for a streamlined and fully optimized supply chain. There is no doubt that the sharing of data and objectives enables collaboration and trust between all stakeholders. However, businesses must learn to collaborate internally to allow them the opportunity to create successful collaborative relationships with external suppliers.

In a McKinsey survey of 100+ large companies across sectors, companies that regularly collaborated with suppliers had higher growth, lower operating costs, and greater profitability than other competitors in their sector.

The importance of supply chain talent

The pandemic has underscored the importance of supply chains and the need for supply chain leadership at all levels. For far too long supply chain has been considered a back office, managing transactional functions. However, the reality is that supply chains not only determine the level of success of a company, but also directly inform and shape the strategic direction, growth and competitive positioning of that company.

Investing in a digital supply chain is a priority

The pandemic has accelerated the supply chain digital transformation that has languished on many organizations’ “to-do” list for years. But because of the chaos from the coronavirus, it was made clear that supply chain practices need to get smarter. To mitigate the impact of any further disruptions, companies need a digital supply chain that unifies all the systems, applications, processes, and information in the supply chain, connecting all stakeholders on a single digital platform.

McKinsey predicts that supply chain digitization will lead to lower operational costs (through improved processes such as the automation of planning tasks), more sales, and improved forecasting. These are the reasons companies are increasingly investing in supply chain technology – as Gartner reports, the digital supply chain management market rose by 8.6 percent in 2019, a trend that will likely continue.

Don’t underestimate forecasting

Accurate forecasting is vital for supply chains, especially for the management of rebate contracts, which are typically negotiated on the basis of last year’s performance and expected growth. We often find that when rebate forecasting is systematized and data-driven, the chances of a dispute are much lower. And if a dispute does arise, a good audit trail will allow supply chains to resolve it swiftly and fairly.

Many businesses are still relying on antiquated methods to anticipate and prepare for the future but with a rebate management platform like Enable you can not only compare multiple forecasts, but also make renegotiating your rebate agreements more streamlined. If a company doesn’t have robust forecasting tools at their deposal, it will continually be forced to respond to new crises in a reactive instead of proactive way.

Make sure your contracts are in order

At the beginning of the pandemic, with no clear end in sight, and cash flow coming to a standstill, many businesses started to look to their contracts to find a way to ease the strain. Questions were raised about existing contracts, such as whether their suppliers would be requesting to vary agreement terms, or even cancel contracts completely. To provide more leeway in the current economic environment, supply chain professionals should be open to flexibility, seeing negotiation as the answer, rather than engaging in disputes that can cause delays and damage relationships.

Looking to the future

We might not know when the effects of the pandemic will be completely gone, but it’s not too late or too early to start taking the necessary steps toward future-proofing your organization. Good preparation always proves valuable so supply chains can work towards a hopefully brighter and even more successful year ahead. For example, if your legacy system for rebate management hasn’t been updated in years, it’s time to review it and revise for today’s post-pandemic world.

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Topics: Supplier Collaboration, Supply Chain, Supplier Rebates