Procurement & Supply Chain Leadership: Pause and Reflect

This week we held the latest in our virtual roundtable series, which began at the start of the COVID-19 crisis in March. We were again joined by CPOs and CSCOs from global companies working across a range of sectors spanning automotive, consumer, pharmaceuticals, financial services, airlines, hotels, catering and leisure.

Now seems a good time to pause and review the lessons learnt as well as take a look to the future. What is clear, is that the supply chain impact and subsequent response to the pandemic is not the same for all. As with COVID-19, the impact for some (whilst disrupting day-to-day life) has been manageable, for others it has been more severe, necessitating significant immediate action and the need for longer term remedies. However, from consumer products to industrial machines, there remain some similar challenges.

Common themes

For many CPOs and CSCOs, risk management and business continuity plans proved to be inadequate. Much of what was in place was a “theoretical spreadsheet exercise” that had not been fully tested. Supply chain resilience, agility, and lack of geographical diversification is a common thread. Nobody had planned for an entire city, country or region to go into a lock-down and disrupt supply.

Reduction of complexity and number of SKUs is an emerging debate across industrial manufacturing, consumer goods, retail and hospitality. Initially this was used to ensure key products left the factory and hospitality businesses could re-open and still be profitable on lower volumes. This is now a longer-term Board consideration to support profitability and cost management as we inevitably face into tougher economic times with predicted weakening consumer spending. SKU reduction… simplification… music to the ears of supply chain leaders.

Many repeated a theme that emerged early in the crisis – the ability to get things done more quickly. Suddenly IT projects that were going to take two years have been delivered in eight weeks. Strategic supply chain network re-design has taken four months instead of thirty-six.

For many, they are now in dialogue with their Boards about contingency plans for a second wave come Q4. Daily communications with the supply base and their global sites to track the number of cases, building in resilience and an early warning system that will raise an alert as soon as possible. Building additional inventory and stocking PPE are the order of the day for many. They are balancing the short-term need to ensure they can manage a second wave, whilst at the same time looking to the longer-term supply chain changes that may be required to build sustainable resilience and agility. This comes at a cost. Do we “take out the gold-plated fully comprehensive insurance policy… or chose third party only?” as one CSCO put it. No one yet has the answer. And the fully comprehensive policy will take at least two years to implement for many to get through regulation and approvals. “Which horse do we back – getting a vaccine and assume it won’t happen again? Or buy resilience?” said another.

Some have started the process of near-shoring and moving away from China. Others are considering diversification of their supply based across the Asia region. Yet others have decided that localisation isn’t the approach they will take – instead of shortening the geographic length of their supply chain they will really get to know it, reduce complexity and the number of links in the chain. 

The focus on cost reduction will inevitably come if not already, if the predicted economic cliff in Q4 arrives at the end of the various government employment support schemes. Many realise this can’t be achieved by pure price negotiation and extension of payment terms otherwise the supply chain will collapse. Instead it will have to come from real supplier partnering, product re-engineering, specification change, innovation and the reduction of complexity mentioned earlier.

People

Teamwork and collaboration have risen to the surface like never before. This hasn’t been limited to colleagues within the same organisation but extended through the supply chain and into competitors and customers. CPOs and CSCO’s have put on bus services to transport workers into supplier factories. They have supplied them with PPE to ensure the working conditions are safe and secure. Their own direct teams have proven to be resilient, dedicated and hugely professional. But they are tired. Fatigue, stress and isolation is setting in for some. For many manufacturing companies they have chosen to have “production holidays” to create a break for people to recharge and rest.

As offices start to reopen, anxiety levels are high for those needing to use public transport to get to work. Even with capacity restricted to 25-30% occupancy to ensure social distancing, less than 10% are choosing to go back to the office, with companies keen to ensure nobody feels pressurised to return.

And if that wasn’t enough… Brexit – remember that?

For those moving goods and services in and out of the UK, Brexit has made a return in the last few weeks to the risk register and the Board agenda. It’s still here and it’s coming. In the last few weeks many have dusted off their Brexit plans that got filed away and re-established their teams… more on that in September I’m sure.

So, CPOs and CSCOs, it’s clear that your inboxes will be overflowing for the foreseeable future as you juggle short-term volatility with building longer-term resilience and agility. Take a holiday, enjoy the break and make sure your teams get some respite, as your companies, your governments and your customers need you!

Hosted by:

Lucy Harding, Odgers Berndtson London

Alasdair Spink, Odgers Berndtson Singapore

Oliver Dick, Odgers Berndtson London

Richard Guest, Berwick Partners Leeds

Tom Graham, Berwick Partners London