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Operations Practice
Resetting supply chains
for the next normal
The coronavirus pandemic’s unprecedented tests are inspiring companies
to consider bold moves in rebuilding their supply chains for the future.
July 2020
© Getty Images
by Knut Alicke, Richa Gupta, and Vera Trautwein
At the height of the COVID-19 pandemic, bare
supermarket shelves and worldwide shortages of
critical personal protective equipment made supply
chains headline news. Across industries, companies
had little time to address logistics disruptions,
shortages of parts and materials, and sudden
swings in demand. That required many organizations
to rewire their supply chains at short notice—all
while keeping their people safe and complying
government policies designed to slow the spread of
the virus.
Now, as businesses embark on the journey to
recovery, supply-chain leaders are telling us that
they have no intention of returning to the status quo
ante. In the second quarter of 2020, we surveyed
60 senior supply-chain executives from across
industries and geographies, asking them about the
impact of the pandemic on their operations and their
future plans to make supply chains far more flexible
and agile.
Preparing to drive change
The overwhelming majority of respondents said
that the crisis had revealed weaknesses in their
supply chains that they’re now working to address.
For example, 73 percent encountered problems
in their supplier base, and 75 percent faced
problems with production and distribution. In
the food and consumer-goods industries, 100
percent of respondents had experienced
production and distribution problems, and 91
percent had problems with suppliers.
A whopping 85 percent of respondents
struggled with inefficient digital technologies
in their supply chains. And while just over half
of the executives felt that they had been able
to manage supply-chain planning following
the abrupt introduction of remote working, 48
percent said the changes had slowed down
decision–making in planning (Exhibit 1).
Our group of supply-chain leaders was broadly
aligned on the actions they want to take in
response to those challenges: about 93 percent
of respondents told us that they plan to increase
the level of resilience across their supply
chain. They intend to do that using a variety of
mechanisms, including dual sourcing of raw
materials, increasing their inventories of critical
products and, to a lesser extent, by near-shoring,
Exhibit 1:
Supply-chain leaders say that the issues COVID revealed will transform supply chains.
Respondents, %
Source: McKinsey surveys of global Supply Chain leaders (May 15 – May 22, 2020, N=60)
Supply-chain leaders say that the issues COVID-19 revealed will transform
supply chains.
73%
Encountered problems in the
supplier footprint that require
changes in the future
48%
Experienced delays in planning
decisions because of remote working
75%
Faced issues in the production
and distribution footprint that
require changes in the future
85%
Struggled with insucient digital
technologies in the supply chain
2Resetting supply chains for the next normal
dual-sourcing, or regionalizing their supply chains
(Exhibit 2).
Respondents also see an urgent need to get better
control over their supply-chain technology, which
will likely be possible only with a skilled workforce
trained to use new digital tools at speed and scale.
Some 90 percent of leaders surveyed say they
plan to increase the amount of digital supply-
chain talent within their organizations, through a
combination of in-house reskilling and external
hires. Just over half also expect permanent
changes to their planning processes in the next
normal, such as greater centralization of planning
activities, shorter planning cycles, and introducing
advanced-analytics techniques. Intriguingly, only
11 percent of respondents said that budgets were
a constraint on their ambitions to make these
changes, suggesting that resilience requires smart
investments, not just pouring money into the
supply chain.
Making transformative investments
To succeed in the next normal, companies will
need more than makeshift, duct-tape solutions
that address specific problems. The coronavirus
pandemic has already exposed gaps in many
existing setups, and it may also drive long-term
changes in customer requirements and behaviors.
For example, consumers who switched to on-line
retail channels during the crisis, or who opted for
curb-side and in-store pickup of online orders,
may stick to their new behavior well beyond
the pandemic. And the desire to retain the
environmental benefits that were a byproduct
of reduced economic activity may lead to an
increase emphasis on sustainability in future
business operations.
Exhibit 2:
Supply-chain leaders expect to focus on resilience and digitization.
1Sales and operations planning
Supply-chain leaders expect to focus on resilience and digitization.
Plan to increase resilience
across the supply chain
Expect changes to supply-chain
planning after COVID-19
Plan to increase digital supply-chain
talent in-house
Face budget constraints in transforming supply chains
93%
54%
90%
53% Dual sourcing of raw materials
47% Increasing inventory of critical products
40% Near-shoring and increasing supplier base
38% Regionalizing supply chains
58% Centralizing supply-chain planning
50% Retaining faster S&OP cycle
60% Implementing advanced analytics
70% Reskilling today's labor force
55% Acquiring new talent from the labor market
11%
3Resetting supply chains for the next normal
We believe that leaders should take this moment
not just to fix their supply chains temporarily, but
to transform them. Reimagining supply chains to
avoid past traps and meet future needs will require
a more comprehensive approach (Exhibit 3).
To address the desire for increased resilience,
companies can consider establishing dedicated
supply-chain risk-management functions and
processes. Working alongside manufacturing,
procurement, and supply chain, these units assess
vulnerabilities across supply nodes and apply a
robust risk-mitigation framework in response.
Actions might include accelerating decentralization,
deploying inventory closer to customers, and
developing crisis-response plans and capabilities.
And while existing supply-chain risk organizations
have typically focused on a narrow range of risks,
such as logistics delays or suppliers’ financial
stability, the scope of the risk-management
function can expand to include factors such
prolonged interruptions of cross-border flows,
or social and geopolitical disruptions. Managing
these risks will demand investment in improved
business-discontinuity prediction capabilities,
risk-transfer mechanisms, and crisis planning. It
may also drive physical reconfiguration of supply
chains, particularly for critical components and
raw materials.
Similarly, boosting the supply chain’s end-to-end
digital capabilities requires a coordinated view
across nodes so that companies can connect the
dots with the latest digital tools and capabilities.
Autonomous planning systems with machine-
learning capabilities can base their forecasts on
many more factors and learn the “next normal"
much faster than traditional approaches for
building business continuity, preserving cash,
and strengthening supply-chain resilience.
Exhibit 3:
Five themes could drive a post-COVID transformation in supply chains.
Five themes could drive a post-COVID transformation in supply chains.
Observations during the crisis
Rapidly redeploying resources in government and
industry to meet essential demands
Increasing exposure of supply-chain risks that were
previously unrecognized or dismissed
Rising concerns about supply-chain disruption and
shortages of critical goods
Discovering new ways of doing things—eg,
online ordering for all essential goods and working
remotely
Recognizing environmental benets of shutdowns
while societies adapt to lower activity levels
Emerging trends in supply chains of the future
Developing more-agile mindsets and behaviors, with
increased acceptance for previously disputed
centralization opportunities
Establishing dedicated risk-management functions
to prepare long-term risk-mitigation strategies with a
greater emphasis on supply-chain management
Increasing regionalization and inventory storage
closer to end consumer, with reexamination of the
supplier footprint
Focusing on capability building, not only for online
channels but also for embedding digital tools and
skills, eg, in automation, end-to-end planning, and
shared service centers for supply-chain management
Accelerating societal push for sustainability, with
high-pollution activities increasingly perceived as
expendable
4Resetting supply chains for the next normal
In manufacturing, robots and cobots can
increasingly provide additional data to flag problems
or identify improvement opportunities. For example,
many companies still conduct routine maintenance
on major equipment according to a fixed schedule,
with little to no visibility into whether action is
actually needed. Digital diagnostic capabilities allow
for real-time monitoring of equipment, helping lower
cost by reducing wasteful maintenance practices.
And in product delivery, firms can employ digital
logistics practices, using thousands of datapoints to
optimize, track, and optimize again with real-world
inputs for real-time solutions.
Digitization today can empower firms to reap
benefits long into the future. Whether through
more accurate forecasts, reduced downtime, or
faster delivery and turnaround times, digitization of
the end-to-end supply chain will help businesses
eliminate inefficiencies, improve responsiveness,
and dramatically reduce overall supply-chain
costs. It will also be a critical tool in supply-chain
organizations’ responses to future challenges.
The next normal may see a stronger push for
sustainability and reduced environmental impact by
customers and regulators, as lower pollution levels
have been one of the few fortunate byproducts of
reduced activity.
It can be challenging to see these positives in the
wake of disruptions caused by the coronavirus;
however, the crisis has given companies a unique
moment to reimagine operations to create a
better future.
Knut Alicke is a partner in McKinsey’s Stuttgart office, Richa Gupta is an associate partner in the New Jersey
office, and Vera Trautwein is an expert in the Zurich office.
Copyri ght © 2020 McK insey & Compa ny. All rights re served.
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