Chapter 4 Transforming operations to succeed in a post-pandemic world

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Transforming operations to succeed in a post-pandemic world

Supply chains’ weakest link? Global disruption

Alongside the terrible loss of life and economic turbulence, the COVID-19 pandemic has rattled global supply chains, even causing them to break. Organisations along the ‘Road to Resilient Growth’ must focus on building agility and transparency across their supply chains, especially in the ‘Preservation and Stability’ stage of their journey.

Transparency can only come from having a clear and unambiguous view of operations throughout the entire value chain – both upstream and downstream. That involves identifying potential bottlenecks, being ready to respond to changes in demand, and spotting any challenges with shortages of raw materials before they become a problem.
When we surveyed businesses about making changes to their supply chain and operations, they listed the following top concerns:

Uncertainty related to end-consumer demand (61 per cent)
Growing pricing pressures (53 per cent)
Rising cost of materials (50 per cent)

In order to effectively address these challenges, and deliver a differentiated customer experience, businesses may need to adopt a new supply chain model.

Q: How has the pandemic affected your supply and distribution efforts?

We have experienced severe shortages that led to out-of-stock items and lost sales
We have diverted inventory from off-line to online channels
Reconciling stock levels across all parts of the business is now a challenge
Cashflow has become a concern

Major operational challenges faced by corporates

From ‘just-in-time’ to ‘just-in-case’

The extended global supply chains we are all familiar with have developed as part of the low-cost, high-growth manufacturing systems we all rely on. As costs have been squeezed, supply chains have tended to default to the ‘just-in-time’* production model. However, increasing disruption has revealed the inherent fragility within these supply chains.

With the scale of disruption wrought by the pandemic, a strategic shift away from a ‘just-in-time’ to ‘just-in-case’¹ is the most effective way to build additional resilience into a supply chain. Building in buffers at every stage in the production process makes it possible to absorb the shock of unforeseen problems.

* Just-in-time practices are aimed at the total elimination of waste, to minimise the costs of holding stocks of raw materials, work-in-progress and finished goods by supplying to each part of the production process exactly what is needed, when it is needed and in the quantity it is needed. On the other hand, the just-in-case system has buffer stocks held at every stage in the production process 'just in case' there is a production problem or demand rises unexpectedly.

Key actions considered by corporates

Which of the following actions have you implemented recently, or plan to implement over the coming months, to improve your production and supply chain performance?

Here are three actions that businesses can take to tackle supply chain and operational disruptions:

ACTION 1

Prime those procurement processes

Short term: Contingency plans and demand forecasting
Create a series of dynamic demand forecasts – the more diverse, the better. Use them to gauge how change can affect the business. Spot any likely weaknesses and prepare preventive measures.

Near term: Map your existing supply networks
Start by identifying any specific suppliers, manufacturing sites, raw materials or products that might be at particular risk from disruption. Then develop plans to find alternative sources in each case.

Near-to-medium term: Develop alternative sourcing options
Every business has critical components and spare parts – ones it cannot function without. Using multiple sources will reduce supplier concentration risk and over-reliance on certain partners.

Medium term: Adopt digital solutions
Data analytics tools make predictions and forecasts more accurate and can bring production and procurement into closer alignment. Improved prediction capabilities will also drive efficiencies and lower costs. In turn, this will offset the cost of building redundancy into the supply chain.

Q: Which would you consider to be the most important change that needs be made to your supply chain and operations over the next 6 to 12 months?

Identifying new markets to diversify our production facilities
Bringing production facilities closer to home
Developing flexible production scheduling capability
Looking for new suppliers in new markets
Entering new partnerships to improve sales reach
Deploying digital technologies for production/supply chain monitoring

CASE EXAMPLE 1

Company defies supply chain disruption posed by COVID-19

ACTION 2

Optimise and realign manufacturing operations

Short term: Be more flexible
Flexible production is already considered important by 63 per cent of our survey. As well as making sure resources are properly deployed, it means production can adapt to changing demand patterns.

Near term: Buffer those inventory levels
Start with components that are critical to the manufacturing process. Address lead-time risks by implementing strategic buffers and build in redundancy that favours key products and raw materials.

Near term: Use digital technology
There are hosts of factory-floor technology options that can be considered. They range from automated guided vehicles all the way through to cloud-based inventory management and robots.

Medium term: Is it time to make a move?
Shifting to a regionalised supply chain model will help ensure faster deliveries and minimise operational risks. Plus, the prevalence of remote working means an increase is redundant space.

CASE EXAMPLE 2

Company adapts, extends work hours to stay productive

ACTION 3

Enhance distribution capabilities

Short term: Start new partnerships
Explore new strategic alliances with reliable partners to improve distribution capabilities. This can help to effectively fulfil orders and secure cash flow, while delivering much-needed stability.

Near term: Find the most efficient distribution routes
Delays and increasing costs are some of the most likely risks to a disrupted supply chain. Identifying the most efficient transport and distribution routes can help alleviate some of those problems.

Near-to-medium term: Invest in nimble logistics
Nimble logistics facilities can help stem potential loss of business caused by disruption. Cross-docking¹ capabilities are one approach to handling evolving demand patterns.

Medium term: Double-down on digital
Invest in technology to improve warehousing and distribution capabilities such automated warehouse execution systems, cloud-based order management systems or inbound and outbound stock tracking.

¹Cross-docking refers to transfer points where inbound product flow is synchronised with outbound product flow, usually with the assistance of third-party logistics companies (3PLs), to essentially eliminate storage of inventory. It helps in significant cost reductions and reduced lead times as products can be stored in a warehouse and additional 3PL services can be performed without a long-term storage commitment.

Operational agility leads to resilient growth

For organisations making progress along the ‘Road to Resilient Growth’ and entering Stage 3 (‘Preparing for Growth’), operational agility will become a key strategic differentiator. It spans the entire value chain, nurturing resilience, transparency, adaptability, and reliability. Adding in resilience at a time when it is not urgently needed may pay off handsomely in the event of future disruption.

CASE EXAMPLE 3

Company makes automation push amid pandemic labour shortage

References:

PwC, ‘COVID-19 How PwC can help you maintain Financial & Operational stability’

PwC, ‘Connected and autonomous supply chain ecosystems 2025’

PwC, ‘COVID19 Operations Strategic Response - Path to Recovery and Resilience’, March 2020

Standard Chartered, ‘COVID-19: reshaping the future of supply chains’, May 2020

Standard Chartered, ‘From just in time to just in case: COVID-19 brings supply chain resilience to the fore’, April 2020

Standard Chartered, ‘Supply chain lessons from COVID-19’, March 2020

Harvard Business Review, ‘Coronavirus Is a Wake-Up Call for Supply Chain Management’, March 2020

CSCMP’s Supply Chain, ‘Preparing warehousing and distribution for a frontline role by 2030’, July 2020