Focus on supply chain flexibility in the tough times of COVID-19
Experts weigh in on their new priorities when managing their supply chains in an unprecedented climate
As sourcing is disrupted and demand fluctuates, corporations are having to adapt their supply chains now more than ever before. Reuters Events: Supply Chain sat down with experts to hear about their experiences in keeping a degree of business continuity in the current climate – and saw differences in the necessary adaptations between younger and more established corporations.
Reshoring rules over nearshoring
The COVID-19 outbreak has brought forward discussions around sourcing and the best strategy to balance competing needs for cost-effectiveness, shipping speed, reliability and resilience. Brands are evaluating where to base production and are finding that the pull of the typical manufacturing hubs is difficult to escape from, and indeed, may not even be the best decision.
“We started to shift our mentality” said Jason Glover, Director of Global Sourcing at Harry’s, an e-commerce start-up for men’s grooming products. “We’re finding ourselves actually going back to the offshoring, if you will, back to Asia to get what we think is probably quicker lead times, and just a little more reactive,” He noted, illustrating the journey that brands are undergoing as they try to figure out the optimal configuration for supply chains after the pandemic flipped the conversation. “We’ve flip-flopped to what we were trying to get away from”.
I actually think you have to look at it across the spectrum – [dual sourcing] is something you do to have a dynamic supply chain
Yuki Khurana, Senior VP Sourcing and Quality Assurance at United Legwear & Underwear Co., a global manufacturer working with multiple brands, including Puma, agreed that the choice is complex. With suppliers in Asia, he spoke of how their pre-existing partners and substantial supply chain infrastructure limited the capability to onshore or nearshore – “if we’re going to be moving that supply chain to nearshoring, who do we have? Where’s the partner? If we would nearshore, it would be actually bringing in Asian partners with the local partner and creating an entity which basically is fluid.”
This emphasis on fluidity ran through the conversation, with Mikkel Søndergaard Rasmussen, EU Director Supply Chain Solution at Maersk, agreeing that the answers are likely to lie in a greater range of partners in manufacturing hubs. “I actually think you have to look at it across the spectrum – [dual sourcing] is something you do to have a dynamic supply chain … dual sourcing is about making sure that if you have disruptions in one place, you can then cope with that in other parts of the system. I don’t see the conversation as being one dimensional.”
This need for multiple sources was emphasised when Khurana mentioned the struggles they, as a multi-brand supplier, have faced not just with manufacturing capacity but also transportation. “Case in point, six months ago COVID hit – where’s your supply? Oh, all the factories in the world are shutting down…. China opened up … [and] they saw everybody going back into China. In a matter of three months we don’t have containers to ship out of China”.
When I see factories in Germany, Turkey…they are basically not scalable, or not scalable for the size we need them
Despite this, the proximity to suppliers or their location were not the only component at the forefront of the conversation, with other variables coming to play for all companies. “I can’t emphasise enough that opportunity for finding the right size for what works for your strategy” said Glover, who stated that they “rely a great deal on our contract manufacturers … what gives us that instantaneous capacity, because we’re still in that moment of growth.”
Despite fluctuating demand at these times, it was clear that scalability is also a major focus when working with suppliers, as Suriano stated, “When I see factories in Germany, Turkey…they are basically not scalable, or not scalable for the size we need them.” This was echoed by Khurana – “it goes back to the point, scalability. Can a factory scale to the level we need?”
A flexible or a robust supply chain?
As a mature start-up, Glover made it clear that Harry’s has less substantial infrastructure in their supply chain, giving from for manoeuvre: “Harry’s is a new brand, so we don’t have that same infrastructure that our competitors have.… We’re really trying to make sure that we can be agile.” The flexibility of suppliers is essential, firstly when you’re in an unprecedented climate, but also as a growing corporation. “We really need suppliers that are just flexible, we need suppliers who can take the punches, who can expand or contrast.… We’re really trying to partner with those suppliers that can be agile, those suppliers that can negotiate in tight time frames”
It’s going to be easier and faster to produce from Asia, where everything is integrated rather than have it in your backyard but in a very old setup way
This was in stark comparison to United Legwear & Underwear, whose supply chain infrastructure in Asia gave great rewards, but didn’t allow for changing suppliers in the same way. “We’ve built a supply chain in Asia which is robust, which is ever evolving.… You don’t want to disrupt, you don’t want to go through an onboarding process, which may take 12 to 18 months for any new factory”, stated Khurana. “You’re not getting the return in the short term.”
Suriano agreed, “It’s going to be easier and faster to produce from Asia, where everything is integrated rather than have it in your backyard but in a very old setup way.”
Suriano spoke about their focus on regional suppliers, and the essential input of risk mitigation in challenging times such as these. “Our strategies have to be a little bit more consistent”, said Suriano, “we want to stick to a global approach, so have been talking about being regional and being able to serve regions for a very long time. It’s not the first time that [an issue like] COVID hit and we have to change the approach.… Now it’s more a conversation of risk mitigation.”
You have to have partners that understand your need and understand how you operate
Glover agreed that as they move forward and mature, these relationships are even more critical and have to be a part of the conversation. “Whether it’s COVID or tariffs increasing, or whatever it is, you really see the difference in these suppliers versus those who are not so willing to help you navigate the challenges”.
This was echoed by Søndergaard Rasmussen, “It is much more a matter of strategic partnerships, longer term partnerships, it’s much more around making it a win-win situation for both parties…you have to have partners that understand your need and understand how you operate.”
Vectoring in visibility
Visibility is a huge component of risk mitigation and partner evaluation, and understanding where the risk lies is at the top of the agenda for supply chain management.
“We have internal intelligence that is working constantly,” said Suriano. “We’re looking at commodity prices changing, we’re looking at political [changes], scenarios changing, we’re looking at demand changing. All of those aspects get digested from different parts of the internal business…. We are basically then mitigating with the tactics we have in our operating model, and we’re able to adjust and keep driving towards our goals.”
This year alone, we’ve grown probably 10 to 15 new global retailers, so that right there is stressing our supply chain
In comparison, Glover’s agenda is less focused on forecasting data at this point and instead on supplier visibility – “Every single year previously does not look like the year before, so historical data is completely out the window. This year alone, we’ve grown probably 10 to 15 new global retailers, so that right there is stressing our supply chain.”
Søndersgaard Rasmussen also cautioned that “The change that you’re talking about is not only on the technical side, but it’s as much on the organisational side”, and that “at least the way we see many of our customers being organised doesn’t facilitate that end-to-end thinking”.
The ‘enabler of growth’
“Today for me it’s around thinking of the supply chain as an enabler of growth”, said Søndergaard Rasmussen, “It’s a mindset.
“Look at how much money is moved into the last mile…some of the conversations that we need to have now and bring to the table are that we have almost under-invested in the international supply chain, the visibility that companies and retailers have on the last mile…and then compare that and contrast that to the investment that is going into the international society.”
I’ve always said we need to make sourcing sexy, and when you think about it – I compare it to marketing … we should have a seat at the table, and it should be a strategic muscle that the company relies on, on a daily basis
Glover echoed the need to bring forward sourcing to the forefront of the organisation, more so than ever at these times, saying “I’ve always said we need to make sourcing sexy, and when you think about it – I compare it to marketing … we should have a seat at the table, and it should be a strategic muscle that the company relies on, on a daily basis.”
Looking at how marketing and the supply chain can intertwine and work together, and cause growth, was a prominent part of the conversation, with a focus on visibility and sustainability, both being tools that can be utilised by the sales teams as readily as they can the supply chain, and pushing technology forward as a major focus of supply chain management at this time. Currently, when demand is fluctuating, the importance of bringing the back-end of the business to the forefront is top of the agenda.
“We start thinking of the supply chain as an end-to-end enabler, and we today see how much digital is helping to overcome those hiccups and those bottlenecks,” explained Suriano, who argued that we should be advocating for more investment.
Have one ideology, one goal in mind – to service that customer in a timely manner
Glover agreed and said that he found “Tracking lost revenue has been a great way to get leadership in line…. You’re already presenting a clear picture with those metrics” said Glover. Further visibility and breaking internal silos are at the forefront of supply chain management at present. As Suriano queried – “how do we make this mechanism of supply chain working more integrated to the front end of the business?”
“You sit on the table, you collaborate with the sales team, the marketing team, the logistics team, bring everybody together” said Khurana, “and have one ideology, one goal in mind – to service that customer in a timely manner”.
Whether the companies were growing their supply chains, or working within their already established infrastructure, it was clear from the conversation that flexibility is the focus of the supply chain for business continuity. For the more mature corporations, data and technology are essential in making the most out of their already formed supply chain, whereas the ability to manoeuvre and a focus on building scalable partnerships was at the forefront for developing the supply chain at Harry’s.
These changes may be difficult, with shifting aims, a push on visibility, and a fight to be seen at the front-end of the organisation, but perhaps, as Søndergaard Rasmussen remarked, this makes it “exciting to be in sourcing, today more than ever before”.