09 Jul 2020
The strength of supply: decisive and flexible supply chain leadership during coronavirus
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The greatest examples of supply chain management during disruption highlight the importance of combining clarity of vision with collaboration, as Doug Morrison finds out.
Businesses have been disrupted by previous outbreaks of disease and natural disasters, but it has taken COVID-19 to expose serious flaws in global supply networks as well as challenge the principles of open movement of goods and services across borders.
The pandemic has revealed the frailties in so-called ‘lean’ supply chains, not least in the shortages of medical supplies to the healthcare sector in some countries. The very idea of ‘just-in-time production’ and long, complex supply chains is open to question.
A global shift in supply
Advances in technology had already enabled a partial shift towards near-shoring, which is likely to accelerate because of this crisis, according to Richard Wilding, professor of supply chain strategy at the UK’s Cranfield School of Management. Global supply chains will remain, he says, but it’s more likely to be raw materials moving around than manufactured goods.
“Why did we go global? We went global because we wanted to access new markets and cheap labor,” he says. “We can do the same thing now but without the requirement for labor. Therefore, where you actually position your manufacturing facilities is not really dependent on where cheap labor is located but more on where the customers are.”
As Wilding suggests, business leaders can now see the virtue of “procurement for resilience not cost”. Whether consumers are willing to bear higher costs for more resilient supply chains in the long term remains to be seen, but it’s far from the only lesson learned during the last few weeks.
From competition to collaboration
“One of the traits of great leaders in the current climate is around quick decision-making, open and regular communication, and just getting things done rather than procrastinating.”
Harding points out that the pharmaceutical and food retail sectors, for example, have fared relatively well during the crisis as a result of close collaboration between hitherto fiercely competitive companies and their suppliers.
Wilding suggests that such “co-operative competition enables people to act quicker and mobilize things much quicker” as well as lead to innovation. “The critical thing,” he adds, “is that it’s also a time of reflection for organizations.”
This fine balancing act between crisis management and longer-term business planning is evident at Sainsbury’s, one of the UK’s leading food retailers, which has collaborated with competitors and suppliers on the UK Government’s Feed the Nation campaign. The urgency of the situation focused the leadership’s minds at the company, which doubled its online delivery capacity in a matter of weeks, says Patrick Dunne, Sainsbury’s Director of Group Property, Procurement & Cost Base Transformation.
The demand for efficiency
Early in the crisis, Sainsbury’s also installed 25,000 protective screens at the tills in its 2,000 stores – a project involving 50 installation teams and five major suppliers in just over two weeks. The job would normally have taken three times as long. It is one example from “hundreds of projects” where the company has acted decisively and at pace.
“We’ll be learning and taking the positives of that and seeing how we can embed the decision-making, the effectiveness with which we acted and embedding that for the future,” says Dunne.
Such decisiveness inevitably raises expectations of a more efficient business world once the immediate health crisis eases. But Dunne cautions: “We have reacted hugely efficiently in a crisis, and we have to find the learning from that for the future most definitely. However, it’s also like driving a Ferrari in top gear at top speed constantly. It’s probably not sustainable.”
At the same time, like all major food retailers, Sainsbury’s has an international supply chain, which Dunne says has held up “exceptionally well”, not least because of maintaining close relationships with suppliers and “keeping them up to speed” with the business strategy and the marketplace. “Communication is critical,” he says. Very early on the company also accelerated the payment terms for 1,500 smaller suppliers to improve their cash-flow.
Building strong foundations
It is difficult to overstate the significance of strong relationships with suppliers. A study by Dun & Bradstreet, published in February, reveals that over 90% of Fortune 1000 companies have second-tier suppliers in Wuhan, the Chinese city where the virus was first detected. The implicit conclusion from the research offers a harsh lesson: there was little or no interaction with those suppliers before the pandemic and hence the unprecedented disruption to business worldwide.
As big companies look beyond crisis management, Harding believes that managing supplier relationships will become even more important. “You need to treat your suppliers well because they could be under stress and strain,” she says. “People are going to remember who supported them through the crisis, and they will certainly prioritize that relationship over others.”
According to Marc Engel, chief supply chain officer at Unilever, one of the world’s leading consumer goods groups, strengthening relationships with suppliers will be crucial to the “agile responses” demanded of organizations in the marketplace going forward.
“The power of partnerships will be critical to unlocking agility and innovation in the end-to-end value chain,” he says.
“If there ever was a need to strengthen value-chain collaboration and partnerships, it is now. And that can only be enabled by real-time communication.”
Adapt or die
Wilding believes the medium-term priority for businesses across all sectors will be adaptability. He highlights the growing importance of ‘bimodal supply chains‘, where ‘mode one‘ is all about the traditional approach – lean efficiency, mitigating risks – based on there being market certainty. ‘Mode two‘ reflects the need for agility, speed, and exploring new opportunities.
Supply chains have been based around mode one with mode two very much a secondary, occasional feature. Wilding argues that crisis changes things. He believes more companies will need to become bimodal but with mode two being their priority, quickly recognizing possibilities and building the ability to solve problems posed by the unexpected.
“Mode two is about the capability to explore but it’s also about agility. You need to have a balance between the two. But I would argue that we’re moving into a world where that agility and speed of reaction are more important,” he says.
As Wilding says, this will have implications for leadership. “The traditional command and control, for example, is no longer working so well,” he concludes. “We’re having to move to a more collaborative leadership approach, where at times leaders give leadership responsibilities to others who have more capability in that particular situation to lead on that particular initiative.”
How are companies and their leaders adapting and reimagining their organizations’ strategies through the immediate impact of the coronavirus pandemic? In this series, OBSERVE investigates The Great Reset.
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