15 Jun 2020
How are leaders reshaping global supply chains as they emerge from the COVID-19 lockdown?
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Re-thinking procurement and supply chains in the wake of COVID-19 is leading to significant change as our global team reports.
A number of virtual round-tables of Global CPOs and CSCOs hosted by Odgers Berndtson Executive Search from offices in the US, UK and APAC, have tracked the evolution of the impact and response to the global lockdown across the world.
Most recently, the conversation has shifted from crisis and cost management to the ‘re-think phase’. It is supplier risk-management that is getting attention as vulnerable points in the supply chain become clear.
Now, the pressing question is how to build resilience and agility for the future.
Where will collaboration and partnerships ensure flexibility and longer-term continuity of supply to cope with future demand shifts and supply disruption?
COVID-19 has accelerated change, not caused it, and this is the time to decide which shifts will become permanent and the changes required as a result.
Many organisations from across industries are now reviewing their business models. For some, this is in response to a rapid change in consumer behaviour. In others, COVID-19 has forced them to re-think what they want their business to look like in the future.
Retail and consumer companies are facing a significant transformation. For many, legacy ways of working, property portfolios, distribution and marketing channels are all under review. The growth in online shopping means some organisations are having to reconfigure processes and build new infrastructure as they build or improve their ecommerce platform.
Major supermarkets have seen an overnight spike in online deliveries. The move from a market that took fifteen years to reach 8% of revenues has almost doubled to 15% in the space of two weeks. This clearly has implications for store numbers and formats as we emerge from lockdown, through social distancing and into the ‘new normal’.
Rethinking resilience and the reliance on China
What about near-shoring and bringing supply chains closer to domestic markets? Is this an accelerating trend?
Most global companies are certainly looking at diversification of their supply base across regions rather than relying entirely on a single or dual supply base in China.
The political tensions and current government policy in the US may lead to the US re-shoring certain supply chains, but for much of Europe and Asia, the move is to geographical diversification.
The US’s shift away from China, which started well before COVID-19 impacted on the APAC region, has accelerated. China’s rapid and continuing development, combined with increasing economic nationalism on both sides, meant that many companies were already looking to diversify their supply chains away from China. The health crisis has accelerated that process and, where companies chose to keep production in Asia, it is India and Vietnam that hope to benefit.
Those U.S. supply chain teams, already re-shoring their supplier base away from China, driven by the impact of higher tariffs, have found themselves in a better chance of overcoming COVID-19’s supply chain challenges.
Localising begins to justify its cost
The crisis has also reminded governments and companies that, in some cases, the benefits of localisation sometimes far outweigh the cost. A rapid localising of the manufacture of PPE and healthcare equipment such as ventilators is one dramatic example. Certain foodstuffs and pharmaceuticals will be next. In other categories, the transition will be slower and less acute because alternative markets are lacking and capability building will take time. However, in the US at least, concerns about China are bi-partisan, so companies will continue to diversify, re-shore and localise supply chains away from China.
On the flip side, Chinese companies are also looking at supply chain resilience.
US and European technology providers, so used to relying on China as a major market, might start to see Chinese companies increasingly buying local technology.
The “Made in China 2025” initiative, launched by the Chinese government back in 2015, was designed to reduce China’s reliance on foreign technology and COVID-19 may further accelerate this process.
Moving to a more regional focus
When it comes to procurement teams, we heard cross-industry discussion that there would be a greater reliance and importance in moving to a more regional focus. Some believe that a central team will only be in place to share best practice, with category management led by each region.
Those in the food and manufacturing sectors certainly see more value in regional expertise, lifting success models from one region to another, instead of an overarching global strategy.
Leading with agility and empathy
The success of all these changes hinges on the cultures and behaviours instilled in each business. Organisations are reviewing how they bring flexibility and speed into their decision-making, that will allow for agility without having a negative impact on profit or unnecessary risk.
Leaders with the qualities to make that happen are in high demand.
Prior to COVID-19, our Global Leadership Confidence Index had already uncovered that only 15% of the 2000 senior leaders we surveyed actually expressed confidence in the ability of their companies’ top leadership teams to manage disruption successfully.
However, the research also further identified the new types of leaders able to drive the most successful organisations through even severe disruptions like COVID-19.
In the context of global supply chains, these leaders have a number of distinct qualities.
- The agility to navigate a world of change, ambiguity and complexity.
- A breadth of industry backgrounds and geographies – allowing people to navigate a more virtual world than before.
- A high level of digital and technology understanding, with the ability to draw conclusions and take action based on data and analytics.
- The authenticity and empathy to lead globally dispersed and remote teams. That means being unafraid to show vulnerability.
Discovering the value of collaboration
Leaders will also be challenged to strengthen their key relationships, recognising that their strategic suppliers play a critical role as they journey together towards a new landscape.
For example, in the US, in contrast to the historical approach of pressuring suppliers on cost, procurement will need to develop supplier relationships that more fully integrate into their operational processes. This will require many supply chain leaders to get to know all their suppliers in the supply chain and develop closer relationships.
Relationships that are more complementary and collaborative, rather than a traditional vendor/client approach are now being discussed.
In a constantly changing situation, we are always available to share the evolution of what we’re seeing globally, regionally and nationally, so please get in touch about your leadership, talent and career queries and requirements.