In the supply chain and logistics industry, we want to thrive now and in the future. Despite the challenges brought on by COVID-19, we have the opportunity to redefine our models and become stronger organizations, able to withstand future challenges that come our way.
Our industry invests heavily in predicting outcomes and creating systems that offer maximum reliability, efficiency, and gathering relevant data. We have always faced procurement challenges, but nothing like the pandemic.
Without healthy procurement, we can't operate our business. Even as we recover and learn to thrive during COVID-19, we will always face similar threats like unpredicted global events (like the economic shift during the Russia and Ukraine conflict in 2022). So how do we prepare for global impacts that we can't control?
One example of how a bottleneck in procurement can upend the industry is the chip shortage. The entire world, and the industry, felt this blow.
The semiconductor chip shortage trickled down right to the average consumer. Parents getting a car for their teenage child would have trouble finding one (since the vehicles depend on these chips), crossing state lines, or going out of town to find it.
"In 2019, companies typically maintained 40 days of inventory for key chips, according to the Commerce Department report. Now for the same chips—defined as 160 products that companies identified as being the most challenging to acquire—companies are operating with fewer than five days of inventory...'We aren’t even close to being out of the woods as it relates to the supply problems with semiconductors,' [Commerce Secretary] Raimondo told reporters, '...The semiconductor supply chain is very fragile, and it is going to remain that way until we can increase chip production.'"
It can feel powerless when companies need to procure essential materials. However, the response to this particular shortage has led to initiatives from companies like Intel, who plan on investing 20 billion dollars in chip-making capacity.
While the U.S. invented the chips, as referenced in the WSJ, production moved to the opposite side of the world. Initiatives like these lead to diversification, a significant element in conquering the current procurement challenges.
"Resilience or hardiness is the ability to adapt to new circumstances when life presents the unpredictable." — Salvatore R. Maddi
Your procurement strategy depends on the partners you are working with. Establishing the right relationship with them will determine whether you can face unpredictable challenges.
By securing your current base, you can better analyze your current health and ability to withstand disruption.
Firms can work hard to create better and closer relationships with the supply partners they have today. First, assess if they are healthy and financially stable. If you see apparent issues or blindspots, they will directly affect you in a post-covid economy. Work on developing a productive and valuable relationship, creating a direct and fast line of communication.
As firms develop their relationships with suppliers, they can get priority access to goods if there is a shortage or issue.
Lastly, companies can diversify their supply partners. Geography, organization sizes, and many factors can have advantages and disadvantages; diversifying several categories will better protect procurement.
Models and systems are made for predictability. We analyze data and make adjustments based on our findings. We use experience to navigate innovation and experiments; all focused on creating the best process. But that's the biggest problem with COVID-19 and other threats: it's unpredictable. It changes everything.
Many hoped COVID-19 wouldn't grow and would disappear. But it quickly caught on fire, became a pandemic, and made itself clear that this would have effects that would last for decades. Procurement models designed in the last five years before COVID are not equipped for today.
Procurement should be at the center of the new supply chain and logistics strategy, creating a process that recognizes the unpredictability of global threats.
Companies should review stock levels and strategies during a shifting and changing supply chain. This requires identifying the most prominent risks per category and preparing for sudden shortages or shifting demand.
The best way to start is by re-creating the procurement model for today, keeping COVID-19 in mind. Once companies establish their revised model, they can create a definitive roadmap designed to shift and turn when the supply chain is disrupted.
We cannot depend solely on the relationship with supply partners to determine upcoming risks and shifting needs due to unforeseen challenges. Instead, we need to strengthen the customer relationship also.
Customers will react to their circumstances. If they see a change in the market, they may shift their needs and decide before firms even know it. Customers offer the most valuable market information we can get.
There are a few ways we can build a better relationship with customers:
By maintaining an ongoing dialogue with customers, firms can tighten their information loop and get real-time feedback on their needs and a snapshot of the greater economy. This information helps firms make informed decisions for procurement.
You can ask customers through consistent conversations and email. Surveys are also a great way to get a gauged and more accurate consensus among your customers as a group. Adopting both strategies helps give a rounded assessment of customers' needs.
To get the best information from customers, firms need to give value first. Over time, they earn trust and get honest feedback about customer concerns and pending decisions.
For example, firms can create a customer newsletter or information source, offering complete transparency on procurement challenges during difficult times. This helps customers make the right choices. They learn to trust you and your fight for the best procurement in the industry.
Find ways to communicate and share information that helps your customers and assure them they are in the right hands.
When the economy gets disrupted, people get nervous. Customers switch to survival mode, and if they notice their industry is facing supply issues, they'll make hasty decisions.
A better understanding of each customer's needs helps the process with procurement. If a particular material grows in demand, you learn it from that customer. If material is getting harder to procure, you can communicate with the customer for the best solution.
Create an intimate understanding of each customer to fully navigate procurement challenges during and after COVID-19.
For over a year, when the pandemic first introduced itself, industries were focused on making it through until it was over. Eventually, it became clear that this wouldn't go away in a few months. As you read this today, we are still battling COVID-19 and its present challenges.
The firms that did the best realized early on that this was a new normal. If they could figure it out and learn to thrive, looking to the future, they could do better and protect themselves from other threats in the years to come.
As you invest resources and time into new models and strategies, don't plan on stopping. Adopt these new habits and adjustments for the long term. We may not face another pandemic soon, but we could face COVID spikes, economic disasters, and geopolitical threats.
A solid plan built for resilience can help your firm overcome these challenges. Invest in new strategies and procurement tools so you can evolve each year.
Innovation keeps companies alive. It helps them conquer today's challenges, distinguish themselves from competitors, and overcome unknown challenges in the future.
When you look at technology today, you can see how innovation differentiates between business success and decline. For example, in the retail space, Amazon dominated the industry when companies like Sears and Dillards (once at their prime) ignored the power of e-commerce and gently vanished from the economy year by year.
Create a team culture that encourages employees to think of new ideas and implement experiments through the procurement process. Invest in technology that will help you solve issues in the future.
If this article had to be summed up with two words, it would be “problem-solving” and “resilience." Machines can't do it. Data can't either. People solve unforeseen problems, and they can only do it through resilience.
Invest in a team that can face obstacles and finds a solution with impossible odds. The best talent determines the future of a company. When COVID-19 and other disasters disrupt the industry, only the best teams can storm through them and thrive.
Add value to your current team, equipping them through the skills and leadership traits needed to withstand uncertainty. As you hire, choose professionals that have a proven record of going through adversity or challenges and finding a solution. Hire for tomorrow.
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COVID-19 and future threats challenge our companies and industry, especially in procurement. However, we can conquer these obstacles and thrive with the ability to diversify, shift quickly, and offer innovative solutions
01 June 2022