It is time for all Supply Managers to reinvent themselves and adjust to the “New Normal”. The global lockdown has generated disruptions in both the supply and demand of goods and services. The full recovery will take some time, but it is time for companies to take a closer look at their Supply Chain, with the vulnerabilities that have now been revealed in this Pandemic.

In this article we will answer the following questions:

• Why will companies be willing to pay additional amounts to ensure continuous and uninterrupted supply?
• How will supplier diversification become a top priority?
• ¿Why will Supply risk from now on be as critical (if not more so) than financial risk?

1. The main disruption is yet to come

The Supply Chain will change drastically so companies  must prepare to implement a plan to minimize disruption in the future.  As a result of the Global Pandemic, we have seen how some basic supplies are in over-demand, especially those related to PPE and medical supplies.

Covid-19 has dramatically impacted industries such as food, restaurants, airlines, travel, tourism and small businesses. However, the disruption of food and mass consumer products is expected to be short and smaller in scale, while international manufacturing tends to be replaced by local products to have shorter supply times with simpler supply chains.

Most of the disruption will happen in more complex Supply Chains  that involve multiple steps that leverage sub-components from other geographies. Disruptions of manufacturing that depend on Chinese components are until now beginning to feel their shortage and the worst is yet to come. The most critical part of Supply Chains that is dependent on several geographies and multiple steps to complement the Chain, is expected to arrive in 2 or 5 months from this moment.

2. Reliable Supply is the New Price to be approved

Both Buyers and Suppliers need to accelerate their Supply processes considerably  once the Pandemic begins to recede and a “New Normal” begins to take shape, which will be reflected in the first instance in commercial discussions. Supply decisions will gradually be based on the selection of those suppliers that contain the highest level of redundancy in their supply chains.

Companies will be willing to  pay higher prices to add resilience to their Supply Chains,  so decisions based solely on price will be secondary for many elements considered critical and considered strategic within the Kraljic matrix. There will undoubtedly be a re-evaluation in the distribution of products within buyer-supplier relationships worldwide.

3. Acceleration of Supply Chains (Not based in China)

Large and medium-sized companies will now have to more deeply review their understanding of the impact of the crisis in real time. More Machine Learning  and Artificial Intelligence  will inexorably come  , applied to Procurement  to reduce risks.  For a long time, China was the destination selected by many companies due to its economies of scale in manufacturing , historical competitive advantages in cost and state development policies. However, recent decades have seen trends toward diversification, which adds redundancy to suppliers located outside of China.

In the last 3 years this trend has accelerated due to growing concerns about intellectual property, tariff instability, reduced cycle times for some products and natural disasters.  COVID-19 will impact the Supply Chain, rapidly accelerating this trend towards the diversification of new suppliers . The concentration of Supply exclusively from China will not be acceptable from a risk point of view for large Corporations, while the financial impact is important in the global market.

4. Make plans for Disruption

Historically, Supply Chains have been designed for optimal performance under standard operating conditions. However, the number of disruptive events – natural disasters, national strikes, price fluctuations in  commodities  and tax changes to name just a few – have increased significantly in recent years.  “Disruption” is the New Normal. The pandemic will be the tip of the iceberg of what is to come.  Companies need to start designing their Supply Chains with new priorities:

Priority 1:  Supply Chain Certainty under adverse conditions.

Priority 2:  Efficiency under standard operating conditions.

5.The risk of supplying goods and services is the new “financial risk”

After the 2008 financial crisis, companies focused their efforts on characterizing and monitoring financial risks within the organization and outside it, with their business allies (customers and suppliers). There was an explosion of technologies and services to meet this market need. “ Supplier risk” will be analogous to “Financial Risk” after the COVID-19 crisis.  After the crisis subsides, boards of directors and shareholders will demand that organizations adopt more proactive measures to manage and manage supply risk.

Key Questions for organizations:

1.How do the  contracts  that serve the Supply Chain adapt to the “New Normal”?

2. How  resilient are your suppliers  and contractors within the Supply ecosystem?

3. Are suppliers  innovating enough  to meet demand (while reducing their operational risks), preparing for after the Pandemic?

4. Is your Supply Chain based on outdated software or  flexible software that adapts to this “New Normal” ? What is the Financial impact of this?

5. How  transparent  is the Supply Chain?

6.Can  risk signs be glimpsed  before they can materialize?

7. Does the company have a  risk mitigation plan  within the Supply Chain that is easy and quick to implement?

8. How will the COVID-19 crisis  impact the entire company ?

9. What can  the Organization learn from this crisis  to improve the operational process without disruptions?

Article Based on GEP publications.