The coronavirus outbreak may fundamentally change the way we do business in supply chain management.
A more cooperative climate for procurement and supply chain professionals may well be one of the long-term key impacts of Covid-19.
A poll conducted by SM and CIPS found that of the changes organisations had made in response to the crisis, 41% intended to maintain collaboration in areas such as buying and logistics, second only in popularity to retaining new alternative suppliers (45%).
One buyer who responded summed up the mood: “Has there been an event over the last 50 years which connected our world by a single common thread? No.
“As procurement professionals battle through Covid-19’s heavy burdens, my advice is take full advantage of every opportunity to strengthen relationships – stakeholders, leadership, suppliers, supplier’s suppliers – as those professionals who invest today shall receive recurring dividends in the future.”
Already we have seen feats of industrial engineering, with firms in fields from automotive to household appliances switching production to make medical ventilators, and fashion brands that have started making surgical masks and gowns.
But the challenge from the outbreak remains stark. More than half (52%) of respondents to our survey had experienced a supplier declaring force majeure, or had declared it themselves, and almost half (48%) were paying up to 20% more for goods and services. And a resounding 69% said the impact was getting worse.
Richard Seel, managing director of consultancy Delaware North America, said cooperation was necessary to optimise costs and mitigate risk.
“Collaborating in both logistics and procurement offers the opportunity to help procure more effectively, and therefore allow cost optimisation at a time when significant pressure exists on cash and working capital,” he told SM.
“With this potential threat of significant sickness within this important employee base, collaboration across the supply chain is an excellent, if not mandatory, risk mitigation strategy during this unprecedented global crisis.”
Our poll showed the top responses to the crisis were analysing supply chains to find risk (46%), building more inventory (36%), switching to alternative suppliers (34%), and collaborating (31%).
Sam Dawes, leader of the Consumer and Industrial Products practice at consultants West Monroe, sees a split between larger firms and SMEs in collaboration. “We are seeing essential businesses collaborate to find supplies critical to manufacturing medical goods – largely due to the urgency of the moment,” he told SM.
“Behaviours like this are unlikely to sustain the same way once businesses return to prioritising bottom lines and competitive advantage over ‘the greater good’.”
But for smaller firms, economic contraction will have a profound effect.
“There will be consolidation – which could manifest either via mergers and acquisitions, joint ventures, cooperatives or direct partnerships,” said Dawes. “When we emerge, these relationships will remain in place for a period, but they will likely formalise if [seen as] better together.”
Survey respondents reinforced the importance of transparency in maintaining good relationships, and one said: “How much collaboration and trust that exists up and downstream will prove pivotal for successful business continuity”.
Malcolm Harrison, group CEO, CIPS, said: “We must learn from these times and rethink the way our organisations and supply chains operate as well as how and where we source our goods and services.
“I hope to see more supplier and competitor collaboration and market development from procurement teams going forward, as we continue to be innovative and agile in our thinking.”