Large-scale economic events, such as the 2008 financial crisis and now the 2020 COVID-19 pandemic, frequently cause significant disruption to supply chains and make companies reconsider how they organize. But new research from law firm Foley & Lardner LLP finds that the extent of this year’s events may have forced new levels of change for manufacturing supply chain management.
In a study of nearly 150 manufacturing executives, Foley found that 92% of manufacturing companies are increasing visibility into their supply chain as a direct result of the pandemic’s impact. Additionally, while exact precautions vary across the market, only 7% of respondents said that they would not be undertaking contingency planning efforts for potential future disruption.
“The survey findings point to a significant shift in perspective, but not necessarily a new one,” said Vanessa Miller, co-chair of Foley’s Coronavirus Task Force and the firm’s Supply Chain Team. “After the Great Recession, we saw calls for sweeping change, albeit on different issues, only to find that some of it was easier said than done. But 2020 is not 2009, and we may very well see companies follow through this time – especially if they see continuity of supply begin to overtake price as a key driver for success.”
One of the biggest adjustments is related to the selection of supply partners. As a result of COVID-19, 70% expect that low costs will no longer be the greatest priority when selecting a supplier; instead, emphasis will be placed on resiliency and the ability to create flexible processes. Additionally, “just in time” manufacturing models — which focus on lean inventory and low costs — are
Product shortages had been a concern for manufacturers prior to the pandemic, in part as a result of the tariff dispute between the U.S. and China. But this challenge was further exacerbated by the early shutdowns in China that stemmed from the coronavirus. As a result, 59% of manufacturers with operations in China are exploring alternative locations for their suppliers — or have already withdrawn from the region. Now, greater efforts is being placed on diversifying both the geography and the number of supply partners to better weather any future shutdowns.
“Companies that previously diversified their international supply chains in response to the U.S.-China trade war were better positioned to mitigate the effects of the pandemic,” said Kate Wegrzyn, co-chair of Foley’s Coronavirus Task Force and the firm’s Supply Chain Team. “That said, companies may also benefit from retaining certain processes in China while relocating others in a strategic manner that disperses risks of disruption.”
Common alternatives have previously included nearby locales, such as Vietnam or India. However, the report found that an increasing number of companies are considering moving part of the supply chain closer to home, with the U.S. (74%), Mexico (47%), and Canada (24%) ranking as possible favorites.
The complications caused by the coronavirus have also coincided with a rising interest in transparency — and consumers are driving the shift. With manufacturers expected to provide more information about their supply chain practices, this is a critical time to introduce new policies and create a story worth telling. A majority of respondents said that they are increasing their communications to improve visibility, while 41% are requiring more information on suppliers’ risk management and continuity strategies.
“Respondents are taking prudent steps to manage the financial and operational risks inherent in the supply chain, but our data also shows that we are not yet seeing the level of distress and supply shortages that some predicted at the onset of the COVID-19 outbreak,” said Ann Marie Uetz, head of Foley’s Coronavirus Task Force. “That could very well still happen as the pandemic wears on, but suppliers are adapting and managing through this challenging environment better than might have been expected.”