For supply chain gurus, the COVID-19 pandemic is likely to become a classic case study in what happens when your greatest strength – selling low-priced goods for higher profit margins – morphs overnight into your biggest downfall.
As supply chains worldwide buckle under extreme pressure from the pandemic, strategic thinkers and doers are already rebuilding models of excellence around three standards: quality data, holistic visibility, and supplier collaboration.
“The very same globalization principles which yielded higher profit margins have now constrained production and resource availability or depleted stocks quickly,” said Padmini Ranganathan, global vice president of Supplier Risk, Compliance, and Sustainability Solutions for SAP Ariba. “Some companies that invested in risk due diligence and put mitigation plans in place with a good dose of supplier diversification and multi-tier supplier visibility have been able to respond better to the crisis.”
Ranganathan shared the virtual stage with several other experts during a broadcast of SAP Ariba Live, hosted by Sean Thompson, executive vice president of Network and Ecosystem for SAP Procurement Solutions. Their conversation was chock full of lessons learned from supply chain leaders.
Resilient Supply Chains Can Save Lives
If Sheri Hinish, co-founder of Supply Chain Revolution, is right, we are in for a paradigm shift from price to value as companies search for supply chain resilience and increasingly prize transparency. With more accurate data, companies can move more quickly to avert future catastrophic failures.
“There’s a realization that supply chains are the conduit that powers the world,” Hinish said. “But do we really know who we’re shaking hands with beyond tier two or tier three suppliers? The pandemic has created a new understanding of external risk, visibility, social, and environmental insights. You have to understand all the risks in real time and that can have tremendous influence end-to-end in being resilient.”
Open Lines of Communication
Fast, efficient communication between buyers and suppliers is another bedrock of the renewed supply chain, chiefly for its role in exposing and mitigating risk.
“Companies that have always been very active with their suppliers are seeing it pay off right now,” said Sondra Scott, chief operating officer (COO) at Verisk Financial. “We always talk about having a very centralized point for risk management, and this crisis is highlighting the importance of that.”
Sustainability: Back with a Vengeance
In contrast to early pandemic storylines that seemed to pit business continuity against sustainability, Hinish said the exact opposite is true. For sustainable business, decision-makers need to understand their company’s entire network, including social and environmental hot spots. They must also consider what is material to key stakeholders.
“Technology in the supply chain has to connect the physical and digital in brand promise and truth,” Hinish explained. “People need to understand where to prioritize their efforts for radical transparency moving forward post-COVID-19. Technology gives us access to data and sensing capabilities for insights that will allow us to make better and more effective decisions.”
How to Speed Up the Road to Recovery
Instead of waiting for the next big disruption, Padmini advised companies to conduct “regular fire drills” on risk mitigation plans, continually refining responses and plans for process change management and business continuity. Scott urged people to have post-crisis discussions with their suppliers, noting that many have had “ingenious responses” to the pandemic that might be incorporated into supply chain best practices moving forward.
Acknowledging the complexity of modern supply chains, Scott said companies can head off data overload with a holistic approach to risk analysis.
“Data is very dynamic, and you need to figure out ways to synthesize the data into meaningful insights [to see] how the different risks are interrelated,” she said. “For example, we’re now seeing the terrible effects of the pandemic on particular parts of the less developed world. The aftermath will be massive – whether it’s political or environmental. We need to understand how all those risks happen together.”
COVID-19 is a wake-up call for companies that spent too much time building complex supply chains and too little on understanding the massive amounts of interconnected data inside them. As businesses slowly open and the economy revs up, let’s hope every company applies lessons learned to build supply chains that reflect the kind of integrity our changed world demands.
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This story originally appeared on SAP BrandVoice on Forbes.
