Receiving raw materials—this is one issue that manufacturers are grappling with as the global economy comes to a halt thanks to the COVID-19 pandemic. The shock to the supply chain will “substantially” cut the 2020 forecasted manufacturing revenue of $15 trillion, ABI Research reported in March.
“Initially, plant managers and factory owners will be looking to secure supplies and be getting an appreciation of constraints further up the supply chain plus how much influence they have on their suppliers,” explains Michael Larner, principal analyst at ABI Research.
But in the long term, manufacturers will need to change how they do business to better understand how to mitigate the risks of losing a supplier—including understanding their supplier’s supplier, ABI Research says.
Last week, Harvard Business Review published an article titled “Coronavirus Is a Wake-Up Call for Supply Chain Management,” stating that despite earthquakes, tsunamis, floods and hurricanes that have disrupted the supply chain in recent years, many companies were still unprepared for this pandemic. The article cited a survey by Resilinc in late January and early February that said 70 percent of the 300 respondents were “manually trying to identify which of their suppliers had a site in the specific locked-down regions of China.”
Since many companies do not have supply chain mapping in place—cost and man-hours being the typical response as to why—when one link in the chain falls out, the entire process can crumble. And, without this data in place, Harvard Business Review reports that “many companies continue to rely on human intelligence from top-tier and a select few lower-tier suppliers.
“But the information collected via personal relationships is typically anecdotal and often mere conjecture, and when procurement personnel leave, change roles, or retire, their knowledge leaves with them,” the article states. “It can take new employees years to get to know immediate suppliers, let alone the suppliers’ suppliers and their global footprint.”
Enterprise resource planning (ERP) is expected to rise as a result of this, ABI Research forecasted in its report. By 2024, manufacturers could spend $14 billion on these platforms, which include modules for inventory control and supply chain management, the research firm predicted.
“Supply chain orchestration requires software to be more than a system of record and provide risk analysis and run simulations, enabling manufacturers to understand and prepare for supply chain shocks,” Larner said. He added that while manufacturing has been adopting Industry 4.0 inside facility gates, “investments in robotics or IoT sensors and the like assume that assembly lines receive a steady flow of raw materials. COVID-19 demonstrates that manufacturers need to be as focused on their supplier’s capabilities as they are on their factory floor.”
The Harvard Business Review article also suggests taking supply chain mapping seriously.
According to the article, companies typically focus on key components—such as the top five products by revenue, going down to the raw material suppliers.
“The goal should be to go down as many tiers as possible, because there may be hidden critical suppliers the buying firm is not aware of,” the article states. “The map should also include information about which activities a primary site performs, the alternate sites the supplier has that could perform the same activity, and how long it would take the supplier to begin shipping from the alternate site.”