Mitigating Supply Chain Disruption in the Manufacturing IndustryBy Arlene Wherrett
The rapid growth in international trade in the past few decades has built an incredibly complex global supply chain network. The World Trade Organization (WTO) is represented by 164 countries today – equivalent to 98% of world trade – and governed by over 60 international trade agreements. In 2018, merchandise exports of WTO members totaled US$19.09t and the top ten merchandise traders accounted for just over half of the world’s total trade.
This leaves manufacturers highly dependent on trade and extremely vulnerable to disruption in the supply chain network. When the coronavirus outbreak hit in the first half of 2020 and global supply chain was affected, the impact dealt a detrimental blow on the manufacturing industry. Worldwide manufacturing revenue, which is worth a whopping US$15 trillion this year, is now expected to fall by between 13 and 32%, according to the WTO.
In Singapore, we are bracing ourselves for the worst recession in 55 years. Business sentiments in the local manufacturing sector have turned negative with 56% of firms foreseeing a weaker business outlook from April to September this year, according EDB’s second quarter Business Expectations of the Manufacturing Sector report. Back in February, Singapore’s factory activity also contracted sharply, the lowest recorded in more than five years.
How bright or gloomy business outlook will be as we progress into the second half of the year will really depend on how fast the pandemic can be contained and kept under control. But for now, there may be some immediate actions that manufacturers can take to restore some form of continuity amidst these challenging times, and perhaps even, emerge from this period stronger.
Whilst some of these tips have been discussed across different industries, I am collating the key tips here to help those affected by such disruptions be better prepared as we face the next phase of the COVID-19.
Diversify Risks: Source from multiple suppliers, both locally and abroad
According to a March 2020 survey by the Institute for Supply Management, nearly 75% of companies reported supply-chain disruption due to the coronavirus. Of that, 44% of companies did not have a plan to deal with this disruption.
The biggest learning for businesses here is to establish flexible networks allowing quick adjustments in times of stress. The emerging word on all supply chain providers lips is ‘resiliency’. A Bain analysis shows that companies with resilient supply chains grow faster and reduce disruptions by building buffers throughout the supply network.
The learning here is to avoid relying on simply one or two suppliers. Instead, have multiple approved suppliers for each of the items for procurement, and ensure that some of them are closer to home whilst others could still be kept in emerging countries. As we can see today, disruption can happen in different geographies at different times. Whilst many companies will continue to look to China as their primary supplier, it would be prudent to consider a new ‘China +1’ strategy to minimise disruptions in the future.
Sourcing manufacturers locally is also an option worth considering. This approach can help to revitalise the economy by reducing cash outflow and injecting investments where it is needed at such a crucial time–all whilst supporting the growth of local talents.
The Singapore Ministry of the Environment and Water Resources and the Singapore Food Agency have been actively diversifying the nation’s food sources by sourcing from multiple suppliers, including from countries as far as Brazil and as close as Malaysia. This obviously helps to strengthen the nation state’s food security. Nonetheless, the country is also actively developing local food production. Recently, Singapore introduced the 30x30 Express Grant, a $30m investment designed to speed up the production of food items like eggs, vegetables and fish over the next six to 24 months.
Well positioned manufacturers plan with vision. Plan like a well-prepared government and avoid having ‘all your eggs in one basket’ when it comes to suppliers. Plan now and implement these steps to mitigate the effects of any further disruptions down the road, as the government has repeatedly warned that this pandemic will remain within the community for 18 – 24 months.
Adopt Technology: Gain visibility into the operation and supply chain
The pandemic has brought to light the importance of manufacturers having visibility on their entire supply chain. This allows businesses to analyse the impact of disruption and adopt alternative plans such as developing routes to other suppliers.
Enterprise Resource Planning (ERP) applications that integrates all facets of a company whilst connecting customers and suppliers have never been more crucial. ERP helps business leaders to identify supply chain exposure and manage or mitigate risks, thus reducing the impact of disruptions.
In fact, the impact of the current pandemic on the global supply chain is expected to drive an increase in manufacturers’ spending on industrial manufacturing applications to just over US$27b in 2024 – with ERP systems accounting for over 50% of the spend.
These days, next generation ERP applications can be implemented from as little as four weeks whilst finance and distribution modules can be implemented in just two weeks. Small and Medium Enterprises (SMEs) can also consider cost-effective, cloud-based ERP solutions with fast track implementation programs.
The bottom line is that ERP solutions can provide agility for organisations and enable them with the tools to futureproof their business – critical factors in recovering from global downturns.
Additionally, manufacturing businesses can look into industry-focussed operations and accounting planning. They can tap on business management software created specifically for manufacturing businesses that can help leaders control operations, ensure the delivery of consistent quality, and take advantage of new commercial opportunities.
First Moves: Be prepared for the market rebound
The ability to look forward and prepare for a rebound is a trait that will separate companies that can thrive post-crisis from ones that will fail to do so. Manufacturing companies that are able to move more quickly than their competitors may capture a larger share of the pent-up demand, solidify their relationships with their most important customers and even gain some new ones.
Pricing strategy will be an important consideration as businesses gradually transition to a ‘new normal’ — both to address supply-demand considerations and maintain profitability whilst logistics and other operational costs continue to be volatile.
The immediate focus for most companies will be improving visibility to supply chain risk, in its own facilities, with direct suppliers and beyond. Getting this extended supply chain visibility will likely require a more digitised approach than many companies have been using in the past.
Implementing solutions that leverage artificial intelligence and machine learning should be a priority. These platforms can incorporate a breadth of data using proprietary and subscription-based solutions to illuminate supply networks more quickly, and to a level of detail that was previously thought to be impossible.
Future Proofing: It cannot be an afterthought
Deloitte aptly named the pandemic a black swan event as it forces companies to immediately rethink the way they do business – and there is no better time to do so than now. There is no guarantee that the pandemic will come to a complete end in the near future, or that such outbreaks will not occur again.
Having a business continuity plan for your supply chain is a good start. Manufacturing companies, especially, will need to have agility in their supply chain to adjust for business resiliency in the ‘new normal’ post COVID-19.