Watch: Why Supply Chains Weren’t Prepared for COVID-19 | 2020-06-03
Ed Barriball, partner in the manufacturing and supply chain practice of McKinsey & Company, explains how the COVID-19 outbreak exposed weaknesses in global supply chains — and what the “next normal” might look like.
Global supply chains were battling adverse conditions long before the coronavirus pandemic hit. They included rising tensions between trading partners, shifting trade patterns, climate change, and the fragility of supplier networks. In a sense, COVID-19 provided the “final point” that is motivating companies to redesign their supply chains.
One reason why they weren’t prepared for the current crisis is that it has occurred on an unprecedented scale — no part of the world is unaffected. Previous disruptions, in the form of natural disasters such as floods or tsunamis, were localized. Moreover, companies were unable to rapidly assess what was going on in their supply chains, and update their demand forecasts accordingly. They didn’t anticipate the plunge in demand and rolling shutdowns of manufacturing capacity.
They would have been better equipped for this or any other disaster had they taken bolder steps toward digitizing their supply chains, Barriball says. The technology provides a level of visibility that wasn’t possible before, allowing for such steps as moving inventory into stocking locations that are set up for online delivery instead of store fulfillment. They needed to be able to quickly ask suppliers to begin producing for a different kind of demand, while also communicating those changes to marketing, sales and advertising teams.
Also of prime importance today is the importance of acquiring transparency into capital and operating expense. The pandemic has made companies aware of the need to understand the amount of cash on hand, and how they can generate more. Such capacity is going to be critical in the months ahead, Barriball says.