Director: Corporate-911
Through my years in corporate leadership and then as a Turnaround Professional, I have realised that the pedestal the public places corporate leaders upon is often rickety.
Corporate leaders are human and make mistakes that can significantly impact the business. We must learn from these events.
It is important to reflect on the lessons learnt during the Covid supply chain crisis.
How is the outlook for procurement improving?
The raconteur.net article points out that, in May 2023, global factories increased their output for the fourth consecutive month, while productivity in China recently hit an 11-month high after Beijing lifted Covid restrictions at the end of 2022. And, while manufacturing figures in the US dipped in June, they seemed to stabilise in July, according to the Institute for Supply Management’s latest Purchasing Managers’ Index (PMI).
Among those surveyed for the PMI was a purchasing manager in the fabricated metal products sector who reported that supply chain conditions were returning to a situation broadly comparable to pre-pandemic conditions. Logistics costs had settled down, while transit times were getting shorter. Any remaining divergence was to be found in energy and raw materials costs.
The article adds that another purchasing manager, this time from the primary metals sector, noted that their order book was strong. A respondent working in the food and beverages industry said that they expected production to increase soon, given the slight easing of inflation and an uptick in consumer confidence.
How are businesses boosting supply chain resilience?
The raconteur.net article points out that, although the threat of recession still looms over several economies, things are undoubtedly starting to look healthier and more familiar for supply managers. The key questions for professionals to consider are what lessons they’ve learnt since 2020, what changes the crisis has necessitated and whether corporate procurement teams are well enough prepared to handle the next big shock to the system.
Research findings suggest that businesses are already reverting to old, short-termist habits make such questions more urgent. While a survey by PwC in November 2022 found that 5% of senior executives in the US considered increasing their firms’ responsiveness and resilience their highest priority in 2023. Only 23% included it as one of their top three priorities.
The article added that the company that’s clearly deemed the task vital is French electrical engineering firm Schneider Electric. It has been two years since the business adopted a ” Strive ” supply chain strategy (standing for sustainability, trust, resilience, intelligence, velocity and efficiency). The firm’s main aim has been to make its supply chain more shock-resistant and customer-centred – and it seems to be succeeding. In May, Schneider topped Gartner’s rankings for the top 25 supply chains globally for the first time.
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What has gone into this transformation? Kapila Mehta, VP for Sustainability in the firm’s power products arm, explains that the forces at work during the pandemic (and events such as the semiconductor shortage) made the global market “increasingly dynamic and uncertain”. Schneider realised that the situation demanded an appropriately agile response, so it gave its procurement teams licence to do whatever it took to adapt quickly to changes in the market and so continue meeting customers’ needs in a timely fashion.
Now that things have calmed down a little, Schneider is working with thousands of its upstream partners to lock in vital supplies with the expectation that this will guarantee operational continuity. It has also committed to making full use of its network of 180-plus factories and nearly 90 distribution centres to ensure maximum flexibility and responsiveness.
Why onshoring and friend shoring are here to stay
The raconteur.net article points out that some resilience-focused procurement teams have been safeguarding their operations through multisourcing, whereby they use two or more suppliers to deliver the same item. The simple logic behind this practice is that drawing upon several sources in different locations should limit any disruption if a supplier at one site runs into problems.
Having multiple outsourced manufacturing sites across several regions, closer to end markets, can help to mitigate risk presented by a single supplier.
Lynn Torrel is the Chief Procurement and Supply Chain Officer at electronics giant Flex, points out that, while “single-location in-house production” may offer economies of scale, “having multiple outsourced manufacturing sites across several regions, closer to end markets, can help to mitigate risk”.
Torrel adds that the benefits of spreading the risk of disruption this way will, of course, need to be balanced against “the efficiency of your freight and logistics, which is dependent on your location”.
Comparable practices, such as friendshoring and onshoring, also look set to continue as long as geopolitical tensions remain high. But Mehta warns that these measures won’t be the ideal solution for all companies.
“There is a large movement towards localisation, but this needs to be driven by the pursuit of both resilience and sustainability,” she told raconteur.net.
Have companies really embraced supply chain flexibility?
The raconteur.net article points out that if the past three years have taught supply chain professionals anything, they have to be flexible to avoid getting caught out. “To be resilient enough to withstand disruption, businesses need the right mix of global and local supply chains,” Mehta told raconteur.net.
Even a well-balanced hybrid approach of this type can never make a supply chain bulletproof, of course, but it will put a business in the best possible position to handle the next big shock around the corner.
As Torrel concludes: “Supply chain disruption is inevitable. Your biggest challenge is how effectively you can recover from it.”
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Why this is particularly relevant to South Africa
I don’t need to tell you that there are significant challenges that South Africa faces, which often delay our ability to overcome global crises.
Global companies have moved on from the Supply Chain Crisis or are well-advanced in implementing strategies to achieve this outcome. Yet, South Africa still faces its Logistics Crisis, which may take 10 to 15 years to resolve. And I am not only referring to Transnet’s ability to transport commodities to ports for export; the average waiting time for dry bulk carriers in South Africa was 146 hours (3 days) in the first half of 2022, against 18 hours in France and 20 hours in Indonesia.
The delays at our ports and border crossing tie millions of Rands of heavy trucks up, significantly increasing operating costs and risk of theft and hijacking. Bulk logistics was always a key strength in our export economy and now also needs urgent attention.
These fault lines in manufacturing resilience and bulk logistics require significant people, capabilities, and equipment investments. The regulators and bureaucrats at our borders all add additional costs and delays. These challenges tie in fixed capital and working capital in markets where pricing pressure is already evident; this cost cannot be borne indefinitely. Eventually, there will be fatigue from the owners and mistakes from the managers. This will undoubtedly result in operating losses and financial distress.
