The COVID-19 outbreak has shaken up the global supply chain to its core. Not only has the supply and demand halted, but the outbreak has also led the economy to shrink – thus driving supply chain leaders to rethink and transform their global supply chain model. The pandemic has forced businesses around the world to re-evaluate long-held assumptions on the design and operation of their supply chains. Notably, COVID-19 has underscored the trade-offs inherent in supply chain management.
How COVID-19 affects supply chain cost?
While it was obvious that the supply and demand in supply chains are disrupted, companies seek to achieve better management (getting products to the right place at the right time) by emphasising on goals such as cost, quality, geographic location, delivery lead time, and environmental impact, among many others. Yet, these goals can potentially come into a conflict which might create potential trade-offs.
Supply chain experts wrote to SCMR that the recent pandemic has renewed attention on inventory levels. Production can rapidly grind to a halt due to delivery delays. While companies can hedge against risks with higher levels of safety stock, there might be a clear cost trade-off between low and high inventory levels.
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While many supply chain industries allow robots to help humans with certain tasks, especially during a pandemic where robots are seen as a solution for social distancing, there are several scenarios in which trade-offs happen. For example, companies need to place greater emphasis on scenario analysis going forward. This analysis is needed to explore the implications of low probability, high impact events, and to stress-test supply chain designs. Some measures and new perspectives on performances will also need a higher cost for supply chain leaders to get things right. Stock levels on critical inventory for healthcare and consumer goods might take on renewed significance, which might expose the fragility of global supply chains. Hence, supply chain leaders must identify, discuss, and assess these changed circumstances for better development in the post-pandemic.
Cutting supply chain costs
Randy Ofiara said that there are three important key areas to explore in order to manage the trade-off of supply chains. These three keys can also help supply chain leaders realise the full potential of their company and get the biggest, fastest savings for the supply chains.
- Measure – understanding how supply chain functions. To measure is to create an overview of supply chain operations to understand key processes, such as where strengths and weaknesses lie.
- Manage – understanding the flow of goods, money, and information. This helps make decisions on how to spend well for the supply chain. Make use of the data on the measure phase to improve this stage.
- Maximise – making the most possible good out of every factor and decisions e.g. maximising technology to help with the efficiency of the process or production, thus increasing the profitability of the final products.
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