3 minute read 12 Jun 2020
Man sitting at desk in office

COVID-19: How CSCOs can make supply chains a competitive advantage

By

Glenn Steinberg

EY Global and EY Americas Supply Chain Leader

Helping companies transform, create value and optimize business performance. Thirsty for knowledge. Ski enthusiast. Husband and father of two Michigan Wolverines.

Contributors
3 minute read 12 Jun 2020

The crisis provides a unique opportunity to create greater resiliency and reengineer supply chains for the future.

In brief
  • Improve margin and COGS by simplifying products, rationalizing your portfolio and optimizing asset utilization.
  • Transition from a linear to a networked ecosystem where any event happening in the supply chain can be seen by all and worked on simultaneously.
  • Create a digital twin – utilize a digital replica of physical objects and processes to mimic and test related behaviors.

The disruption caused by COVID-19 has completely changed buying behaviors and patterns: overnight, demand has dropped substantially or moved to online channels, meaning many companies suddenly do not have a clear demand signal creating inventory imbalances.

Meanwhile, border closures and travel restrictions are disrupting the flow of raw material and finished goods, resulting in long-lead times and supply availability constraints. Some governments are pursuing new near-shore sourcing and manufacturing policies with substantial incentives, such as grants, which can impact global trade strategies.

Health and safety concerns for employees and customers are changing the cost of doing business and impacting overall business performance.

Very few companies have previously stress-tested their supply chains, but those that have are faring much better during the pandemic.

The situation and expectations for CSCOs

This outbreak is only the latest in an increasing number of complex and unexpected disruptions that are impacting business performance – and it will not be the last. Organizations will, from now on, expect their supply chains to be much more resilient and adaptable to future disruptions.

On top of this, supply chains will increasingly be viewed as drivers of growth and a competitive advantage which will raise expectations on CSCOs. Rather than being lean experts, they will be tasked to transform supply chains into digitally-enabled and autonomous ecosystems.

Nine actions for CSCOs:

1. Mobilize a crisis management task force

Initiate a governance model with clear roles and responsibilities as well as communication protocols and reporting.

2. Assess and remediate impacts

For some items, such as protective equipment and sanitizers, demand is off the charts, but stockpiling makes demand signals harder to understand. CSCOs should analyze data around inventory, network, hubs and nodes to match supply to demand. Quantify cost and mitigate current and potential supply and demand disruption. Develop a short-term remediation plan to navigate through the crisis and implement furloughing if needed.

3. Address costs

Supply costs account for 50%-75% of corporate costs, understand which levers can help drive substantiable cost reduction: create cash and working capital by SG&A cost reduction through contract reviews and sourcing events. Improve margin and COGS by simplifying products, rationalizing your portfolio and optimizing asset utilization.

4. Be ready for any crisis

Conduct regular supply chain resilience assessments to define strategy and capability build-out. Conduct stress tests on your supply chain to anticipate future disruption. Incorporate the anticipated business and financial impact in your budgeting and business planning processes. Update your corporate strategy and review the robustness of your business model for future crisis potentials. Finally, leverage rapid response advanced analytics support to address fluid situations in key areas.

5. Invest in building a resilient networked ecosystem

Transition from a linear to a networked ecosystem where all the data is in the cloud and any event that happens in the supply chain can be seen by all, at the same time, and worked on simultaneously. Leverage internal and external data sources to gain end-to-end visibility. This will help to identify and reduce key single points of failure, e.g., supply concentration. Monitor market and economic indicators, supply availability to mitigate risks and supply disruptions.

Transitioning to a networked ecosystem means all the data is in the cloud and any event in the supply chain can be seen by all, at the same time, and worked on simultaneously.

6. Revisit the supply chain operating model

Improve overall business structure to create agility, productivity and tax efficiencies by re-evaluating organizational model, business unit locations, job definitions and capabilities.

7. Review tax strategies

Redesign a tax-effective operating model, and analyze indirect tax optimization to reduce customs and duties costs.

8. Implement a control tower

Visualize supply chain end to end, enable “What if” simulations to sense and respond proactively to disruptions. Leverage predictive analytics to identify and activate alternative supply routes rebalance production mix across plants, relocate capacity available, redirect shipments through self-correcting workflows.

9. Create a digital twin

Utilize a digital replica of physical objects and processes to mimic and test related behaviors, or run a parallel version of your supply network containing the same supply entities, parameters and financial targets to sense and respond to problems, and ultimately create a digitally enabled supply chain.

Anne Johnston Weaver, Senior Manager, Ernst & Young LLP contributed to developing this article. 

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Summary

Organizations will, from now on, expect their supply chains to be much more resilient and adaptable to future disruptions. On top of this, supply chains will increasingly be viewed as drivers of growth and, therefore, a potential competitive advantage. This will raise expectations on CSCOs. The article suggests some recommended actions for CSCOs. 

About this article

By

Glenn Steinberg

EY Global and EY Americas Supply Chain Leader

Helping companies transform, create value and optimize business performance. Thirsty for knowledge. Ski enthusiast. Husband and father of two Michigan Wolverines.

Contributors