It has been quite a rollercoaster ride in the past three to four months. But only if you imagine the last 5 seconds of the rollercoaster ride: drastic braking leading to a full stop and no movement in quite a long time.
Much has been said about the Heroes and the positive signs in our societies all over the world; with people assisting the ones in need, with more time with the family and a forced step towards a more digital, more flexible working environment. And it has been said that every crisis brings along something positive.
On the other side, crises help to identify bottle-necks, inefficiencies, and unexpected correlations in a painful way. Today I would like to focus on several aspects companies with multi-national value chains will have to consider in order to solve the above mentioned issues. Of course, this also may apply to small and medium-sized companies, depending on their business and product. These insights come from many conversations with my clients, candidates and other relevant experts in leading Supply Chain, Operations and Procurement roles in my network.
One bottle-neck which became visible and obvious rather quickly was the dependence on single-source supply structures. This does not only refer to the amount of companies but also on the number of countries where materials and components are sourced. Especially the shutdown of operations in China had an important impact on several industries. As a consequence, Supply Risk Management will be a more relevant topic than before. Scenario planning and preparation for unexpected supply shortages will be relevant to strategic decision-making. Strategic sourcing activities will be even more important than six months ago. The VUCA environment is as VUCA as it has ever been and it will remain so for the next 3-4 years (in regards to the strategic sourcing of high-demand and rare materials).
On the other hand, this could lead to macroeconomic turbulences, for example in China. It would be reasonable to assume that China’s exportation might not recover as quickly as our “everyday life”, because of companies preferring to develop suppliers in other countries or regions. China’s unique edge, the production volume for electronics, will shift towards countries as Indonesia, Vietnam, Thailand and India. As a consequence, China will act to attract clients and businesses and to turn this trend around – so, exciting developments might be expected. Latin America and Africa may also benefit but might depend on more external investment and support for the creation of policies and security.
The bottle-necks of essential goods, such as antibiotics, protection and supplies for the healthcare industry and – for some reason – toilet paper, will create a new perspective on manufacturing in industrialized countries.
In the case of products and materials that will still be bought, companies will rather work based on limited-time bound contracts than on typical frame contracts. There might be less long term contracts and agreements and a need for more flexibility in supplier-client relationships. Commodity sourcing will be reviewed more frequently and in shorter intervals (e.g., quarterly instead of yearly). Suppliers will be audited more thoroughly and their financial situation will be an important factor (threat of bankruptcy of a strategic supplier).
From my personal view, it could also mean that supply chains won’t necessarily strive to be as lean as possible but could consider to accept higher levels of strategic stocks in warehouses and a wider range of suppliers for similar goods.
Only companies with agile, resilient and flexible value chains will be winners, taking it from here. Without a doubt, this is an extra-ordinary situation and it is an extra-ordinary opportunity for some while being an extra-ordinary threat to others. Embracing technology will be a key driver of success.
In the end, it will come down to the one decisive aspect: The human factor.
Organizations, no matter the size or the industry, will look for people with strategic mind sets, strong abilities in agility and with a high level of resilience. In Procurement and Sourcing, there might be a trend towards a more friendly approach with a “win-win” mentality instead of long terms for payment and radical negotiations. People with long-term thinking and conscious decision making will be in high demand.
So let’s get all ready for the next exciting round, as the rollercoaster starts to accelerate again.
Qais leads Morgan Philips Executive Search’s business in Supply Chain, Procurement and Logistics in Germany. He serves as a strategic partner for his clients and specializes on C-Suite, Director and VP level positions in complex matrix organizations in Operations, Value Chains and the Logistics sector. After graduating in International Economics, he gained valuable experience in Business Consulting, through the family business and found his passion in Executive Search Consulting. Qais has lived and worked in Germany, Spain and Mexico and is fluent in German, English and Spanish.