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Thinking About a Recovery…Building Flexibility Into Your Supply Chain in 2021

In the thick of a crisis, it is difficult for many executives to think about a recovery. However, we all need to think about preparedness for emergencies, and ensuring a rapid recovery from whatever crisis comes into our path. Recoveries always come, and the slower they are in coming back, the more damage is wreaked on the global economy. In 2008, worldwide government stimulus programs allowed stock markets to bounce back in six months, but the U.S. and European economies did not recover for about 18 months. Now, in the dragging long-term pandemic recovery period, is the time to talk about what went wrong, what is still going wrong, and how to fix it, whether that means enhancing the power of sourcing, or fixing upstream supplier problems such as an inability to diversify a supply base. We have, in a sense, become trapped into relying on current suppliers that are located in distant countries. When exports were restricted, many firms were powerless to recover, as they had not established any other sources of supply. We were often forced into single sources in the first place due to choices we made in the design phase of product and service development, which restricted our options. Instead of using industry-standard components and statements of work, we allowed engineers to dictate components for which the specifications were too narrow, making it difficult to find alternative production sources. We specified building materials that forced us to buy from certain suppliers at certain times. Scopes of work were written in such a way that only a single company could produce a customized proposal.

The solution? Establish a means for dual sourcing. This will reduce procurement risks and can facilitate cost reduction. The pandemic has exposed the vulnerabilities inherent in global supply chains. Many are calling for a return to a “post-COVID” economy. What would this economy look like? An implicit assumption in the press is that Covid-19 caught everyone by surprise, and that executives who foolishly ignored the risks of outsourcing to China are now paying the price. However, noted scholars and epidemiologists have been warning us of pandemics since the SARS virus. Pundits would further posit that in their pursuit of low-cost production, global corporations made naive assumptions that nothing could disrupt them. To this way of thinking, government-imposed tariffs were simply a passing political inconvenience, while Brexit restrictions would somehow be negotiated away by Brussels in subsequent years.

Here we offer an alternative viewpoint: The major disruption of the global economy, including Covid and its effects, are a function of events that are part of the natural evolution of supply chains. Organizations that buy into this hypothesis need to design supply chains that are more agile to respond, design and contract with multiple local sources of supply, and have monitoring system that can provide early warning of disruptions on the horizon. These characteristics can lead to a new type of supply chain design, one which possess the characteristic we call supply chain immunity.

We may not be able to “re-shore” all of the production that is currently off-shore. However, it’s time to re-evaluate how we can render our supply chains more agile and able to respond. Explore alternative solutions to develop some local capacity for sole-sourced items. Identify alternatives that may work, or even substitutes. And question the specifications we put on our goods that hem us into supply contracts with off shore suppliers that have limited capacity. This is the right time to be asking these types of questions. I don’t expect that we will return to normal anytime soon, and it’s starting to look like the recovery may be further off than we think.