The impacts of COVID-19 continue to be deeply felt across the supply chain industry, as many businesses seek to identify strategic ways to manage changes effectively. While the world has not yet reached a “new normal”, it is important to understand what has happened in the world of supply chain and what is yet to come to plan for business success.
On Jan. 28, the World Trade Association of Utah hosted a panel of supply chain experts to weigh in on the topic, including:
- Simon Greathead, Associate Professor of International Business and Supply Chain Management at BYU Marriott School of Business
- John Visser, Vice President of Global Logistics at dōTERRA International
- Mark Kosiba, Chief Supply Chain Officer (fmr) of Traeger Pellet Grills, LLC.
What is supply chain management? According to Simon Greathead, it is the planning, sourcing, making, delivering, and if needed, returning of products and services.
“Utah is a great example of a state with organizations in each one of the nodes of supply chain,” said Greathead. “Planning has to do with forecasting for demand. In other words, how much of a particular product are we going to sell. Then, we have sourcing or purchasing. Once you know how much you’re going to sell, then you need to purchase the required components. The middle part of supply chain is the production or the making of that product. Next, we have the logistics, the delivering of products. Lastly, there is returning for unneeded products.”
With a basic understanding of supply chain mechanics, the panelists took on timely questions surrounding latest trends, challenges and opportunities amid COVID-19 . Here are some important highlights to maximize supply chain success in the times ahead:
Q: What have been your observations on how COVID has impacted supply chains?
John: I’ll start by saying I’ve seen negative and positive impacts to this. There were customer delays as our supply chain got disrupted. We do have a lot of partners that we work with and a lot of delays and disruptions in their supply chains.
We saw an increase in cost as we had to expedite product in ways that we hadn’t planned for, but needed to and for us service comes first and cost does come later. We’re still struggling from the capacity issues from a pure transportation standpoint both domestically and especially on the international side now.
From a positive side, it really exposed some gaps that we had. You can see when you’re stretched thin and where the weaknesses are. So, we’ve really been able to go after those. Our morale is greater than ever, because we look back and say, “Wow we did this. We’re resilient and we’ve done this.”
Mark: The first problem is the crash of demand. There’s a huge shift in the value of the dollar. That’s going to have repercussions for a year to 18 months. Everything got more expensive and there’s been a secret inflation that’s happened and has been hidden in the US by our ability to print money. Product development has gone down. In order to develop and launch products you need to be in the country of where your manufacturers are, boots on the ground, and actually watching the iteration of that product being made.
There’s going to be a hole in new product releases for a lot of these companies and that’s been created by lack of ability to travel. Besides the supply and demand curve that we have, you’ve got inflation that’s lurking and that’s going to really hurt the stock market within a year or so.
Simon: Supply chains have shrunk in many aspects meaning companies are focused on those things that matter most to them that bring in revenue. They spend less time and money on software, consulting and auxiliary products associated with supply chain needs.
Q: Over the next 6-12 months, what are certain activities that we should be aware of that would either help or hinder supply chain progress?
John: With my company, our relationships with our suppliers need to be stronger than ever. That may mean strengthening the relations you already have, but also some diversification as well. Building in redundancy where we can, we try to set it up to where if we can’t fulfill orders in one facility then let’s shift where we can. We’re always trying to work with our inventory balance. The other thing is our communication has to be sharper than ever both internally and externally.
Mark: There is price elasticity, and this is a trigger for you to consider whether to raise the price of your product to protect gross margin and deliver cash to protect the business. It’s never been a better time to increase your prices, especially if you notice your competitors are having supplier weakness. What that does is generate from profit more cash and give you more run of the business.
You need an S&OP process, (sales and operation planning), which is your forecasting process, with real strength to understand the risk from a demand side. You need to have a basic depth of MRP software that is measuring lead time from your factories and lead time variation. That’s going to give you an early warning to problems.
Q: How can we use technology to mitigate some of the risk in supply chains?
Simon: Technology is a double-edged sword for most organizations and it’s the same in supply chain. I think COVID has made organizations simplify the use of technology. If technology does not help bring customer success, we should re-evaluate the use of it. First, let’s eliminate any technologies that are not helping us to achieve best customer outcome. And two, let’s find new technologies that help us help customers be happier than they are now.
Mark: The reality is we need to understand the trends of our new customers and how our new customers are acting. The way our consumers are buying our products are different. The technology of looking at sales to understand the trends you are seeing and using technology to understand the new patterns and the new “normal”. The answers lie in the data of sales today.
John: If we don’t have the right leadership and processes in place, and then we get a really cool system, we’re going to hard code some bad processes. We’re going to enable some things that we don’t want to have happen, so we have to be very careful about the right kind of technologies.
Q: What are some benefits of neo-sourcing vs far-sourcing?
Mark: It comes down to a standard equation of three things: it’s cost of labor, cost of overhead, and the cost or ability to get materials. From those three things you make a decision. When you go through the ability to understand those different things a lot of products get outsourced that have low labor content. You need to be not building a supply chain compared to how the last 18 months have been. Don’t forecast like we’re in COVID of March of 2020, because this is a black swan event.
John: Where local is possible – fantastic. Where it’s not, there’s certain components or ingredients that you can only get from certain areas. That’s where you have to work on other ways to strengthen that supply chain such as creating fantastic relationships with your sourcing partner there. What my current company will do is, they will invest in the community there, help build hospitals, and help the community to grow that area.
A Look Forward
What can we look for to signify a return to a “normal” 2019 business cycles? It’s going to happen faster than you think according to Kosiba. There is a demand for normalcy. A return of the roaring 20’s (spend, spend, spend) is on the horizon, though there will be restraint in logistics and ports not because of COVID breakouts, but because of capacity. Through all the positives and negatives through 2020, supply chain prioritization remains critical for business and brand success.
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About World Trade Association
World Trade Association of Utah is the state’s longest standing non-profit organization dedicated to promoting and advancing international trade and commerce. The WTA provides a monthly forum for the exchange of ideas and information through various workshops, seminars, publications and special events with leading government, business, academic and international trade organizations. Each year WTA bestows the leading International Person of the Year Award and the International Company of the Year Award.
For more information, visit wtaofutah.com.