In April 2021, it has already been more than one year since the start of the COVID-19 global pandemic which turned out to be an acid test for global supply chains. In the beginning of 2020, it started with medical device manufacturers facing the unprecedented surge in demand, and progressively expanded to other sectors such as the automotive industry that is now confronted with semiconductor chip shortages.
How can global supply networks survive COVID-19 disruption and prepare for another pandemic hit or future shocks?
Since the start of the coronavirus outbreak, The European Commission mobilised programmes and funding to allow businesses, innovators and relevant actors to respond to the crisis. As part of the EU’s 1.4 billion pledge for the Coronavirus Global Response, the CO-VERSATILE project – launched in November 2020 and led by SZTAKI – is focusing on improving the adaptability and resilience of production and supply chain methods by offering manufacturing and logistics firms replicable production lines and customisable engineering processes accessible via a democratic cloud-based marketplace. To prepare Europe for managing disruptions, CO-VERSATILE partners develop production lines revisiting short-term advantage of producing in low-cost economies and long-term effects of making products closer to customers relying on local supply chains. The approach that CO-VERSATILE partners deploy for life-saving products that are required on short notice, can be scaled up and implemented for other industries at times of crises.
Learning from the supply chain challenges that companies had to overcome during the hardest time of the pandemic, is key in preparing for future shocks. As part of CO-VERSATILE scope, IE University experts have identified five challenges that can be turned into new opportunities to help mitigate the effects of another global disruption.
The Importance of a Flexible Supply Chain
A flexibly designed supply chain can help companies to quickly adapt operations in times of disruptions. Production can adapt to changes in demand, respond to customisation requirements, react to alterations in product design or in alternative supply sourcing. Additionally, flexible supply chains are able to deploy modularity, both at design and organizational level, and avoid that a failure of one part affects the entire system. By standardising components and interfaces between components, product designs embed coordination and loose coupling, while reducing costs and improving response time. This is a very needed strategy for companies that rely on single sourcing for key components or have main suppliers concentrated in a particular geographical area. In this regard, we find multiple illustrations of supply chain flexibility implemented by CO-VERSATILE consortium partners during the first wave of the pandemic. For example, with the help of 3D printing, ML Engraving was able to switch its production from laser engraving and texturing to valve production for oxygen masks just in 48 hours. HSSMI developed a series of novel digital tools that helped Ford Motor Company to accelerate ventilator production by enabling remote training for operators under social distancing constraints. In coordination with the Dutch Ministry of Health, Demcon scaled up their supply chain for existing blower modules to meet sharp increase in demand. At a later stage, the company transformed their traditional blowers to design and produce their first hospital respiratory ventilation system. Both required to expand the already existing supply chain accordingly and to go through the re-certification process for the new product design. In the medical device manufacturing segment, such change of a product design as well as adding or switching suppliers often involves product re-certification.
Similarly, SKM Aeronautics shifted parts of their production capacity to design and produce critical parts for life-saving devices such as oxygen valves for the Israel government.
The Importance of a Revenue Assurance Supply Chain
Rethinking the way companies evaluate their suppliers is a required discussion when a company has to make a decision about the trade-off between efficiency and resilience. By considering additional variables into the sourcing strategies such as cost of quality, lead time, technological value and logistics costs, companies can prepare themselves to respond in times when their competitors may struggle. However, although these measures increase the resilience of the supply chains, they may do it at the expense of efficiency, hence companies may need to review their inventory policies or sourcing strategies. Relevant examples of these practices can be found in CO-VERSATILE production lines. Based on already existing innovative electrostatic disinfection spraying technologies from Tecnostatic, the team is looking at adapting the production process to establish parallel assembly lines and parallel supply chains that could immediately respond to spikes in demand at times of crises. This adaptation of products and processes incorporates alternatives for sourcing components locally - from regional and European networks of companies. Similarly, during the worst months of the pandemic, to ramp up the production of blowers, Demcon changed some of the manufacturing steps executed in the US, to a local company in the Netherlands. This made the supply chain shorter and allowed a much faster ramp up in production, which evidences the relevance of maintaining relationships with responsive and regional suppliers, as it not only avoided a delay in the manufacturing process of the much-needed ventilator, but it also reduced drastically the delivery time.
The Importance of a Visible Supply Chain
Having a visible supply chain starts by identifying all players involved in it and by determining critical components and its origin of supply. Traditionally, most companies have limited supply chain mapping to tier-one suppliers, underestimating the impact of a disruption on a tier-2 or tier-3 supplier. During the COVID-19 pandemic, Dun & Bradsteed[i] identified that at least five million companies, including almost all Fortune 1000, had one or more tier-2 and tier-3 suppliers in the affected region of Wuhan. Mapping is not only about a deep knowledge of a company’s own supply chain, but it also requires the understanding of industry competitors and adjacent industries as the long-term success of supply chain depends on a collaborative business ecosystem.
Understanding the need of a visible supply chain, Demcon has a dedicated team that closely works with suppliers to identify and solve bottlenecks within the supply chain. In a similar way, to achieve supply chain visibility and evaluate the flexibility potential of the CO-VERSATILE production lines, Fraunhofer IML simulates different supply chain scenarios and production processes in detail. This supports the coordination of production ramp up between the partners of the supply chain, and therefore helps to elevate the adaptability and resilience of manufacturing processes by facilitating a deep and holistic understanding of the supply chain.
The Importance of Logistics
Working with logistics and transportation partners is as important as doing so with key suppliers. Having your goods manufactured by your suppliers is worthless if you are not able to secure logistics capacity. Technological and automotive industries are among the ones that have suffered the most as they heavily rely on air-cargo shipments, a transportation mode that has massively dropped its cargo capacity due to travel bans and unprecedented passenger flights cancellation, which translated in fare increments of up to 220%. Companies that had the flexibility to change to multimodal alternatives (ocean between Europe and the US, and train between Europe and China) have been able to outperform their competitors. For example, to shorten transit times of exhalation valves, the CO-VERSATILE project partner Demcon shifted their regular transportation arrangements to an air bridge organised by the Dutch government with KLM. The daily flights from China to Amsterdam helped to significantly reduce the lead time from one week to only two days.
Additionally, real-time visibility of what is happening in the transit period, such as tracking time, airport congestions or border closures, will allow supply chains to quickly react and anticipate disruptions by, for example, changing means of transportation or rerouting.
The Importance of Supply Chain Risk Management (SCRM)
Companies with a mature risk management approach are better prepared to respond to disruptions regardless of the depth of the crisis. However, even though many companies have implemented within their organizations some sort of SCRM or Business Continuity Plan (BCP) processes, few do actually understand where the risks truly lie and limited their SCRM to a few reactive measures. A proactive approach to risk management would involve all functions of the supply chain with a dedicated multidisciplinary risk management team, where possible. Some of the proactive strategies could include real-time event monitoring and supply chain visibility, multi-sourcing and buffer strategies, investment in manufacturing capacity of critical elements, evaluation of partners based on their SCRM plans, development of solid communication channels and creation of awareness and transparency of the entire supply chain vulnerabilities, among others. While the existence of a SCRM plan will not fully avoid the impact of a global crisis like COVID-19, past experiences indicate that only those companies with mature SCRM plans that combine both proactive and reactive measures can overcome the consequences of disruptions faster and in a more favourable way. As such, CO-VERSATILE production lines are implementing supply chain risk management practices both in the design and manufacturing processes of vital medical equipment.
[i] Dun and Bradsteed (2020): Business Impact of the Coronavirus. https://www.dnb.com/perspectives/supply-chain/coronavirus-business-impact.html. Retrieved March 7, 2021.
Authors: Beatriz Acero and Elena Revilla, IE University