INSIGHT

RECOVERY
AND RESILIENCE
Safeguarding and strengthening the
supply chain to thrive through uncertainty

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 RECOVERY AND RESILIENCE: SAFEGUARDING AND STRENGTHENING THE SUPPLY CHAIN TO THRIVE THROUGH UNCERTAINTY

Executive summary

Global value chains, typified by just-in-time manufacturing (JITminimized stock

buffers, outsourcing and distributed logistics, have been revealed as subject to
shocks, limitations and even outright global breakdown. Across industries, there
was either an immediate curtailment of demand or the need to rapidly scale up
production. The ability to pivot is now crucial, and shoring up value networks for
agility is an urgent necessity. Strategies, plans, actions and measures are required to
insulate and bolster short-term robustness and strengthen longer-term resilience.

Accepting that In April this year, shortly after the drastic impacts of the COVID-19 pandemic became
volatility is evident, the Financial Times wrote that “businesses will be forced to rethink their global
unavoidable, value chains … while just-in-time manufacturing may be the optimal way of producing a
supply chain highly complex item such as a car, the disadvantages of a system that requires all of its
leaders must elements to work like clockwork have now been exposed.”1
now redesign
for resilience Global value chains’ trade in intermediate goods has tripled in the 20 years since 2000.
in a way which As their scale has extrapolated, so too has their complexity and interdependency.
will anticipate
Now, COVID-19 has thrown into stark relief how black swan outlier occurrences, and
sources of
even less dramatic disruptions can threaten tightly-refined efficiencies, compromise
disruption,
competitiveness and impinge margins.
mitigate severity
of impacts,
recover fast, and There is nothing like a crisis to crystallize issues and focus minds around solutions.
then emerge Accepting that volatility is unavoidable, supply chain leaders must now redesign for
leaner and resilience in a way which will anticipate sources of disruption, mitigate severity of impacts,
stronger. recover fast, and then emerge leaner and stronger.

‘‘Coronavirus will change the way the world does business for good’, Financial Times, 8 April 2020
1

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 RECOVERY AND RESILIENCE: SAFEGUARDING AND STRENGTHENING THE SUPPLY CHAIN TO THRIVE THROUGH UNCERTAINTY

Because large The short-term COVID-19 impacts need a broader context

corporations’
McKinsey calculate in a current study that, over a 10-year period, companies should
ecosystems
expect disruptions to cause the loss of 30%-50% of an average year’s profits. The study
touch or rely
also concludes that even a single but long-lasting production disruption will result in the
upon thousands
of organizations, equivalent of up to 7.4% EBITDA margin loss at net present value.2
spread globally, it
is vital to ensure The architecture of the value network is now up for reassessment. Coping through
comprehensive, the crisis is one thing but, longer term, demand pattern changes and their possible
simplified and permanency are unknown. For instance, whilst e-commerce has expanded, in many
clear visibility. categories this may reverse, so a drastic route-to-market ecosystem change may be
unwise – although it is opportune to properly adjust systems for e-commerce scalability.

Besides issues triggered by the pandemic, trade wars and Brexit are examples of
economic volatility which will materially affect COGS by means of tariffs and regulatory
costs.

China, comprising 60% of worldwide consumer goods trade, presents a larger conundrum
for organizations with material exposure to the nation, either through production
facilities, or suppliers, or as a market. The context of trade conflict and geopolitical
uncertainty means that alternative ‘China +’ strategies should be incorporated into more
resilient value chain structures.

Risk assessment and evaluation

94% of companies are no longer confident in their systems and capabilities for end-
to-end supply chain visibility. 3 All-round improvement and greater resilience starts
with understanding: Where are the vulnerable points in the value network, can the
consequences of breakdown or disruption be calculated for comparison, what are the
cost trade-offs to tighten, and do the prioritizations align with company strategy?

Complex networks may be both necessary and highly efficient, eking out margin at
multiple delivery points across the chain. However, when they become opaque, they can
obscure uncompetitive areas, even fragilities. Because large corporations’ ecosystems
touch or rely upon thousands of organizations, spread globally, it is vital to ensure
comprehensive, simplified and clear visibility. (Alternatively, relevant to medium-sized
or smaller companies, a concentrated network raises risk due to over-reliance on either
the supply side or customer pull.)

It is invaluable to cluster map the network’s component suppliers to obtain a visual

representation highlighting areas of over-reliance on limited providers, or a channel in
which the opportunity exists to simplify.

2
‘Risk, resilience, and rebalancing in global value chains’, McKinsey, 6 August 2020, Exhibit 5
3
‘EY.com webcast poll, “Responding to COVID-19: What’s next for supply chains,” April 2020.

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 RECOVERY AND RESILIENCE: SAFEGUARDING AND STRENGTHENING THE SUPPLY CHAIN TO THRIVE THROUGH UNCERTAINTY

“Keeping risks Identifying risk is complex

front of mind
The World Economic Forum enumerates a staggering 30 identifiable risk areas for
without seeming
businesses to consider, spanning political uncertainty, natural disaster and climate change
alarmist is a
impacts, cyber risks, terror attacks, financial crises, and – now top of mind – pandemics.4
critical but
important task …
To properly mitigate all such risks, sophisticated and comprehensive modeling should be
because success
performed across multiple variables and alternative probability factors. One example of
is defined
by crises not risk analysis techniques is a matrix evaluation mapping potential financial magnitude,
occurring, and anticipatory lead-times, disruption duration, and the restart and recovery phase. This
people rarely is a multifaceted and inter-interdisciplinary investigation. Routinely, even experts are
get rewarded for unable to accurately predict trends, major events, or recognize a tipping point.5 So, the
something that most crucial requirement is an open-minded team leader able to bypass confirmation
doesn’t happen.” biases, weigh evaluations against human nature towards skepticism – even pessimism –
and understand both the intricacies of the organization's specific ecosystem sensitivities
Christine Bader, The as well as the macro risks arising from its interconnectedness with global systems.
Evolution of a Corporate
Idealist British Petroleum’s (BP) 2010 Deepwater Horizon oil rig explosion – apart from causing eleven
deaths and an environmental disaster in the Gulf of Mexico – cost the company a $18.7 billion
financial penalty and a halving of its market capitalization within two months of the catastrophe.6

The accident’s cause was partly attributed to faulty wiring and a dead battery on a blow-
out preventer, which should have been detected by routine maintenance. Paradoxically,
getting thorough risk analysis right means that mitigation actions may never be required.
In her book The Evolution of a Corporate Idealist (Bibliomotion, 2014), Christine Bader notes
that “Keeping risks front of mind without seeming alarmist is a critical but important task
… because success is defined by crises not occurring, and people rarely get rewarded for
something that doesn’t happen.” 7

The nature of business risk is that getting it wrong in even seemingly inconsequential
ambits could result in catastrophic consequences.

4
‘Regional Risks for Doing Business 2018, World Economic Forum, p36
5
‘Experts Who Beat the Odds Are Probably Just Lucky”, Harvard Business Review, April 2013 https://hbr.org/2013/04/experts-who-beat-the-odds-are-probably-just-lucky
6
‘Market capitalization had not recovered over five years later. 9 September 2015 ($103.03bn) was 46% lower than 20 April 2010 ($189.35bn): https://ycharts.com/companies/BP/market_cap
http://www.wikinvest.com/stock/BP_(BP)/Data/Market_Capitalization
7
‘page 161

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 RECOVERY AND RESILIENCE: SAFEGUARDING AND STRENGTHENING THE SUPPLY CHAIN TO THRIVE THROUGH UNCERTAINTY

Prioritize agility and quick wins

Quick wins for increased resilience
Facing recessionary times and with ongoing uncertainty as to the
In parallel to re-strategizing, immediate duration and severity of COVID-19’s shock, now may not be the
strengthening can be implemented in
optimal time to invest heavily in a range of measures. So, start with
five ways:
known problems, or areas that can quickly be evaluated. Prioritize
1. Increase buffer stock holding. improvements which can generate material gains or significant savings.
2. Simplify product lines and/or SKUs. The focus may be clear, such as the need to increase production
velocity to cope with a renewed demand spike as economies reopen,
3. Standardize component inputs
across products where possible. or to rationalize SKUs so that factories can operate leaner within
redesigned space and reduced shifts or cycles, given employee
4. Build in redundancy by expanding
supplier base. distancing requirements. But they may be less immediately obvious:
Demand forecasting is now contextualized by further uncertainty,
5. Negotiate lead time extensions
with major customers. making inventory decisions problematic; supplier networks may be
compromised in areas not immediately visible and in ways which are
yet to unravel.

Then, restrategize – and redesign if necessary

Historically, and conventionally, supply chains have been structured around the trade-off
between costs and speed, with a third dimension of agility strategized to flex between the
two. More recent designs incorporate a deliberate and rigorous segmentation whereby
different models operate simultaneously and side-by-side on shared platforms, against
different customers, product lines or geographies. Segmentation, through necessitating
end-to-end analysis and ongoing visibility, provides a framework for stratifying
complexity, streamlining S&OP to meet individual customers’ service requirements, and
identifying opportunities for improved margins.

Today, organizations must consider agility as the defining dimension. Manufacturing

capacity and customer fulfillment must be prioritized around this attribute; because it
inherently flexes to accommodate variation, it can cushion against massive swings or
major disruption.

More broadly, the holistic analysis of global megatrends and localized shifts, the industry
ecosystem, competitive landscape and company specifics, will have laid the groundwork
for refocused and rejuvenated strategies. Business continuity demands this is an
iterative review. Integrated business planning has never been more vital.

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 RECOVERY AND RESILIENCE: SAFEGUARDING AND STRENGTHENING THE SUPPLY CHAIN TO THRIVE THROUGH UNCERTAINTY

Case study
Coping or floundering in crisis: winners and losers in
processed foods

Nestlé generated Nestlé, the world’s biggest food company, remained robust in the face of the crisis.
an impressive Certainly, many of its core products retained, or even gained, demand during lockdown,
4.3% organic aided by the nature of categories such as beverages, packaged foods and pet food. But it
sales growth still needed to meet demand – in some segments, to escalate production to meet spikes
in Q1 2020. – during disrupted operations across many of its geographies.
This was partly
attributable The company weighed an immediate, pragmatic need for business continuity with a
to stockpiling, longer view across its wide supplier, distribution and sales network. It anticipated the
but even in the switch from out-of-home to in-home consumption and rapidly modeled how this would
severest state affect product category mix and sales channels, and the resultant requirements to
of worldwide amend raw materials sourcing and production setups.
lockdown during
Q2, organic sales Nestlé generated an impressive 4.3% organic sales growth in Q1 2020. This was partly
were up 1.3%. attributable to stockpiling, but even in the severest state of worldwide lockdown during
Q2, organic sales were up 1.3%.

In contrast, the US’s meat-processing industry dealt inadequately with its supply chain
disruptions during the March-April phase of the outbreak in America. In a consolidated
industry, as many plants closed due to worker illness, bottlenecks led to the inability
to process hundreds of thousands of animals. Tyson Foods, the country’s largest meat
producer and one of the world’s biggest food companies, reported earnings-per-share
(EPS) 36% lower than expected for its 2020 Q2 fiscal, and issued a warning about ongoing
COVID-19 impacts impinging the availability of meat in the US.8

‘Investor’s Business Daily, 5 May 2020:

8

https://www.investors.com/news/tyson-foods-earnings-q2-2020-tyson-stock/

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 RECOVERY AND RESILIENCE: SAFEGUARDING AND STRENGTHENING THE SUPPLY CHAIN TO THRIVE THROUGH UNCERTAINTY

Resilience Implementing best practices and processes

upgrades require
Resilience upgrades require solidifying proven foundations in the practices of lean,
solidifying proven
standardization, continuous improvement kaizen and focused improvement projects.
foundations in
Improving end-to-end capabilities requires the implementation of best practices to
the practices
interpret, monitor, refine and adapt all composite parts and systems in the value
of lean,
standardization, network. From C-suite strategic plans, S&OP, plant workings, down to the smallest
continuous team units, key principles apply in the design and functioning of high-performance and
improvement resilient organizations.
kaizen and
focused Zoom in on focused improvements, too. Within an overriding culture of kaizen’s
improvement continuous improvement, focused projects and actions can bring major savings or
projects. innovative solutions involving asset care, the quest for zero defects and sustainability.
The potential is illustrated in Unilever’s Sustainable Living Plan: In the past decade, the
program has achieved €1 billion in cumulative cost reductions via materials, energy and
water usage efficiencies and waste shrinkage.

Ultimately, this is about submerging into manufacturing’s classic Six Sigma method of
Define-Measure-Analyze-Improve-Control (DMAIC): the definition and measurement of
objectives, performance and processes; analyzing the gaps; implementing improvement
measures; and the monitoring and control of these measures to ensure they work – and
keep working.

DMAIC is a proven approach to drive optimization. DMAIC flow diagrams, covering process
or value stream maps (VSMs), can frame the route to problem-solving. A Supplier-
Input-Process-Output-Customer (SIPOC) diagram maps the issue; a Pareto flowchart
measures the impacts and possible causes and effects; matrix charts guide trade-offs
towards solution priorities; and PDCA cycle mapping allows the tracking and monitoring
of implemented solutions. This documentation rigor forces comprehensive analysis
and forges integrated rather than piecemeal solutions. As a systematized, value-add
exploration it is a best practice, disciplined exercise towards focused improvement.

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 RECOVERY AND RESILIENCE: SAFEGUARDING AND STRENGTHENING THE SUPPLY CHAIN TO THRIVE THROUGH UNCERTAINTY

Constantly strive to improve data availability and its analysis by management. Data is the
expression of the pulse of the enterprise. Its collation, aggregation and distillation –
done timeously and dispersed and interpreted appropriately – enables rapid response
to crises or opportunities.

Organizational process and its management must include visual tools. The visualization of
data, project or work-in-progress status facilitates understanding and insights towards
solutions. Whilst the specific tool or program is of lesser importance – rudimentary
whiteboards are invaluable in many instances – adopt digital and new technologies if
feasible. These speed up and deepen analysis potential, as well as the opportunity to
link with intra- and inter-divisional systems to provide enhanced overall information.
Integrated decision-making – optimized for the entire organization – is the objective.

Benchmark. Individual employee and team accountability requires objectives and

delivery. Focused and continuous improvement should be driven through benchmarking
– internally and against top-quartile external standards – in a constant KPI goal check
and ‘stretch’ re-exercise.

When change is the only constant, an integrative improvement system is the foundation
for navigating disruption and emerging stronger, leaner and more competitive. Crucially,
this includes considerations around the company’s workforce.

Coping with erraticism

A notable COVID-19 effect has been the near-unpredictable yet major

fluctuation across categories. Household cleaning product demand surged,
but clothing plummeted; supermarket budget brands and multi-pack beer
formats grew but premium brands declined. Resilient supply chains now need
fine-tuned demand sensors.

1. Invest in the best forecasting analytics affordable.

2. Simulate alternatives based on different demand signals and levels, and
the widest range of parameters, data and consumer insights.
3. Shape demand accordingly in collaboration with channel partners.
4. Consider retaining a crisis control tower even when the crisis has passed.

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Design teams for better teamwork

Automation and artificial intelligence will penetrate deep into value chains in the decade
ahead. To capitalize and to liberate ingenuity, the development of people must keep
pace, and the Human Capital function should play a transformative role in envisioning
new capabilities and up skilled talent – even entirely new functions – in a future-proofed,
world class company.

Team architecture is a crucial aspect. COVID-19 has hastened the uptake of remote work,
and compelled considerations as to how teams can be structured to function virtually.
Indeed, it has spotlighted the advantages this can generate: a global recruitment field,
improved employee engagement, boundaryless thinking, diversity. These attributes
in the composition of teams will strengthen teamwork – a necessity for companies to
navigate the challenges of a more complex and volatile business environment.

Capitalize upon technology as enabler

Whether targeted refinements are routine in nature, such as daily improvements, or
strategically geared in terms of VSMs, or a more urgent and radical rapid deployment
to urgently address a key issue, quick, accurate information is key. Scenario planning,
simulation exercises pivoting trade-offs, and modeling different production velocities or
product mixes – these are all feasible using new applications of technology.

Data systems and technology investment can override the extent of the trade-off
between accuracy and efficiency or agility and resilience. As technological capabilities
expand, so the supply chain gains greater potential to leverage technology for value
and margin. Automation will increase production velocities whilst reducing costs, and
liberate people to perform tasks requiring ingenuity; data analysis speed and volumes,
together with emerging platforms such as block-chain, will refine end-to-end visibility and
transparency; integrated technologies will drive synergies between, and the meshing of,
operations with information.

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 RECOVERY AND RESILIENCE: SAFEGUARDING AND STRENGTHENING THE SUPPLY CHAIN TO THRIVE THROUGH UNCERTAINTY

Studies show that leveraging technologies amplifies by up to

50% the return of lean method improvement initiatives targeting
5 key checks for a stronger overall equipment effectiveness (OEE).9 The overall, end-to-
supply chain end strengthening is a crucial consideration in the design of
next-generation value networks as part of Industry 4.0/5.0
1. Has the company’s business transformation.
continuity plan been holistically
revisited?
There is one critical catch: Cyber breaches now represent a major
2. Strategically align the supply
network’s composite elements to risk, and the security of systems and data is vital.
gear agility and flexibility.
3. Ensure end-to-end visibility.
Deepen collaboration, particularly with key
4. Is decision-making and problem- suppliers and customers
solving capability enhanced by
optimized data accessibility, Cloud-based, real-time sharing of information allows for integrated
including predictive tools? activity towards common goals in a partnership approach. By
5. Reinforce the foundations of factoring in external information, the organization's knowledge
across-the-board and iterative
and data become richer, gaining understanding of real stability
improvement measures.
or areas of weakness, early identification of patterns within
complexity, leading to improved decision outcomes. Unity forges
strength.

Risk standards must be tightened for the new normal

Global value chains, like all systems, have flaws. But these can be remedied for enhanced
robustness and resilience into the uncharted future.

The realization is that survival is simultaneously about the ability to shockproof the
supply chain as well as the ambition to thrive beyond this current crisis. COVID-19 has
clarified that agility is paramount. Enterprises are now working in different ways, and
prioritizing foundations as well as innovation.

9
‘Digital lean: a guide to manufacturing excellence’, Bain & Company, page 8, figure 4: combining digital and lean initiatives
can reduce costs by up to 30% vs. 15% for traditional lean efforts.

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 RECOVERY AND RESILIENCE: SAFEGUARDING AND STRENGTHENING THE SUPPLY CHAIN TO THRIVE THROUGH UNCERTAINTY

Conclusion

Post the COVID-19 crisis, C-suite and senior management should revisit the
organization's documented risk mitigation strategies – and reflect, too, on its
cultural attitude to risk and reward. World-class, high performance companies
build a legacy of achievement based on rigor. There is no substitute for the
disciplined processes involved in monitoring and evaluation, testing and
retesting. Today, whilst the most important attribute to be embedded within
a value chain is adaptability and agility, the words of Apple founder and CEO
Steve Jobs also ring true: “That love affair with focus drove Apple's success, it
minimized distraction, and it articulated in clear terms what the metric of success
would be.”

Sources:
‘COVID-19: Repurpose your supply chain for resilience’, Accenture, 14 April 2020

‘Digital lean: a guide to manufacturing excellence’, Bain & Company, 2019

‘Resilience, Recovery & Renewal’, Episode 2: Shock Proofing Supply Chains, (podcast series),

Baker McKenzie, 2020

https://www.bakermckenzie.com/en/insight/topics/beyond-covid-19/podcast-series#:~:text=Whether%20
you%20are%20managing%20the,to%20respond%2C%20recover%20and%20thrive.

‘The essence of resilient leadership: Business recovery from COVID-19 - Building recovery on a foundation
of trust’, Deloitte Insights, 22 April 2020

‘Resilience versus robustness in global value chains: Some policy implications,’ Vox-EU Centre for Economic
Policy Research (CEPR), 8 June 2020

‘What do you need to help you build a more resilient supply chain?’, EY, 27 May 2020

‘Risk, resilience, and rebalancing in global value chains’, McKinsey, 6 August 2020

‘Beyond the Speed-Price Trade-Off’, MIT-Sloan Management Review, 8 May 2018

‘In one month, the meat industry’s supply chain broke. Here’s what you need to know.’ The Washington
Post, 28 April 2020.

‘The ongoing impact of COVID-19 on global supply chains,’ World Economic Forum, 22 June 2020

‘Insight Report: Regional Risks for Doing Business 2018’, World Economic Forum, 2018

https://leanmanufacturing.online/

supplychainbrain.com

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