The complex nature of global supply chains has been laid bare by the advent of the catastrophic COVID-19 pandemic. It has become clear that the economic survival of companies hinges on successful supply chain management in a global economy based on a myriad of “partners spread across multiple geographies as part of an unprecedented, intertwined global trade ecosystem.”
The disruption to manufacturing in China, a global economic powerhouse, rippled across the globe with cargo backlogged and a shortage of truck drivers and ocean carriers resulting in a severe lack of Chinese-manufactured components reaching major industries worldwide. This is particularly highlighted by the fact that more than 200 of the Fortune Global 500 firms are present in Wuhan, ground zero of the pandemic.
According to a recent report, up to 51% of companies are reporting “having taken three to six months to recover from supply chain disruptions… Another 17% expect to take six to twelve months to recover.” Such cataclysmic economic disruption has led many firms to prioritize supply chain resilience as they adapt their business models to the new economic realities.
Trust, Technology and Flexibility
It is noteworthy that firms with solid supply chains working with nearby suppliers (especially geographically) have suffered considerably less from the economic fallout of the pandemic than those with extended supply chains reliant on multiple third parties and exposed to variable unmitigated supply risks. Consolidation, resilience and adapting to new technologies have become crucial factors in minimizing supply chain disruption.
The chaos caused by the pandemic has in some cases accelerated automation, the use of robotic technology and artificial intelligence in supply chain management. The American firm XPO Logistics stated that it “shipped roughly five times more units using robotic technology in 2020 than it did in 2019.” The frailty of the supply chain was laid bare as consumer behavior evolved and moved towards e-commerce, forcing suppliers and third parties to look to new technologies to speed up the processes.
Agility, Adaptation and Critical Infrastructure
Companies dealing with critical infrastructure have enjoyed certain advantages over manufacturers in other sectors during the global pandemic. The agricultural sector, for example, was able to continue operations with less disruption because, put simply, the world relies on it functioning smoothly. Companies like AGCO and Deere & Company were “federally designated essential critical infrastructure businesses” in the United States.
AGCO is an American manufacturer and distributer of agricultural equipment that distributes “throughout the world with a supply chain that includes 41 manufacturing and assembly locations, 37 distribution facilities, and thousands of suppliers.” The company has an effective supply chain risk management strategy in place that meant it was prepared for the economic turmoil as a result of the pandemic.
The firm had set up an internal communications network for the supply side of its global organization, having focused on risk management and resiliency for over 15 years prior to the pandemic, meaning supply chain issues can be dealt with efficiently and in a timely manner.
The firm integrated its global operations between 2005 and 2012, with company Vice President, Global Materials, Logistics, and Demand Planning, Greg Toornman stating that “the product development roadmap direction we embarked upon was moving towards a global platforms strategy, similar to what you’d find in the automotive industry where you have a similar platform produced in multiple regions with a common supply base.”
This meant that it was prepared for the outbreak of COVID-19 at its plants in China, and subsequently in Europe and the Americas, and was able to effectively and rapidly respond to issues thanks to years of supply chain consolidation and experience in global risk management.
Security, Quality Control and Supply Chain Consolidation
With the COVID-19 crisis, there have never been so many banknotes in circulation as there are today in numerous countries, notably in the European Union. Many companies in the banking and printing sectors have therefore adapted their supply chain management policies to accommodate demand and avert risk.
One such firm is the French company Oberthur Fiduciaire, a market leader in security printing dedicated to banknotes production that collaborates regularly with governments and central banks. This profoundly specialized discipline is based on confidentiality, security and traceability in a highly demanding niche market. Securing “raw materials” and guaranteeing quality up the supply chain are therefore imperative to production security and quality control.
To shore up the security of its supply chain, the firm acquired the Dutch firm VHP Security Paper in 2017 in a move that allowed it to “consolidate its quality control and the reliability of its entire operation.” The acquisition answered one of the company’s most pressing supply needs, with the two companies having “over 600 years of experience in a highly specialized sector.” Furthermore, the firm runs two factories in Europe, one in France and one in Bulgaria, that adhere to the same standards and requirements. The sites are interchangeable and allows Oberthur to control the upstream of its production process, rendering it less constrained by the vagaries of its suppliers.
Etienne Couelle, General Manager of Oberthur Fiduciaire explained: “In recent years, Oberthur Fiduciaire made the decision to stop relying on suppliers or subcontractors whose own potential difficulties we could not prevent. We recognized that their problems could have a negative impact on our production. It was with this perspective that, in 2017, Oberthur Fiduciaire acquired VHP, a Dutch company specialized in producing paper for banknotes. Our Chairman and CEO, Thomas Savare, called this union a “perfect match” since the two companies are complementary and enrich one another. Plus, it allows Oberthur Fiduciaire to now have an extremely efficient supply chain with little exposure to external factors.”
Mergers and acquisitions are becoming more commonplace as companies try to consolidate their supply chains. According to S&P Capital IQ, there were more than 200 mergers and acquisitions in the US supply chain industry in the 12 months up to June 2020, up 40% from the same period just three years previously. Shipping company Trimble acquired Kuebix, for example, to maximize supply chain efficiency.
Such acquisitions of existing suppliers allow companies to control the entire ecosystem of their supply chain, facilitating risk management and foresight, and consolidating quality control. Companies that are able to adapt and exert a greater influence over supply chain operations at all levels like this undeniably put themselves in a stronger position to deal with the negative economic impacts of unforeseen crises like the coronavirus pandemic.