Supply chain priorities and COVID-19

This is an excerpt of the original article. It was written for the May-June 2020 edition of Supply Chain Management Review. The full article is available to current subscribers.

May-June 2020

Most of the time, when I sit down to write this column I look at what I wrote for the previous year’s issue for perspective or inspiration. The truth is, nothing I’ve written before, or experienced in my 64 years, has prepared me for COVID-19. I’m sure that most, if not all, of you can say the same. Yes, it’s a global crisis, but closer to home, it’s a supply chain crisis. Quite simply, even the best supply chains, at least those that are still operating, are broken.

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At the end of 2019, it was hard to imagine the impact the COVID-19 pandemic would have on supply chains for medical supplies, food and other basic necessities. Although some aspects of supply chains have changed during the pandemic, organizations should not lose sight of core business processes.

In late 2019 and early 2020, APQC conducted a survey of 234 supply chain professionals on supply chain priorities and challenges for 2020. The survey results indicate that there were areas of concern even before the pandemic. The major supply and demand disruptions we have experienced so far this year may exacerbate existing weaknesses in the supply chains of organizations. They also highlight the need for improved processes that can mitigate the impact of global crises.

Need for improvement over 2019

As part of its survey, APQC asked supply chain professionals to look back at their organizations' business results in 2019. The research indicates that last year saw mixed results. When asked whether their organizations were on target to meet, had achieved or had exceeded their business goals for 2019, just over 50% of respondents replied “yes.” Similarly, just under 50% of respondents indicated that their organizations were on target with or had exceeded their competitors' performance in 2019.

This means that not only did about half of organizations miss their goals for the year, but nearly the same percentage was unable to keep pace with competitors. Organizations' performance was even worse regarding specific supply chain goals. As shown in Figure 1, fewer than half of organizations achieved their goals in 2019 for customer service, less than 40% met their goals for customer satisfaction and fewer than 30% achieved their goals for return on investment.

These results show that supply chain organizations were in a precarious place even before the impact of COVID-19. Given the rapid economic changes that have happened in the first few months of 2020, the organizations that missed the mark in 2019 are on even shakier ground moving forward. Although organizations must take steps to address any crises they face during the pandemic, if possible, they should also focus efforts on defining and using processes, measuring performance and ensuring clear accountability and responsibilities. These core competencies will ensure that they can both weather current hardships and succeed once the pandemic has run its course.

Obstacles to improvement

The good news is that more than 81% of organizations are still evaluating and modifying their supply chain strategies to help head off obstacles. This offers hope for supply chain organizations in that they can be flexible enough and adaptable enough to address the current crisis.

For those organizations that have taken on improvement of their supply chain processes, APQC's survey indicates that they face familiar obstacles to improvement. As shown in Figure 2, the most common obstacle is limitation imposed by regulations and requirements. This is followed by a lack of support for collaboration both across functions and externally.

Although organizations do not have control over regulations, they can influence internal factors such as the lack of support for collaboration, the cultural perception of change and workforce engagement. They can also select technology that best supports improved processes.

Addressing obstacles to improved supply chain practices involves investment to some degree. Whether it is technology that supports better processes or programs aimed at addressing the cultural and engagement aspects of process improvement, organizations must be poised to dedicate resources to supporting process improvement.

APQC's research indicates that many organizations are ready to do just that. Two-thirds of respondents indicated that they expected their organization's 2020 budget for supply chain management tools, technology, innovation and initiatives to increase compared with the previous year. In fact, more than 27% of respondents anticipated that their organizations would increase this budget significantly. Only 10% expected their budget to decrease.

Priorities for 2020

Perhaps because of less than stellar performance in 2019, organizations went into 2020 ready to focus on planning and improvement. In terms of investing resources, innovation and hiring, the top three areas of focus for the year are as follows:

1. supply chain planning;
2. sourcing and procurement; and
3. innovation.

Interestingly, innovation ranked higher in this most recent survey when compared with past supply chain priority surveys conducted by APQC. This indicates that many organizations are looking for new ways to improve their operations and meet more of their goals.

Supply chain planning

Respondents to APQC's survey indicate that, overall, their organizations' primary areas of focus for supply chain planning are demand planning and forecasting, automation and digitization and analytics and measurement. Close behind is sales and operations planning. As shown in Figure 3, organizations have fittingly made implementing new technology and identifying and implementing best practices top priorities in 2020. It is also promising that organizations are making improving collaboration and communication a priority given that this can be an obstacle to improvement.

APQC recommends that organizations maintain their focus on automation and digitization, especially considering the desire to improve demand planning and forecasting, as well as analysis and measurement. APQC also recommends that organizations actively work to identify and implement best practices, as well as standardize processes. Any gaps in processes should be addressed to mitigate the effects of supply chain disruptions such as that caused by COVID-19.

Sourcing and procurement

For sourcing and procurement, organizations' primary areas of focus are automation and digitalization, followed by vendor and supplier relationship management. Appropriately, APQC's survey results indicate that organizations are making the standardization of processes and the implementation of new technologies and capabilities their top priorities for sourcing and procurement in 2020 (see Figure 4). The fact that organizations have made process standardization a top priority shows that they are taking an important step toward automation.

More than half of respondents indicate that their organizations have made implementing methods to reduce supplier costs a top priority for 2020. We may see this trend change over the year as organizations look for ways to ensure a steady stream of materials rather than focusing solely on cost.

More than 53% of respondents indicate that their organizations have made improving key supplier relationships and improving collaboration top priorities for this year. In its research on supplier relationship management, APQC has determined that organizations should tailor collaboration with their suppliers to the type of relationship. These relationships occur on a continuum, ranging from purely transactional ones with suppliers of readily available products, to joint venture relationships for essential vendors. Greater collaboration can also help organizations better understand their supply networks and sub-tier suppliers, which can be essential to identifying
at-risk suppliers during periods of disruption.

Innovation

Compared with previous APQC surveys, innovation is now an area of greater focus for supply chain organizations. These results, of course, came before the rapid spread of COVID-19. Yet APQC recommends that organizations not sacrifice innovation while addressing more immediate concerns. The actions that an organization takes during an economic crisis, and the long-term planning it engages in, can make a difference long afterward, as shown by companies such as FedEx, Procter & Gamble and General Electric, which all began during times of crisis and thrived afterward.

In its survey, APQC asked respondents to indicate their organizations' priority areas for innovation. As shown in Figure 5, automation and digitization is in the top spot, followed by operational and process innovation and analytics.

For the greatest long-term benefit, APQC recommends that organizations focus on operational and process innovation. They can find new ways of working or even new business models to help them be sustainable through the current economic uncertainty and beyond. This can be done as part of other initiatives for supply chain process improvement, such as the further development of supplier relationships and improvement in communication and collaboration.

Moving forward

Overall, the results from APQC's research show that organizations have a balance of priorities focused on cost, service and growth. When asked what overarching goals their organizations were focused on for 2020, 34% indicated decreasing costs, 32% indicated increasing service and 32% indicated increasing market share. In light of the supply chain disruptions and economic uncertainty caused by COVID-19, organizations may be re-evaluating these priorities, especially their growth aspirations, given the uncertainty for the rest of the year.

The events during the first months of 2020 have placed immense pressure on supply chain organizations and their leaders. For several industries, the stakes are high as they work to source materials, produce products needed to fight the pandemic and quickly ship them to the locations that need them most. For other industries, keeping populations supplied with day-to-day necessities has become a challenge. For these reasons, the pandemic has made business leaders more aware of the crucial role supply chain plays and its importance to strategy.

Organizations have an opportunity to build supply chains that are more resilient in the face of unforeseen crises. By continuing to focus on priorities such as automation and digitization, process standardization, and process innovation, they can not only improve their internal efficiency but also provide benefit to the countless others who rely on strong supply chains for daily needs and critical supplies. jjj

About APQC

APQC helps organizations work smarter, faster, and with greater confidence. It is the world's foremost authority in benchmarking, best practices, process and performance improvement, and knowledge management. APQC's unique structure as a member-based nonprofit makes it a differentiator in the marketplace. APQC partners with more than 500 member organizations worldwide in all industries. With more than 40 years of experience, APQC remains the world's leader in transforming organizations. Visit us at apqc.org, and learn how you can make best practices your practices.

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