Based on a new survey by Foley & Lardner, a large law firm with offices in downtown Detroit, manufacturing executives say their supply chains will look quite different post-COVID-19.
Drawing on responses from nearly 150 manufacturing executives — the majority of whom are members of their company’s C-suite, and who work in a wide array of industries — the Global Supply Chain Disruption and Future Strategies Survey Report offers a view into the future of global supply chains.
Foley also highlighted in the survey its newly published Accelerating Trends: Assessing the Supply Chain in a Post-Pandemic World, which provides business insights and guidance for companies reviewing supply chain processes to mitigate risk, evaluating a shift in supply chains away from China, and using new technologies to improve efficiency.
Two survey findings suggest a potentially transformative shift in the way manufacturing executives typically think about their global supply chains: from a focus on low costs and lean inventory, to one that prioritizes stability and resilience.
Seventy percent of respondents agree that, as a result of COVID-19, companies will lessen their focus on sourcing from the lowest-cost supplier and 62 percent expect the focus on just-in-time (JIT) manufacturing models will also decrease.
“The survey findings point to a significant shift in perspective, but not necessarily a new one,” says Vanessa Miller, co-chair of Foley’s Coronavirus Task Force and the firm’s Supply Chain Team. “After the Great Recession, we saw calls for sweeping change, albeit on different issues, only to find that some of it was easier said than done. But 2020 is not 2009, and we may very well see companies follow through this time — especially if they see continuity of supply begin to overtake price as a key driver for success.”
Manufacturing executives are taking prudent steps to manage risk in their supply chains, with strengthening relationships and increasing transparency with suppliers and buyers as the top strategy identified by survey respondents. In addition, the vast majority (92 percent) are taking at least some action to create more visibility within their supply chains, including requiring more information on suppliers’ own risk management and continuity strategies.
“In the COVID-19 environment, more questions are being asked within the supply chain, and companies are sharing more information about their capacity with customers,” says Ann Marie Uetz, head of Foley’s Coronavirus Task Force. “Whereas, prior to the crisis, customers might request information and not get it, in the midst of the pandemic it is no longer acceptable to not show your cards or be uncommunicative with buyers.”
The Foley reports also analyze the extent to which COVID-19 has accelerated the movement of production and sourcing away from China. Of the survey respondents who have operated in the country, 59 percent have either already withdrawn operations, are in the process of doing so, or are considering it.
“Companies that previously diversified their international supply chains in response to the U.S.-China trade war were better positioned to mitigate the effects of the pandemic,” says Kate Wegrzyn, co-chair of Foley’s Coronavirus Task Force and the firm’s Supply Chain Team. “That said, companies may also benefit from retaining certain processes in China while relocating others in a strategic manner that disperses risks of disruption.”
For manufacturers and suppliers that decide to reduce their reliance on China, the question remains where to go next. The Accelerating Trends report analyzes the key costs, benefits, and risks to consider in several regions that present alternatives to China. According to the survey findings, the result of this analysis has increasingly led companies to move (or consider moving) supply chains closer to home: to the U.S. (74 percent), Mexico (47 percent), and/or Canada (24 percent).
The COVID-19 pandemic also is speeding up the adoption of new technologies and innovative business processes that improve supply chain efficiency and resilience.
The Accelerating Trends report identifies eight specific areas that are expected to see greater investments and provides guidance on how they stack up against each other in terms of resilience, cost, and maturity. In addition, survey respondents identified the top technologies they are considering as new tools or applications that improve supply chain visibility and tracking (47 percent) and operational analytics to better track business metrics and indicators (39 percent).
“As companies adopt more technology and automation into their production processes, realizing the benefits of these initiatives will require that efforts be structured for success from the outset,” says James Kalyvas, Foley’s Chief Innovation Partner and chair of the firm’s Technology Transactions & Outsourcing Practice. “That means identifying clear business objectives, tying payment to outcomes that achieve those objectives, and ensuring effective internal management of the implementation.”
Foley’s 2020 Global Supply Chain Disruption and Future Strategies Survey Report was completed by 143 executives with involvement in supply chain management at their companies.
Respondents were primarily based in the U.S. (78 percent) and Mexico (18 percent), and represent a range of industries, including automotive (22 percent), general manufacturing (22 percent), transportation and logistics (12 percent), and healthcare/medical products (10 percent). To read the complete report and methodology, please click here.
To read Foley’s Accelerating Trends: Assessing the Supply Chain in a Post-Pandemic World report, please click here.
Foley & Lardner has approximately 1,100 lawyers in 24 offices across the United States, Mexico, Europe, and Asia.