With signs of recovery is sight, what will we learn from dealing with unprecedented shifts in the global supply chain?
The COVID-19 crisis has intensified the competition for valuable supply sources. In certain industrial sectors, including electric vehicle production, the bargaining power has shifted from OEMs to suppliers.
While it is normal for companies to renegotiate, current extraordinary circumstances are leading to major agreements in the new context.
For example, Tesla and CATL recently announced a strategic partnership for CATL to supply EV batteries to Tesla’s Model-3 production in China, moving away from sole dependency on Panasonic.
Toyota and Panasonic also announced an agreement of a joint venture to produce EV batteries. Similarly, BMW signed a major agreement to purchase EV batteries from CATL worth of 7.3 billion euros.
Managing long-term disruption
Corporate executives traditionally consider costs, quality and delivery as key metrics when developing supply chain strategies.
But as the recent situation has shown, major global events caused by pandemics like COVID-19, along with geopolitical tensions, can create significant disruption to a normally reliable supply of parts or products.
The intricacies of supply value chains are not established overnight. It takes time and effort to qualify potential suppliers in all areas. Factors such as manufacturing quality, capacity, delivery, cost and the ability to respond to engineering or demand changes.
Therefor, supply value chains are designed for long-term needs. Once they’re established, it can be difficult to change them quickly to adapt to unpredictable disruptions. As such, making a hard turn in a short amount of time requires extraordinary agility.
The COVID-19 pandemic has reminded company decision-makers that there is a need to adapt and develop new business strategies in future supply chain designs.
Developing new models
The KPIs to be considered for future supply value chain designs will likely contain a mix of both traditional metrics (cost, quality, delivery etc), and new performance measures using the 3Rs: resilience, responsiveness, and reconfigurability.
To meet the challenge, there will be an increased need for infrastructures and technical means designed to create transparency within global supply chains.
There must be development of predictive models for proactive scheduling which takes into consideration uncertainties and risk factors. Plus a dynamic plan that accommodates the changing pressures of supply and demand for a given situation.
These predictive models will help corporate decision-makers do what-if analysis of various scenarios.
Finally, there must exist opportunities for government collaboration. Considering the continuing emergence of a globalized economy, the world truly is flat.
For the time being for example, the US and Chinese governments could eliminate artificial tariffs so that increased supplies and goods can be flown between the boarders to help mitigate the global COVID-19 pandemic.
The World Economic Forum’s Platform for Advanced Manufacturing and Production is bringing together senior operations, supply chain executives, top leaders from government, academia, and civil society.
The aim is to analyze the economic impact of COVID-19 on value chains and help companies address current liabilities and short-term challenges while keeping long-term sight goals aimed at driving systemic change.