Operational agility and transparency are key to weathering disruption
We live in a hyper-connected world with complex and expanding supply chains. However, recent geopolitical and trade tensions coupled with the onset of COVID-19 have accelerated the fundamental shifts in these global linkages. Therefore, as companies progress along the ‘Preservation and Stability’ stage (i.e. Stage 2) on the ‘Road to Resilient Growth', efforts in building agility and transparency in operations and across supply chains become increasingly important. This requires mid-corporates to have a clear view across the value chain – both upstream and downstream – to accurately assess their ability to meet projected customer demand as well as predict any upcoming bottlenecks or challenges such as shortages in raw material supplies. They also need to be agile, able to quickly respond and adapt to spikes in demand or overcome any issues in supply, production and / or distribution to still meet customer expectations.Based on our survey1, the top concern for mid corporates as they embark on reinstating operations is uncertainty related to end-consumer demand (61 per cent), followed by growing pricing pressures (53 per cent) and rising cost of materials (50 per cent). In order to effectively address these challenges, mid-corporates need to undertake initiatives across the value chain and recalibrate their operational strategy to deliver a differentiated customer experience.
Moving from a ‘just-in-time’ to a ‘just-in-case’ approach
Traditionally, mid-corporates have pursued strategies focused on profitable growth, with cost reduction and revenue enhancement being key priorities. As such, they have often adopted the ‘just-in-time’2 approach to production, where exact quantities of material are supplied to each part of the production process only when needed. In a relatively stable environment, organisations can rely on this approach to reduce costs and boost profitability. However, increasing disruption renders these organisations highly vulnerable to sudden and unpredictable changes in supply or demand.
With the scale of disruption wrought by the pandemic, a strategic shift away from a ‘just-in-time’ to a ‘just-in-case’2 approach is necessary to achieve resilient growth. The just-in-case approach builds in the necessary redundancy with buffer stocks held at every stage in the production process, helping mid-corporates absorb the shock generated by unforeseeable scenarios and contingencies. With 60 per cent of the mid-corporates surveyed considering developing alternative sourcing options and establishing flexible production capabilities, the ‘just-in-case’ approach has clearly gained traction.
Some common tactics mid-corporates are employing to tackle ongoing challenges include short term measures to build in buffers (or, ‘elements of redundancy’) across various operational areas, such as holding larger inventory of critical raw materials, growing local / regional sourcing and stocking up high demand products. In the medium term, this would be followed by greater adoption of technology for operations to become more efficient, paving the way for more profitable and resilient growth in the longer term.
Mid-corporates need to consider taking these three actions to transform their operational processes as they tackle supply chain and operational disruptions:
- Improve procurement processes,
- Optimise and realign manufacturing operations, and
- Enhance distribution capabilities
Action 1 - Improve procurement processes
The current pandemic has caused significant disruptions across the supply chain, resulting in procurement delays and shortages in critical raw materials. Improving transparency and diversifying sources within the supplier network is therefore essential as organisations look to resume production. Companies can employ the following to improve their procurement processes and build resilience into their supplier network
- Prepare contingency plans based on enhanced demand forecasting – Develop dynamic demand forecasts along with decision tree models that incorporate exploring different economic scenarios, identifying key product segments and stress testing expected demand patterns in the short, medium and long term. Amidst the heightened risks posed by the current pandemic, this allows mid-corporates to proactively take early preventive measures, such as locking in orders with suppliers based on forecasted demand and building up emergency stock to counter potentially prolonged lead times or shortage of supplies. This aligns to the ‘just-in-case’ philosophy and helps provide an enhanced customer experience, compensating for the cost of extra stock required in building the necessary redundancy.
- Map existing supply networks – With 59 per cent of surveyed mid-corporates looking to assess their existing supply networks, manufacturers should conduct detailed mapping and assessment of exposure across multi-tier supplier networks by identifying the specific suppliers, manufacturing sites, raw materials and products which are at risk, followed by developing alternative sources in each scenario.
- Develop alternative sourcing options – This option is being explored by 65 per cent of surveyed mid-corporates. To reduce supplier concentration risk and over-reliance on certain markets or partners as sources, mid-corporates should implement a sourcing strategy with multiple suppliers for critical components / spare parts for production. As capacity constraints, shipping bottlenecks and changing regulations continue to disrupt procurement, mid-corporates should also actively look to diversify supplier geographic profiles for key raw materials. One option is for companies to explore local sourcing options more aggressively as an alternative to global suppliers.
- Adopt digital solutions such as predictive and prescriptive analytics tools to improve accuracy of demand forecasting and to better align procurement with production plans. This is a medium-term time horizon as organisations gain stability, where better predictability mechanisms will drive efficiencies and lower the cost of building redundancies in the supply chain.
Action 2 - Optimise and realign manufacturing operations
Operational hazards faced during the peak of the COVID-19 crisis such as production stoppages, delayed shipments, tightened liquidity, uncertain demand and inventory shortages have brought to light the importance of establishing practices that minimise operational risks. For example, while keeping a lean inventory management system minimises overall costs, it exposes companies to greater risk of losing sales and revenue during volatile times. Instead, maintaining strategic inventory buffers would allow companies to meet customer expectations regardless of potential demand spikes or supply issues. As mid-corporates strive towards recalibrating and optimising manufacturing operations, they need to consider adopting the following measures:
- Develop flexible production capability - Optimise manufacturing capacity while accounting for short-term uncertainties in demand and supply. This is already being adopted by 63 per cent of the surveyed mid-corporates, and will require:
- Regular alignment of labour schedules to meet forecasted demand patterns and ensure production resources (e.g. machinery, funds, factory space) are deployed efficiently.
- Focus on near-term demand products and reduce production of non-core goods. In parallel, prepare for a quick production ramp-up to accommodate evolving demand patterns.
- Optimise inventory levels – The ‘just-in-time’ approach of inventory levels, while being cost efficient, typically rendered companies vulnerable to supply and demand shocks. Instead, firms should incorporate a gradual shift towards ‘just-in-case’2 processes to build supply chain resilience, particularly for components critical to the manufacturing process. Address lead time risks by ensuring strategic buffers and build redundancy in inventory of key products and raw materials. This will allow for faster completion of customer orders, helping differentiate from competition and delivering a positive customer experience.
- Deploy digital enablers to bolster flexibility and visibility - Leverage technology on the factory floor, such as automated guided vehicles, storage and retrieval systems and collaborative robots (‘cobots’) to foster process agility. Additionally, enhance visibility by enabling cloud-based inventory management and regularly monitor stock levels by conducting live status checks. These should be considered for the medium term as mid-corporates regain a measure of stability and have garnered adequate funds for investment.
- Realign operational footprint strategy – In the longer term, mid-corporates should consider redistributing production hubs across multiple locations to build flexibility and resilience, as 24 per cent of surveyed mid-corporates are currently exploring. This represents a shift from earlier strategies where companies typically set up a consolidated, global manufacturing facility in order to maximise economies of scale and gain cost advantages. Now, the focus needs to be on broadening the operational footprint by building regional manufacturing hubs, thereby reducing the dependency on a single facility and allowing for higher resilience during uncertain times. Going forward, organisations should adopt the following measures to mitigate risk:
- Accelerate efforts to develop shorter, regional supply chains – To improve agility, shift towards a ‘make where you sell’ approach with a regionalised supply chain model. Relocating production facilities closer to customers will ensure faster deliveries and minimise operational risks.
- Revisit real estate footprint requirements by reviewing facility operations to reduce redundant workspaces as remote working practices become the new normal.
Action 3 – Enhance distribution capabilities
The third action requires enhancing distribution capabilities to deliver high ‘On-Time and In-Full’ (OTIF) performance in an efficient manner, while protecting against possible disruptions. Below are some tactics mid-corporates can consider to foster resilient distribution processes:
- Enter new partnerships –To effectively manage uncertainties related to end-consumer demand, explore strategic alliances with reliable partners across the value chain to improve sales reach and distribution capabilities. This can help mid-corporates to effectively fulfil orders and secure cash flow to achieve stability. In addition, mid-corporates can evaluate the following:
- Partner with key buyers to lock in future orders at discounted prices or favourable payment terms to overcome demand variability.
- Secure flexible booking / payment terms with third-party logistics companies and leverage their wider distribution capabilities to ensure on-time deliveries.
- Tap into industry associations to explore collaboration opportunities, for example, collating and jointly delivering orders.
- Analyse efficient distribution routes and cost optimising tools – Actively identify efficient transportation modes and distribution routes to alleviate the problem of frequent shipment delays or rising logistics costs. For example, to reduce pressure on costly last-mile deliveries, companies can promote online purchases which incentivise contactless pick-up from stores or designated local pick-up locations. Additionally, explore alternatives to swiftly align logistics capacity with changing demand patterns as well as pre-book carrier capacity to secure deliveries.
- Invest in building more nimble logistics facilities – In the medium term, gear towards agile logistics facilities, such as cross-docking3 capabilities which can be swiftly expanded or shrunk based on evolving demand patterns. This nimbleness in logistics facilities can help stem the loss of business during disruption and ensure customer satisfaction.
- Accelerate digitalisation to improve warehousing & distribution capabilities upon achieving stability, via initiatives and technologies such as:
- Automated warehouse execution systems, providing real-time coordination of labour and raw materials for automated picking, packing and shipping.
- Cloud-based order management systems which align inventory with customer orders and coordinates shipping across different channels.
- Digital recognition of inbound and outbound products, eliminating human errors as well as speeding up routine tasks.
Operational agility sets the foundation for resilient growth
As mid-corporates progress along the ‘Road to Resilient Growth’ and enter Stage 3 (‘Preparing for Growth’), operational agility will become a strategic differentiator for mid-corporates. It entails not just diversification but spans the entire value chain, nurturing a corporate culture of resilience, transparency and a more integrated technological adaptability. Reliability will also play a central role in defining buyer-supplier relationships going forward.
The next point-of-view in our series will explore new ways of working and will offer insights into managing, motivating and retaining a high performing workforce with a clear sense of purpose, as mid-corporates move along their journey towards resilient growth.
 Survey commissioned by Standard Chartered in June 2020 and completed by 205 mid-corporates (annual revenue USD100m-500m) based in Mainland China, Hong Kong, Singapore, Malaysia and India.
2 Just-in-time practices are aimed at the total elimination of waste, to minimise the costs of holding stocks of raw materials, work-in-progress and finished goods by supplying to each part of the production process exactly what is needed, when it is needed and in the quantity it is needed. On the other hand, the just-in-case system has buffer stocks held at every stage in the production process 'just in case' there is a production problem or demand rises unexpectedly.
3 Cross-docking refers to transfer points where inbound product flow is synchronised with outbound product flow, usually with the assistance of third-party logistics companies (3PLs), to essentially eliminate storage of inventory. It helps in significant cost reductions and reduced lead times as products can be stored in a warehouse and additional 3PL services can be performed without a long-term storage commitment.
PwC, ‘COVID-19 How PwC can help you maintain Financial & Operational stability’
PwC, ‘Connected and autonomous supply chain ecosystems 2025’
PwC, ‘COVID19 Operations Strategic Response - Path to Recovery and Resilience’, March 2020
Standard Chartered, ‘COVID-19: reshaping the future of supply chains’, May 2020
Standard Chartered, ‘From just in time to just in case: COVID-19 brings supply chain resilience to the fore’, April 2020
Standard Chartered, ‘Supply chain lessons from COVID-19’, March 2020
Harvard Business Review, ‘Coronavirus Is a Wake-Up Call for Supply Chain Management’, March 2020
CSCMP’s Supply Chain, ‘Preparing warehousing and distribution for a frontline role by 2030’, July 2020
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