As they manage coronavirus (COVID-19) pandemic impacts, organizations will undergo a three-phase response that will shape their future operations.
“The first phase, which we are in right now, is considering short-term impacts,” says Chris Sawchuk, a principal and global procurement advisory practice leader at The Hackett Group, the Miami-based business consultancy. “In many ways, you can call it crisis response or crisis management.” This first response is often reactive and very human-based, as companies and their employees must deal with safety issues and such other measures as working from home, he says.
“There’s also a midterm response that will begin about three months out, and last maybe through the next year,” Sawchuk says. This period will be one of recession-management, he says, referring to predictions that the U.S. economy likely is moving into a recession.
The third phase — the post-crisis, post-recession period of time where companies focus on agility — is critical for success moving forward. “The idea that we go back to the same operating model that we’ve always used isn’t going to work,” Sawchuk says. “This crisis is stress-testing so much — relating to our companies, families, the economy, globally. Companies will put a lot of effort into understanding what they did well and didn’t do well, whether it’s across their supply chains, how they deal with demand” or other factors.
Level of Response
Achieving agility is the focus of a recent report by The Hackett Group. The CPO Agenda: Become a Partner for Enterprise Agility discusses the challenges facing today’s CPOs and offers a service-delivery model — a framework that details actions to mitigate those challenges through agility. In the future, organizations will rethink how their supply chains are designed, with agility and risk becoming bigger drivers and cost no longer being the main driver, says Sawchuk, one of the report’s authors.
Josh Nelson, associate principal, strategy and transformation at The Hackett Group, says that agility is often considered in two ways:
•Operational agility. How quickly can you respond in the short term? Do you have the flexibility to turn on surge capacity? Is there distribution flexibility to get product delivered quicker?
•Structural agility. How can the network be designed so there is flexibility for the midterm and long-term? Can the network be flexed up or down without jeopardizing distribution costs? Can new capacity or suppliers be added quickly, in response to market requirements?
“What we’re looking at now is the operational agility aspect,” Nelson says. “Some firms that have invested at some level in operational agility can respond in the short term, they have some additional capacity or firepower. But the firms that will really be successful in the longer term are the ones that have structural agility” — the ones that can shed costs, quickly add capacity and respond to the new economy.
The coronavirus pandemic is causing a demand shock, he says. But the companies with structural agility facing high demand will be able to turn on suppliers and respond, while their competitors are struggling, he says. Structurally agile companies facing a reduction in demand will be able “to turn off the supply chain and are not going to have an influx of inventory and excess costs,” he says.
Learning from Crises
Experiencing such a crisis as the coronavirus pandemic can help companies manage when faced with future supply chain shocks. “We drew parallels to the Fukushima nuclear plant disaster that occurred almost 10 years ago, where a couple industries — automotive and electronics — were really impacted,” Nelson says. “With the coronavirus pandemic, there was an expectation that there would be large electronics outages and closing of car plants. Those industries learned from Fukushima and they had alternates or backups.”
He continues: “The coronavirus is hitting a bigger swath of industries — and they will learn from it, just like the automotive and electronic companies did. They will develop secondary sources of supply. They’re going to develop some flexibility to move production across regions or geographies. They don’t want to have a repeat. It will take some time, but it is a capability that they will keep on the agenda for the coming years.”