Inside Supply Management Magazine
Digital Networks Can Better Prepare Organizations for Crises
As companies seek to cope with the impacts of the coronavirus (COVID-19) pandemic, their enterprise resource management measures are changing, says Sean Thompson, executive vice president — network and ecosystem for SAP Procurement Solutions. Organizations are moving beyond managing resources within the four walls to real-time management of inventory, supply chain and supply sources through digital networks.
Companies that are better prepared digitally are better able to react to such crises, Thompson says: “In working with customers in this shock environment, I’ve learned that those who are better prepared, are digitized and have a network are better off than those that are trying to manage things on spreadsheets.” They have greater visibility, connectivity and access to alternative sources and can move quickly to creatively reroute supply and find new sources, he says.
Many companies, however, are still on the path toward digitization. “Those companies are finding themselves caught off guard, especially considering the 11 years of economic growth we’ve experienced,” Thompson says. That’s because when times are good, companies optimize, he notes. “They optimize to the point where they reduce inventory levels and inefficiencies — by lessening their buffer stock,” he says. “All of a sudden, a shock like this happens — and it happens so rapidly — that they aren’t prepared. Companies need to realize they have to modernize infrastructure and do so in a way that can allow them to react to shocks.”
In addition to the value of a digital network, Thompson says, there’s another lesson for companies: They need to rethink their supply chains, which “got disrupted (by the pandemic) because there are regional issues and dependencies,” he says. “When the virus first showed up in China, companies started looking at where they were sourcing out of China and what that meant to them.”
As a result, Thompson says, companies will begin to focus more on supply chain risks — and adopt a portfolio approach, no longer single sourcing from one region. They’ll create a multiregional strategy and diversify supply chains. “You’re going to see localization as well,” he says. He cites the pharmaceutical industry, where, instead of single sourcing or producing in China, companies will consider how to increase supply locally, he says.
“Whether you’re diversifying on a more global basis or going more local, the lesson learned is that you must be able to react fast and have the visibility to know what you need to do,” he says. “I think for a lot of companies, this is a wake-up call. If we are flying blind and have to take a lot of time to find alternative sources, we’re at risk. And that means our competitive advantage will be impacted as we plan for the future.”