impact ISSUE 08 What matters now 29 May 2020 kearney.com EDITORIAL Lessons learned This week the European Commission unveiled its ambitious proposal for a new fiscal stimulation package of €750bn in an unprecedented bid to overcome the most pronounced recession in living memory. It signaled a significant shift from dealing with the now to looking forward to the rebound. As we start to turn our attention to the future, we have the opportunity to take stock of lessons learned over the last few months and reimagine how we will do business better in the future and be a part of the recovery story. Over the past couple of months, we (as individuals and consum- ers) have been testing the boundaries of what can be achieved within the confines of our own homes, accelerating the move to digitization for essential services, leisure and work alike. We have become familiar with a new level of convenience, and sometimes inconvenience. Yes, we may all flock to the hair salon at the earliest opportunity, but will we be so willing to travel for restaurant-qual- ity meals, cinema releases, doctor appointments and home sup- plies, now we know that businesses are capable of providing these without us needing to leave our homes? Meanwhile, businesses have learned that without a robust supply chain in place to deal with future disruption, they will falter and quickly lose ground to those that do. Reliance on overseas man- ufacturing may not be as appealing as it once was, and there has never been a better time to invest in a strong ‘last mile’ delivery capability. Businesses have also learned of late not to rely on foot- fall – whether that means customers in stores or employees in the workplace. Remote shopping, remote working and strong val- ue chains are now the basic building blocks of resilient business models for the future. This week, we consider how businesses should continue momen- tum gained over the last few months towards digitization and im- proved customer service, how to build resilience in manufactur- ing and supply chains, galvanize your marketing efforts, navigate the conflicting expectations of the contradictory customer and examine new principles for good mental health. As always, if you want to discuss any of these topics in more detail, we are here to talk. GEIR OLSEN Best wishes from Oslo, HEAD OF EUROPE Geir Olsen CONNECT WITH GEIR SUPPLY CHAINS With mass factory shutdowns, demand space of only a few months, and too quickly surges for essential goods, and shifting for effective mitigation or remedial action. consumer behavior all challenging global Secondly, previous crises have typically been Rebounding value chain flows, this pandemic has sur- concentrated in particular geographies or faced significant questions about near- to targeted specific sectors, but COVID-19 has stronger medium-term supply chain resilience. affected all major economies. Six of the top While traditionally global value chains 10 world economies in terms of manufactur- have been designed around optimizing ing value add are also among the hardest hit and better for cost-competitiveness, this burgeon- by the disease, and more than 75 percent of ing pandemic further underlines the need the world’s global manufacturing output has for companies to orient the design toward been directly impacted. together “risk-competitiveness.” Thirdly, the nature of international trade, in TEXT BY PER KRISTIAN HONG, XAVIER MESNARD, Certainly, global supply chains have been which the flow of goods as a percentage of THIERRY HEINZMANN AND FALK WEBER knocked—and recovered—such as during global GDP has steadily increased during the 2003 outbreak of SARS or the 2008 the past 50 years, is now highly interde- financial crisis. But this time, as it became pendent. Disruption has therefore been am- apparent very quickly, is different. plified, and recovery will take longer. First of all, the emergency is a global one, The scale, complexity, and urgency of the sit- impacting more than 180 countries in the uation means that no single body can tackle it in isolation. Instead, if industries are to both physical well-being and mental health ensure business continuity, protect em- have been put in place, such as the use of ployees, and shore up supply systems for personal protective equipment (PPE), restric- the future, they will need to find new and tions on employee contact in the workplace, collaborative approaches like never before. switching employees to working from home, Recognizing this, and in collaboration with and travel restrictions. None of our 300+ re- the World Economic Forum, we interviewed spondents said they hadn’t taken any steps and surveyed more than 400 senior oper- to protect employees. ations and supply chain C-suite executives Companies are also supporting suppliers, to codify the current economic impact on customers, and society at large. Suppliers are value chains, share perspectives on the im- being given a helping hand in various ways, mediate response to the crisis, and identify from advances or premium payments to guar- “One area that could the strategies that will be needed to pros- anteed purchase promises. Many firms have improve significantly is per post-COVID-19. repurposed their production lines to produce Our analysis confirms the level of disrup- masks, ventilators, and other much needed adapting delivery tion that has overwhelmed supply chain goods; turned to new types of transportation methods to ensure minimal operations: more than 80 percent of re- to get them where they need to go; or prior- human contact.” spondents indicated that COVID-19 has itized orders for vulnerable customers. significantly disrupted their own setup, One area that could improve significantly with small businesses the hardest hit. however is adapting delivery methods to Summarizing the output from our consul- ensure minimal human contact: only 40 tations, we see three stages of activity that percent of our respondents said that they will be needed to help supply chains out of had put these measures in place. immediate distress and back onto a more secur e, durable footing. 2. Recover: strategic longer-term initia- tives to prepare for recovery and increase 1. React: immediate actions to ensure busi- resilience ness continuity and protect employees Looking further ahead, executives spoke ex- Taking care of employees was the number tensively about the impact of COVID-19 on one priority for our survey respondents, their companies’ ability to recover and pre- and a number of active measures to protect pare for future shocks. Key changes to supply chain set-up CON SIST ENT REDUCE GLOBAL SPAN MULT I SOUR CING O F S UPPLY CHAIN R E across regions/continents D U by focusing supply chain G C to decrease exposure to I N E on a select set of regions R D single regions (both supplier base and manufacturing sites) U C O O INSOUR C E CORE S M BU SINES S P RIORITIES L CONSIS TEN T S E COND P A L such as battery production SOUR C E Q UA LIFICAT ION E U in automotive X in registration dossiers D I T Y I P OWNER SHIP for component designs and production processes as much as possible to be able to switch suppliers or shift to CMO models L O G C A L I Z I N INCREASE USE OF • LOCA L SUPPL IER S disruptions triggered by trade tensions AND MANUFAC TURIN G or crises such as COVID-19 CAPACIT I E S TO. • allow for lower safety stocks allowing for quicker pivoting in times of disruptions • decrease exposure to increasing transportation costs in case of disruption Source: Source: Key considerations for future (as of April 10) operating models PEOPLE TE CHNOLGOY Provide required software by providing people with the / collaboration tools right skills to quickly shift (such as Zoom, Teams) Implement Agile and hardware (such as laptops) both as a methodology to structure to enable remote working collaboration and as a mindset OPERAT ING MODEL PR OCESSES ORGA NIZATION Implement a thorough risk management process organizational design double down on business continuity allowing for rapid response and deployment Anchor remote working Decentralized set-up in organizational set-up and processes to avoid any drastic impact caused by regional lockdowns First, current supply chain configurations are COVID-19, especially in areas with highly seen as ineffective. Forty-seven percent of complex supply chains, such as industri- executives we surveyed indicated a need to als, healthcare, and automotive. As for fu- overhaul manufacturing and supply network ture operating models, remote working is to increase future resilience. Supply chains here to stay, with 20 percent of businesses are too long, too complicated, and too often across sectors saying they are considering exposed to tier 2 and tier 3 supplier vulner- permanent work-from-home solutions. A “Supply chains are too abilities in a single source supply. Each of shift toward decentralization is also expect- these factors add risk, especially in a crisis ed, enabling organizations to be more flexi- long, too complicated, situation, and businesses are starting to shift ble and make decisions quickly. and too often exposed to their focus away from cost and toward being Finally, relationships will also change. As tier 2 and tier 3 supplier risk-competitive instead. we’ve already seen, many companies have vulnerabilities in a To make their supply chains more effective been supporting their suppliers through- single source supply.” and resilient in the medium term, business out the pandemic, which has deepened leaders are looking to reduce complexity, in- the bonds between them. These vital con- crease their use of local suppliers and manu- nections are an important way to secure facturing capacities, and diversify their sup- supply during turbulent times.