In the worldwide response to the COVID-19 crisis, the importance of building resilience into supply chains and maintaining manufacturing capabilities, as well as protecting the well being of workforces, has never been more critical. Digital transformations have a key role to play in both short- and longer-term actions at all stages of manufacturing and supply chain activities, while spend analytics can help organizations consolidate and harmonize spend, and identify new opportunities to capture value from procurement activities—all at a time when insights from digital and analytics tools can help organizations maintain operations, and emerge from the crisis stronger and faster than competitors.
As a firm, we embed technology into the heart of everything we do, and our Operations Practice continues to place digital solutions at the center of its efforts to respond to coronavirus, as well as help organizations plan for a future in a new normal.
Supply-chain resilience—responding now and planning for the future
We’re living in unprecedented times, and as the immediate, human-health impact from the spread of coronavirus continues to mount, the economic effects of the crisis—and the human livelihoods at stake—are coming into sharp focus. Businesses have been implementing basic crisis-response mechanisms in their supply chains, and actions taken now to mitigate impacts on supply chains from coronavirus can also build resilience against future shocks.
Many businesses have mobilized rapidly and set up crisis-management mechanisms, ideally in the form of a nerve center. The typical focus is naturally short term, and a set of six actions, along with comprehensive support for the workforce, can create immediate supply chain transparency:
- Create transparency on multi-tier supply chains, establishing a list of critical components, determining the origin of supply, and identifying alternative sources.
- Estimate available inventory along the value chain—including spare parts and after-sales stock—for use as a bridge to keep production running and enable delivery to customers.
- Assess realistic final-customer demand and respond to (or, where possible, contain) shortage-buying behavior of customers.
- Optimize production and distribution capacity to ensure employee safety, such as by supplying personal protective equipment (PPE) and engaging with communication teams to share infection-risk levels and work-from-home options.
- Identify and secure logistics capacity, estimating capacity and accelerating, where possible, and being flexible on transportation mode, when required.
- Manage cash and net working capital by running stress tests to understand where supply-chain issues will start to cause a financial impact.
Beyond this, supply-chain leaders must also prepare for the medium and long terms—and build the resilience through risk management that will see them through the other side.
A key element of supply-chain risk management involves digital solutions that allow information to flow freely throughout an organization. More advanced companies have permanent supply-chain risk-management teams and processes in place. The leading automotive OEMs, chemicals, and electronics companies with very complex global supply chains generally belong to this group. The information cascade between the supply-chain risk-management team and other functions such as marketing, IT, and legal is well-established, with clearly defined interfaces. In the case of disruptions, these teams exchange information on the fly and react quickly.
Furthermore, these companies continuously monitor trends and events that might cause disruptions in the global supply chain. They work to increase transparency throughout even multitier supply chains, with leaders in supply-chain risk management setting up databases of suppliers across tiers, including each supplier’s location, performance, and audit results. And they use external software and data sources to receive push notifications about the latest incidents, together with the possible implications on their supply footprints.
Transforming into a digital supply chain brings its own challenges, but as with any digital transformation, it can be achieved by following a course of development that begins with defining the digital supply chain journey, ensuring you have the right people with the necessary skills and capabilities from a mix of internal development and external hiring, and creating an environment in which teams are allowed to fail and reprioritize, using agile methodologies that scale up quickly and bundle use cases.
Managing a manufacturing plant during and after the COVID-19 crisis—the role of digital in manufacturing’s future
Manufacturing organizations face significant operational challenges both during and after the COVID-19 crisis. Some companies have temporarily shuttered factories in response to government restrictions or falling demand, but others are facing significant increases in demand for essential supplies.
Frontline manufacturing staff can’t take their work to the relative safety of their homes. Plant leaders are therefore looking for ways to operate through the immediate crisis—all while preparing for a potentially much longer period of heightened uncertainty regarding demand and supply, and a lasting need to maintain enhanced hygiene and physical distancing.
Three areas of focus can help plant leaders navigate the transition from initial crisis response to the “next normal”
- Protect the workforce: Formalize and standardize operating procedures, processes, and tools that help keep staff safe. Build workforce confidence through effective, two-way communication that responds to employees’ concerns through flexible adaptation.
- Manage risks to ensure business continuity: Anticipate potential changes and model the way the plant should react well ahead of the fluctuations to enable rapid, fact-based actions.
- Drive productivity at a distance: Continue to effectively manage performance at the plant while physical distancing perhaps and remote working policies remain in place.
The coronavirus will have long-lasting— perhaps permanent—effects on manufacturing organizations, forcing companies to restructure their operations to maintain production while protecting their workers. The coming weeks and months will remain extremely challenging for plant leaders, but the crisis also creates an opportunity to reimagine the way work is done. By accelerating the adoption of new digital technologies and by drawing on the flexibility and creativity of their frontline staff, companies have the opportunity to emerge from the crisis with manufacturing operations that are safer, more productive, and more resilient.
Organizations making plans to implement digital technologies will do well to look at the example of members of the Global Lighthouse Network—a group of 44 organizations recognized by the World Economic Forum (in collaboration with McKinsey) as manufacturers leading the way in their adoption of Fourth Industrial Revolution technologies across the value chain.
Lighthouse organizations are succeeding by innovating a new operating system and using technology to capture value—both economic and now environmental—across the value chain from suppliers through to customers. They are embedding digital tools into everything they do, including how they manage and optimize businesses and processes, transforming the way people work and use technology. Along with the integrating technology itself, Lighthouses have invested in their people-building capabilities, adjusting the organizational structure and developing new ways of working—demonstrating that the Fourth Industrial Revolution is, after all, a human enterprise.
Complex, underestimated, and undervalued: Spend Analytics gets a new look
Spend analytics often has a poor reputation, and is traditionally seen as a relatively dull activity in the value chain. Yet the role of spend analytics—and of the entire procurement function—is changing quickly. As consumers demand customized, sustainable products and services against a shifting economic backdrop, organizations are looking for actionable insights that can capture more impact in procurement, and even position the function as a source of competitive advantage.
Earlier this year, we announced the acquisition of Orpheus GmbH, a leading provider of spend-analytics technology and a recognized innovator in digital procurement. By bringing together Orpheus’ advanced platform technology with McKinsey’s industry expertise and content-rich services in digital procurement, we launched a new service that is delivering actionable insights for procurement value capture. We spoke to leaders from Orpheus and McKinsey about what it will offer and how it will deliver impact.
“We’re changing how organizations optimize procurement,” says Bill Wiseman, a Senior Partner in the Operations Practice. “The new combination of McKinsey expertise and insights with a world-class technology platform is unique in the industry. And we’re also changing the way we deliver that service: by creating a SaaS [software-as-a-service] offering that lets clients choose from a palette of options in creating a unique solution that suits their specific requirements. That flexibility will allow a much broader range of organizations than McKinsey’s “traditional” clientele to access our benchmarking IP—an exciting shift for both us and our clients.”
“We’re also going to be able to spend more time with clients on ideation, driving change, and actually delivering impact, while offering faster and better data analysis,” adds Bjorn Uwe-Mercker, also a Partner in the Ops Practice. That will free up clients’ time to pursue other value-added activities. While we take care of the analytics and insight generation, users will be able to bring the human element to the fore and focus on negotiation and implementation, rather than crunching numbers.”
As organizations find a route through the COVID-19 crisis, many solutions may be powered by digital technology, but what remains constant is the insight from the humans behind them. Both within our own teams and with clients, the human factor remains, with technology processing and sharing data to allow us form connections in new ways.