New Supply Chains of Global Companies After COVID-19: - Focusing On The Changed Production Strategy

New Supply Chains of Global Companies After COVID-19
- Focusing on the changed production strategy
Business Administration
2022123268 Park Seoyeon
1.
The supply shock that began in China and the demand shock that followed the
shutdown of the global economy1 revealed the vulnerability of almost all companies'
production strategies and supply chains. Domestic and abroad trade restrictions,
shortages of key medicines in the Covid-19 pandemic highlighted companies’
vulnerabilities more. In this situation, the companies' goal is to make their supply chain
more resilient without weakening their own competitiveness. In order to achieve this
goal, it is necessary to go through the process of understanding the company's
vulnerabilities.
The first process of understanding a company's vulnerabilities is to find out where the
vulnerabilities are in the company's supply chain. At this point, they must go beyond the
first or second tier to map the entire supply chain. It would be a time-consuming and
costly process because it could be included whole process of distribution facilities and
transportation hubs. But supply disruptions and shortages that occur when this process
is omitted result in higher costs. The ultimate goal of the mapping process is to classify
suppliers as low-risk, medium-risk, and high-risk.
When finishing the classification of risks, to mitigate each risk, they would identify
alternative suppliers in various locations or increase inventory of key ingredients. The
simplest way to escape the dependence of medium or high-risk groups is to add
multiple resources that are not susceptible to the same risk. For example, companies that
have been hit hard by COVID-19 had a lot of suppliers located in China. Their problem
was that they relied on only one position: 'China'. Companies that have gained a lot of
enlightenment since COVID-19 are moving production from China to Southeast Asian
counties. Unlike China, those locations will often be less efficient, and may have lower
capabilities, but will be a source of more flexible and resilient supply chains for the
company. It will also be necessary to store immediately available safety stocks in advance
in preparing the case that an alternative supplier is not found.
Finally, they would reconstruct companies’ production strategy based on the first and
second processes. It has moved from the existing method of relying on one supply
market to finding another supply even if it costs additional cost and time. Under the new
production strategy, they could further explore new manufacturing technologies that can
ultimately increase the flexibility and resilience of the supply chain.
1
Willy C. Shih, 「Global Supply Chains in a Post-Pandemic World」, Harvard Business, 2020.
2.
Sales & operations planning is an act of continuously checking the level of inventory
and appropriateness of sales, and constantly adjusting the purchase volume and output
of materials. Most companies operate S&OP regularly on a weekly or monthly basis, with
all departments such as sales, purchase, production, and logistics gathering. With S&OP,
companies can not only increase their forecasting accuracy, but also estimate the exact
inventory and output of their products based on forecasting. This reduces inventory costs
and, as a result, allows a company to increase working capital by eliminating unnecessary
inventory costs. S&OP can also increase revenue and market share by improving the
effectiveness of new products and marketing initiatives.2
In the post-pandemic world, there are two reasons why S&OP is effective for
companies to prepare for uncertain consumer demand. First, because "all departments"
within the company participate in this process, all employees can be serious about this,
paying attention to the issue of balancing supply and demand. Second, it is because
S&OP is a process of finding a balance between demand and supply "constantly."
Disruptions aren’t unusual.3 Shocks such as supply shortage and disruption can occur in
any company, and accordingly, uncertain consumer demand can also occur. Therefore, all
employees and processes in the company should be and could be thoroughly prepared
for this shock by constantly doing S&OP.
2
https://www.techtarget.com/searcherp/definition/sales-and-operations-planning-SOP
3
Kevin Sneader and Shubham Singhal, 「The next normal arrives: Trends that will define 2021-and
beyond」, McKinsey & Company, 2021.

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New Supply Chains of Global Companies After COVID-19

- Focusing on the changed production strategy

2022123268 Park Seoyeon

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