Cost efficiency focus exposed supply chains to greater Covid risks
During the pandemic, the previous preoccupation of executives with growing productivity and constantly finding cost savings left companies over-stretched and vulnerable. A new study has suggested that this lack of balance, coupled with a lack of a plan B, threatened business continuity during the lockdown months.
According to a report by operations consultancy DuPont Sustainable Solutions (DSS), the unforeseen nature of pandemic shocks meant businesses were placed under growing strain from the 18-month crisis. DSS polled executives from 203 companies in the first quarter of 2021, and discovered that 77% of leaders believed their company’s risk profile increased or significantly increased due to the onset of the coronavirus.
While responses were broadly similar across industries, manufacturers saw the greatest rise in risks at 84%. This may be because they were especially susceptible to the threats of lockdown work – as much of the manufacturing industry still relies on on-site work, which for some time became impossible during lockdown.
Even after the end of government orders to close down production, businesses relying on physical attendance struggled to bounce back. Travel restrictions still hindered the flow of their workforce back into the office – while 61% said that changing health and safety protocol had negatively impacted their work. Social distancing in production plants, for example, reduced the number of workers who could be actively working at any given time.
Further to this, the majority of businesses said their supply chain had been negatively impacted during the pandemic. Managing the supply chain was a major headache for 64%, affecting sourcing timelines, sales turnover, and customer service, regardless of business size. This is an issue which has lagged beyond the initial Covid-19 crisis, and supply chains have still not adapted to the changed landscape.
The DSS report found that the impact supply chain disruption has had on businesses may have been exacerbated by a degree of overconfidence in perceived resiliency. More than eight-in-ten leaders surveyed by the firm in 2019 thought they had a plan capable of addressing an unexpected business disruption, but hindsight is a marvellous thing, and after the ravages of the pandemic just 43% make the same claim.
Prior to the Covid-19 months, 81% of executives said that they were too busy adhering to traditional market habits, to have planned for worst-case scenarios. Preoccupied with cost efficiency and higher productivity, a majority of 54% subsequently told DSS they had to shut down operations during the pandemic.
“While placing a premium on achieving cost efficiencies by minimising inventories, streamlining supply chains, sourcing from low-cost labor markets, and implementing just-in-time manufacturing looked great on many corporate ledgers, it left companies with little flexibility to absorb the supply, sourcing, operating, and commercial shocks caused by the pandemic,” said Davide Vassallo, CEO of DuPont Sustainable Solutions.
With crisis planning having fallen by the wayside for many this time, DSS encouraged businesses to learn from their previous mistakes, even as the global economy looks to recover. In particular, incorporating the accelerating effects of climate change into supply chain planning might soon be crucial for business resilience. For example, leaders should be questioning whether to build a plant where there is increasing flood risk.
