When the Corona pandemic erupted worldwide earlier this year, many countries found that strategic goods such as oxygen equipment, medicines, and mouthguards were not available due to the global cost-optimized value-added distribution. Industrial companies with locations in China also suffered from the delivery of many purchased parts from the global supply chain network, which worked smoothly but is highly vulnerable due to its complex structure.
Now is the time to learn from the crisis and review the industry's once-recognized supply chain strategy, which focused on cost optimization.
Is global sourcing no longer en vogue? Will independent regional supply be the future of the industry's supply chain strategy? Is the Corona crisis forcing German industrial companies to locate their know-how in China? Is it sufficient to expand the individual logistics infrastructure, e.g. distribution centers, for reliable supply? Or is it just the right time to "push down" the price at the suppliers?
Strategic procurement will not just focus on cost control like traditional procurement.
After the epidemic, companies will more consider the integrity and sustainability of the supply chain. This requires a more professional analysis skill and an understanding and grasp of the market of the procurement team.
but from another perspective, the challenges for suppliers will be more serious, and client companies will be more cautious in evaluating suppliers, and at the same time they will consider more dimensions. How to improve their competitiveness and increase the stickiness of customers to products will become more prominent and important.
The collapse of our proven supply chains has surprised many of us and highlighted the dependencies. Although many suppliers are now working again, we need to be more resilient in the future. One thing we have certainly learned, the chances of a new crisis coming are high. The next crisis does not have to be a pandemic, many scenarios are conceivable, the famous black swan.
Supply chain management is about the balance of the triangle: the customer, the profit and the risk. What is changed in the Epidemic time? Didn't we always talk about second source? What means localization on the Chinese market? The triangle didn't change. The epidemic makes it more transparent, where we need to improve. Fulfill the customers' demand, deliver the goods or service in a timely and qualitative manner is the pure basics. Localization means close to the customers and close to the suppliers, in lead time, in price and in management. This provides us rooms in pricing and in time to adjust quickly to the changing market demand. And for some companies it is even essential in existence.
In difficult economic times, the topic of material cost reduction is particularly interesting, as one has to assume that the variable "increase in sales" is difficult to influence in the return formula. On the other hand, a cost reduction is quite feasible, i.e. despite a reduction on sales, it is possible to achieve its target EBIT.
The supply shock starting early this year in China and the later on spreading globally has partly caused the overall economic slow-down and appealing for restructure of supply chain. Just as the Chinese saying suggests, “Never put all eggs in one basket”, it is necessary for Germany companies to replan and diversify supply base. However there is no need to be panic. Just like Germany, China has mostly benefited from globalization and would only keeping on as such a player in international division cooperation. Take Guangdong(Canton) as an example. As one of the economically leading provinces of China, GD contributes ¼ of China‘s total foreign trade. The manufacturers and various service providers are striving to meet the demands of international markets.
On the one hand, manufacturing companies will likely focus more on Chinese localization while others are considering alternatives in South East Asia.