The massive shock of the COVID-19 pandemic to supply chains and the ongoing supply bottlenecks have resulted in manufacturers around the world changing their core strategies. “Just in time” models, which operate with the minimum stock required for production, become history in many sectors due to the pandemic. Manufacturers, who have supply problems in many fields from electronics to automotive, from food to raw materials, started to switch to the “just in case” model, which means “just in case” in order to protect their supply chains against shock. In this new model, there are fundamental changes to produce one-to-one work in several countries in order to secure production lines with stock increases by making long-term purchase agreements with major suppliers, or to distribute risk instead of linking operations to a single country and facility.
The rate of those who increased their stock in critical works exceeded 60 percent
Surveys conducted by McKinsey in May 2020 and November 2021 asking supply chain managers of companies how they are trying to solve supply bottlenecks show the change more adequately. In May 2020, 47 percent of managers planned to increase stock on critical works, while in November 2021, 61 percent of those who applied this formula reached. The rate of those who plan to increase stock for the entire supply chain increased from 27 percent to 42 percent.
Manufacturers, who experienced disruptions for different reasons during 2020 and 2021, are looking for the solution to the bottleneck problem that does not expect to end in the short term, by radically changing their operation models. According to the analysis in the Financial Times, the transformation from a single supplier to a multi-supplier is a prominent change in many branches. In addition, making guaranteed agreements with some suppliers in areas experiencing bottlenecks is a pandemic strategy that has started to be implemented very frequently. Placing more consolidated orders and minimizing its physical presence in high-tax economies are also in the midst of models favored by some manufacturers.
Cheap supplier strategy not working, not risk driven
Brian Higgins, U.S. supply chain manager at KPMG, said: “We are seeing business models that were founded 20 years ago and are now deteriorating, with a focus on cheap suppliers that seem like the universal truth. Because these models focused on costs, not risks.”
Carol Tomé, CEO of US shipping company UPS, explains that the ‘just in time’ production model is no longer working: “Companies love to optimize their working capital. That’s why, before the pandemic, many companies switched to the just-in-time stock model, and it worked. But when the pandemic hit, everything was shut down, including production. When economies opened, the just-in-time stock model did not work. Now companies think they need a ‘just in case’ stock. ”
“me first” agreements with major suppliers
Other invaluable steps were taken in supply chains, as costs created an unprecedented need for increased efficiency in many branches. Increasing stocks and signing long-term contracts with the most valuable suppliers has become a formula for many companies. Especially in the automotive sector, giants such as BMW signed special agreements with chip suppliers to overcome the chip bottleneck.
Changing the production location was one of the options
The strategy of the Dutch beverage manufacturer, which has 300 different brands in more than 190 countries, was to produce local products in markets such as Mexico and export them to large markets. However, when the beer production was not in the middle of the mandatory cuts by the Mexican government in the first quarantines of the pandemic, it sent the labels and bottles of the Dos Equis branded beverage to the Netherlands and started production there.
In the McKinsey survey, the rate of managers who are considering expanding the supplier base by bringing production closer in May 2020 is 15 percent. However, the rate of managers who have taken this step has increased to 40 percent as of November 2021. Only 25 percent had planned to expand the supply chain to different regions. By November 2021, this rate had reached 38 percent.
Whiskey maker delivered artifact on wine bottle
A number of companies, on the other hand, put the cure in bottles that they had never put before, along with a note of apology to their customers. Florida-based whiskey producer St Augistine Distilleri kept about 5,000 bottles of liquor, which it wanted to send to the shelves in November, in tanks. The company had to ship 25 percent of its production in wine bottles, and it also sent customers apologies for the alternative packaging.