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There is a lot of discussion going on these days on moving manufacturing away from China so why this article on building resiliency in China Supply Chains ? Because to be pragmatic, you need to understand that China will remain a manufacturing hub for next few years (at least in short and mid term). Over the last two decades, China has built a manufacturing ecosystem of OEMs and multiple tiers of suppliers. It is not easy to replicate that ecosystem rapidly anywhere else so we will probably have to plan for China Supply Chains for now.
Lessons not learnt ?
The SARS epidemic hit Hong Kong in 2003 as unexpectedly as Covid19 hit us in 2020. This example of low probability/high impact disruption had the potential to shut down the Supply Chain corporations of most major corporatuions doing business out of China for a long time. The world feared that China trade was exporting the virus.
There were very few substantiative corporate contingency plans in place for dealing with disease during the SARS crisis even though Hong Kong had experienced two incidents of deadly flu outbreak in the past.
The fallout from coronavirus epidemic illustrates that despite similar events in the past -The Supply Chain risk management approach to events like panedemics is highly unsatisfactory. A major driver behind this is the thought process that such events are rare. However, remember what Yousi Sheffi, the leading Supply Chain risk management expert of our time says:
….”Most important of it all is a company’s ability to rebound from a “High impact/low probability” event. These are the events that have the potential to shut down business operations for an unacceptable length of time…”
– Dr. Yossi Sheffi
Building resiliency in China Supply Chains
Coronavirus has highlighted that governments and international business still struggle to build corporate resiliency around epidemics and pandemics. As incidents of pandemic outbreaks become more frequent and more virtulent, corporations doing business globally will need better preparation and training to be able to implement a plan quickly. While books have and can be written on the topic of resiliency in Supply Chains, below are some high level resiliency aspects that, in my perspective, you need to build in your China Supply Chain:
I. Create a local crisis management command center
In my opinion, this is the most critical aspect.
An approach that I often see is that the hub of crisis management of an entity that has global HQ in say US but significant manufacturing interest in China- is always US. Even when there is a small local risk management team, they are mostly either comprised of or headed by expats.
While a global crisis management HQ in the global HQ makes sense, there should be a local crisis management center in China with a hotline to US Crisis management center. Consider a hypothetical scenario where a US based organization has a crisis management command center in China exclusively for China operatuions. Having the feet on the ground and being able to understand the “grassroot” level developments always leads to more prudent risk management planning.
We are very much aware of the fact that the world did not know of the magnitude or the highly infectitious nature of this virus for weeks due to state sponsored information supression. While this supression caused the outside world to know about the epidemic’s upheavaling potential after a few weeks of delay- local folks already were very much aware of what was going on in Wuhan. A localized crisis management center with full authority and power could have allowed companies to move swiftly and pre-emptively.
There is a science/methodology in my mind behind how to create such teams, how to staff them, define processes and methodologies for these teams but is beyond the scope of this article.
II. Cross Train local staff
It should not be news for any operations expert or enthusiast that cross training provides immense benefits in operations domain but let us walk through few specific examples here.
One of the first challenges that companies started facing was Manufacturing related. In some areas (in Wuhan), locations were forced into complete shutdowns. However, there were other areas where plants were open but the pace was slowed down due lack of workers.
Based on my expereince, specifically in manufacturing setups in low cost countries like China, workers are super specialized. While it obviously helps to mass produce products very efficiently under normal circumstances, it can spell major disruptions in events like this. However, if you have a small team of workers that are corss trained, it can help immensely to improve the output in circumstances like this.
Also, we know that another major constraint was at the port docks. If you are familiar with dock operations, you know that there are specialized group of truck drivers for drayage logistics- specifically for moving containers in ports. And at the peak of the crisis, there was a major scarcity of these drivers. However, many companies reported that they had other operators/personnel available at the posrts but could not move containers due to scarcity of these specialized drivers.
Even if a small % of these other operators could have been cross trained, the magnitude of bottleneck could have been reduced.
III. Geographically diversify your China operations footprint
There is lot of talk about diversifying the global footprint. Even though that is outside the scope of this article, since the article is focussed on China Supply Chains, a quick note- it is not as easy as it sounds.
Over the years, China, being the factor of the world, has developed a manufacturing ecosystem. So chances are that if you remove certain elements of manufacturing to another location, or even have a backup supplier in another country; chances are that the supplier may have its 2nd or 3rd tier suppliers still in China. It may take decades to build an end to end manufacturing Supply Chain that does not involve China.
So what is the short to mid term best approach ? Diversify your local (China) footprint ! Remember that the epicenter of this epidemic was Wuhan province. Though irrespective of the epicenter, the major ports would have been affeted, the interruption in manufacturing could have been delayed if the footprint was diversified. In fact, even for logistics network (like ports), companies can build alternate flows (lane-mode combinations), which will have higher logistics cost implications, but will be immensely helpful in case of major disruptions like this one.
IV. Invest in Digital capabilities
From purely a crisis management perspective, some of the digital capabilities you can invest in:
- A control tower module that is dedicated exclusively to crisis management
- Digital twin to monitor movement during crisis situations
- Rapid fire advanced analytics capabilities to evaluate scenarios during contingencies
- Continuous analytics and design evaluation technologies to make sure that the Supply Chain is “just right” (ex: not too lean on inventory)
V. Create strategic relationship with logistics providers
The most accessible and capable partners for developing and implementing contingency plans across Supply Chain networks are international Logistics Service Providers (LSPs).
Leading LSPs typically have broad, geographic operating capability, good technology infrastructure and well staffed local offices at the manufacturing points of origin. These LSPs have the potential to act as the client’s initial watchdog in order to activate and execute contingency plans at the earliest point in the supply chain.
VI. Become a member of the logistics innovation ecosystem landscape to accelerate automation
Could the impact of disruption to China based Supply Chain have been minimized if majority of companies had :
- Automated trucks for yard and drayage operations?
- Automated trucks for long hauls?
- Fully automated ports ?
- Sailorless cargo vessels ?
The answer is obviously yes but we also realize that we are still not there yet in terms of the capabilities mentioned above. But what if non tech companies aggressively partner with innovative startup and/or technology companies to accelerate the advancement in the capability areas mentioned above ? Search about Land O Lakes partnership with driverless truck tech company plus.ai. This is the kind of collaboration that companies need to accelerate advancement in the automation area- for mutual benefits.
Views my own.