As the global supply chain continues to cope with the ongoing COVID-19 pandemic and the disruptions it has continued to cause, companies have been forced to look at their sourcing strategies through a more critical lens. This scrutiny has led businesses to make considerable changes to their standard practices and sourcing decisions, and many of these changes will likely affect the sourcing strategy norms across the industry in the long term, if not permanently.
Like many other facets of doing business in unprecedented times, the pandemic has exposed weaknesses and issues of singularity that were present in many “cost-effective” sourcing methods. The TCO approach, or total cost of ownership, has long been a method of decision-making in regards to sourcing decisions.
When companies examine pros and cons of sourcing decisions, such as in-house, onshoring, or offshoring, TCO has served to determine which option is most viable for a company. Today, however, there are other variables to consider, and TCO is no longer the bottom line it once was.
Sourcing managers and supply chain professionals are becoming more flexible in their problem solving and solutions, as they seek out ways to strengthen their supply chains and make them more resilient in times of extremes and crises.
The lean models that kept supply chains low cost have needed to be adjusted to prepare for trouble and chaotic scenarios with fluctuating access and demands.
The industry is taking steps to diversify global sources
As companies have adjusted to a variety of new methods for fulfillment, and increases in e-commerce demands, the complexities they face have increased as well. A key aspect is the broadening of sourcing. While previously many companies chose to source from locations where clusters of suppliers were located in close proximity to one another, the risks associated with doing so when an area is struck by disaster have been exposed.
Retailers and sourcing managers are now developing a more globalized and diverse sourcing method that leaves them less reliant on a single supplier or group of suppliers in the same geographical area.
Due in large part to the dominance of manufacturing hub China, when the virus first caused shutdowns in Chinese factories, the vulnerability of single sourcing was made immediately clear, and many companies struggled to pivot.
Going forward, other key manufacturing locations, such as India, Mexico, Vietnam, South Korea, Germany, and the United States are likely to benefit from the increased geographical diversification steps firms are taking in sourcing suppliers.
Localized supply sourcing is becoming more prominent
There has also been a shift to more localized supply sourcing. Although this requires more planning, companies are making this shift after realizing that in doing so they have a more hands-on advantage when supplies and manufacturing bases are closer to home. The trend of companies looking to bring aspects of production home began prior to the impacts of COVID-19, and the pandemic has simply accelerated the process.
With an increase in automation and small batch production, and the available technologies becoming less expensive, many countries had begun to move portions of the supply chain back within their borders. As access to available innovations increases, this trend is likely to continue to grow, particularly with the focus on last-mile delivery and shorter delivery windows have become the new norm.
The pandemic impact is likely to be felt into the future
Ultimately, it is likely that the impact of COVID-19, both in the long term and for the time being will continue to be felt across the supply chain, particularly in regard to sourcing strategies.
Whether the changes are simply due to the acceleration of trends already present within the industry, or a focus on a complete reimagining of business as usual in order to weather future storms, sourcing strategies have fundamentally changed in order to remain competitive.
Flexibility and resilience are more evident a need than ever before, and the impact of the pandemic has highlighted that fact.