Building more resilient supply chains post COVID-19
Correspondent | Friday September 18, 2020 17:10
Although we first heard about the outbreak of COVID-19 in China, some time in December 2019, from the supply chain perspective, Botswana appeared to be unprepared when the virus finally descended on our beloved country.
From December last year, COVID-19 began to spread from China across the world at lightning speed and fortunately for Botswana it took quite some time before we recorded our first case.
As a result of this delay, there was common belief that somehow the African ancestors had connived to protect Botswana against the virus.
I am not sure if we, as local supply chain professionals, ignored World Health Organisation’s (WHO) early warnings to build an ark to ring-fence our supply chains against the disruptions caused by COVID-19 or we just didn’t do enough to come up with robust supply chain business continuity measures because there was a lot of panic and confusion as soon as Botswana recorded its first case of COVID-19 late March 2020.
Vulnerabilities and lack of readiness in our supply chains immediately manifested in the form of shortage of Personal protective equipment (PPEs) for health workers and the general public, shortage of test kits, which delayed testing, empty supermarket shelves around some items caused by panic buying just to mention a few examples, which point to unpreparedness.
What is indisputable is that pandemics have been part of human civilisation for eons and COVID-19 will certainly not be the last pandemic that has a direct impact on both local and global supply chains hence the need to learn, introspect and reconfigure our supply chains to make them more resilient against future shocks. Below are a few supply chain lessons from the current pandemic:
Diversity of supply and suppliers
Having a more diverse pool of suppliers can play a critical role in helping organisations weather the storm during a time of crisis to ensure uninterrupted flow of supplies. Multiple suppliers that are spread across the globe and not congested in one geographical region are quite important to ensure business continuity at all times and not only during times of pandemics.
As a result of the relentless pursuit of cost saving in procurement, many organisations and countries have for far too long over-relied on China-based manufacturers who are famous for offering cost advantages and for many years Botswana has also relied too much on South Africa. The repercussions of this overreliance were recently experienced in the fuel crises that engulfed our country.
A recent report by International Institute of Strategic Studies when addressing the problem of high dependence on China for sourcing materials, indicated that for Africa a “full disconnect from China’s supply chain may be economically unviable and that African countries should rather adopt China plus one strategy” to diversify their supply base. Moving forward there is need to expand on our supply base by tapping into local suppliers and build relationships with many suppliers across the globe to mitigate against the risk of overreliance on China suppliers who once again flexed their muscle when it came to supply of PPEs.
Shift in the balance of power
COVID-19 has undoubtedly triggered a shift in the balance of power between suppliers and buyers much to the shock of buyers. A common norm before the pandemic was that when it came to the negotiation table, suppliers were often bullied by buyers who used their buying power to negotiate for lower prices and unjust terms and conditions, with suppliers having little or no power at all due to the competitive nature of the tendering process.
As a result of worldwide government-imposed lockdowns and rise in demand for PPEs, the levers of power have instantly shifted on the side of suppliers. Major suppliers who have now turned to ‘coo-petition’ away from competition exacerbated the situation. They now wield so much power to the extent that they demand minimum order quantities, upfront payments/shorter payment period and favourable terms and conditions when contracting. In rationalising their supplies they now shun those companies who have a record of not playing fair when it comes to dealing with them.
Moving forward this calls for buyers to always play fair when it comes negotiating for terms and conditions and where possible buyers should turn to consortium buying in procuring PPEs which will offer advantage in terms of negotiating more quantities and getting preference from suppliers and also for collaboration of procurement professionals to share knowledge and skills in procurement of PPEs during this very difficult supply chain environment.
In July this year CIPS Supply Management magazine reported that when addressing SA National Editors Forum, South African President Cyril Ramaphosa, announced that the “SA government is building a platform to procure COVID-19 related supplies for the whole of Africa, which will allow every country in the continent to procure from a central place and benefit from the scale through which SA will be buying from the various suppliers in China” demonstrating that Big Brother SA was considering leveraging on consortium buying for Africa. The concept of consortium, which is used worldwide was recently successfully executed by a charitable buying group based in the United Kingdom in June 2020 by using the power of collaboration to maximise the buying power of over 40 charities to attract larger PPE providers while sharing best practices to help each other with supply challenges brought by the pandemic.
Stronger collaborative
relationship with suppliers
Strong and long-term relationships based on trust and transparency between buyers and suppliers can prove to be a panacea for many supply chain problems. Many times the mistake that public buyers make is to adopt a blanket approach of a transactional nature in dealing with suppliers where a buyer’s main priority is to get the supplier who offers the cheapest price without any effort made in nurturing the professional relationship.
Kraljic and Mendelow’s matrix provides a useful guidance on the type of relationship buyers can adopt with various suppliers, as many organisations move to increase their supply base due to shortage of supplies and surge in demand of PPEs there is need to pay particular attention to the aspect of supplier relationship management, which is often taken for granted.
Close collaborative relationship based on an open book approach can assist in ensuring that there is sharing of information and concerted efforts when it comes to innovation, cost control, demand planning, managing supply risks from the country of origin where goods are sourced and also to give buyers priority when suppliers decide to rationalise their supplies due to inability to produce to full capacity as a result of social distancing rules and government-imposed quotas on exports.
Localisation of supply chains
Although support of local suppliers in an effort to encourage active participation of citizens in the economy of Botswana was already top of government’s agenda before COVID-19, the pandemic has accelerated and given it the much-needed impetus.
This is a welcome move that will go a long way in increasing capacity of local supply chain and reducing the import bill, which currently stands at a staggering annual P7.6 billion. Since the beginning of the pandemic, protectionism has also scaled up considerably as nations protect their limited supplies against the surge in demand of PPEs.
A report by the World Economic Forum on March 27, 2020 highlights that “over 50 countries were restricting the export of certain medical supplies by mid-March 2020” in addition to closing borders, a move that fuelled the efforts and motivation to boost local manufacturing.
Honestly, Botswana has done exceptionally well in terms of coming up with citizen economic empowerment initiatives over the years, which include the Economic Diversification Drive, local procurement scheme and Citizen Economic Empowerment Policy as well as the recent much-talked about Economic Recovery and Transformation Plan.
However, it appears like we are not getting it right when it comes to implementation and monitoring by relevant stakeholders and effort needs to be made in ensuring robust monitoring and reporting in order for these initiatives to bear fruit. Many firms in the private sector, mostly franchise retailers, have also developed a bad tendency of turning a blind eye when it comes to supporting and capacitating local suppliers. They continue to prefer suppliers from their country of origin. Nevertheless there are quite a few companies in the private sector that have been doing quite well in terms of supporting local suppliers and developing very good supplier development programmers. These organisations deserve a pat on the back and include PPC Botswana, Debswana and UNDP Botswana.
Reconfiguration of supply chains
There is an urgent need to overhaul local supply chains to incorporate the key ingredients of agility, flexibility and technology. I was so hypnotised at the agility demonstrated by Western corporations like Nike, Ford and Tesla Motors who moved swiftly to manufacture PPEs in order to address the supply shortage problems of ventilators, respirators, and face shields. Local firms need to invest in agile and flexible manufacturing to prepare for future pandemics and also to diversify their product lines in order to navigate competitive and fragile business milieu. Buyers on the other hand should also have flexible supply chains to enable change in ordering philosophies from ‘just in time’ to keeping enough stock of raw materials without incurring too much holding stock as lead times have increased in addition to shortage of supplies due to lockdowns and protectionism.
In addition, while many firms do acknowledge the role of technology in the supply chain, the scale at which the digitisation of supply chain has been adopted by firms in Botswana has been moving at a snail’s pace, but COVID-19 has shown that digitisation of supply chain should be given priority. Technology can prove to be a panacea for many supply chain challenges attributed to COVID-19 to assist in demand forecasting, which has proven to be difficult as a result of the bull whip effect. It can also increase visibility across the whole supply chain ecosystem, enable integration of systems to support collaboration between buyers and suppliers, allow online submission of bids and freeing procurement professionals from many non-value adding routine activities to concentrate on operational and strategic actives. It is undeniable that the pandemic has turned out to be a blessing in disguise for the procurement profession. It has propelled it to unprecedented levels while at the same time giving supply chain professionals access to the boardroom. Let us all use this watershed moment to demonstrate that procurement can play a critical role in the achievement of our respective organisation’s strategic goals.
MATLHOGONOLO A. MAANO*
*Maano (MCIPS) is a Chartered Procurement Professional who writes in his personal capacity. Feedback on the article can be sent to maano316@yahoo.com. This article is of a general nature and is not meant to address any particular person, or organisation