90% CPGs To Modify Their Supply Chain Due To COVID-19: Microsoft and Bain & Co. Study

Microsoft partnered with Bain & Company to study the impact of COVID-19 on supply chain plans and priorities at 70 companies. The findings of the study, which were released last week, revealed that 90% of companies plan to modify their supply chain networks. Here are the report’s highlights and implications for supply chain managers on the road ahead.

Of all the verticals, the COVID-19 pandemic has wreaked the most havoc on supply chains. Travel and movement restrictions disrupted cross-border shipments, and a fluctuating economy made it difficult to predict demand and plan accordingly. Meanwhile, social distancing regulations meant that warehouses and supply hubs had to revisit their staffing practices. 

Consumer packaged goods (CPG) companies have faced the brunt of this challenge because of their investment in perishable goods, seasonal products, and other items with a low shelf life. To understand the response of CPG companies to the pandemic and assess their plans for the future, Microsoft partnered with Bain & Company to study the impact of COVID-19 on supply chain plans and priorities at 70 companies. 

Bain & Company released its findings last week. Here are some highlights from the report and implications for supply chain managers on the road ahead. 

Prioritizing Resilience Over Efficiency

The report suggests a strategic shift in the mindsets of supply chain managers. Earlier, their top priority was cost efficiency and convenience, which may not be a very good idea in the wake of COVID-19. Companies with supply chain ecosystems designed with cost efficiency in mind struggled to respond quickly to market flux. This is why the number of supply chain professionals prioritizing cost efficiency as one of their top two objectives has decreased by 13%. 

Percentage of Companies Who Rated Cost Efficiency as Their Top Target
Source: Bain & CompanyOpens a new window

Besides, over 40% of respondents expressed their intention to increase their total supply chain investment, aiming to drive speed, agility, and resilience. This is in stark contrast to the traditional view of supply chains as cost centers. This added investment might help gain from the massive spike in online orders and ecommerce demand, offsetting at least some of the losses. 

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Supply Chain Managers Get a Seat at the Decision-Making Table

Before the pandemic, just 50% of companies expected their top supply chain leaders and key team members to contribute to most or all strategic decisions. In other words, supply chain stakeholders were generally not consulted when finalizing strategies around new product development, store operations, and merchandising. Microsoft’s study indicates that this tide is turning. Today, 67% of companies closely involve their supply chain teams in business decisions, asking for their vertical-specific input. 

Supply Chain Stakeholders’ Contribution Is More Critical Now
Source: Bain & CompanyOpens a new window

If CPG companies are to shift more towards ecommerce and omnichannel order fulfillment, it will be essential to get supply chain stakeholders’ inputs from the get-go. Supply chain management can no longer act as merely an order fulfillment unit – they are now instrumental in helping the business achieve crisis-readiness and resilience. The study reveals the need for “control tower” solutions that integrate data across the end-to-end supply chain ecosystem to empower stakeholders for better decision-making. 

Also Read: How To Manage Your Procurement To Stay Afloat Post COVID-19

Investing in Essential Capabilities for 2021

When asked about their organization’s supply chain investment intentions in 2021, most companies responded with a myriad of technology-enablers. There are seven ways CPG companies plan to leverage digital solutions for supply chain resilience. 

1. Omnichannel order fulfillment: The COVID-19 pandemic has caused an ecommerce boom, which could accelerate the world’s ecommerce adoption in the next five years, as reportedOpens a new window by the World Economic Forum. Therefore, it’s no surprise that omnichannel order fulfillment and delivery are top priorities for supply chain decision-makers right now. However, most are only “somewhat to not confident” about success in this area, with less than 50% being “very confident.”

2. Predictions and forecasting: As the world faces an unprecedented crisis, supply chains are bound to react in new and unfamiliar ways. Powerful predictive capabilities can help companies get through this period. Predictive technologies would enable better visibility into potential bottlenecks, also recommending the next best path. 56% of respondents plan on increasing their investments in demand forecasting and predictive planning in 2021, but here too, less than 50% are “very confident.”

3. Flexible operations: Flexible operations must be supported by a strategic shift and technology modernization to be truly viable. The report finds that successful companies have already started constructing flexible supply and assembly networks, working with third-party logistics providers if necessary. By implementing IoT on this value chain, companies can also improve visibility.

4. Inventory management: Inventory management is another priority for supply chain managers over the next twelve months. Interestingly, this is where over 70% of companies said they were “very confident” and “somewhat confident”.

5. Real-time visibility: Real-time supply chain visibility can prove to be a life-saver for businesses during a crisis, as they can anticipate warning signals before the shock waves hit. The study suggests that technologies like 5G and blockchain will strengthen supply chain solutions to capture key data on time and help companies react without delay.

6. Integrated operations: A single source of data, strategic involvement of supply chain stakeholders, and unified enterprise systems can help achieve operational integration. Bain & Company shared Target’s example, which has integrated its distribution centers in one facility that addresses various order types to reduce the replenishment timeline from several days to a few hours. This integration also allows the company to use its physical stores for online order fulfillment.

7. Automation: The report revealed that companies plan to leverage their automation investments either through automated risk identification or automated production/distribution. Interestingly, this is one of the traits differentiating supply chain leaders from their peers – an earlier study by SAP and Oxford Economics found that 48% of supply chain leaders deploy robotic process automation (RPA) vs. 14% of non-leaders. Microsoft’s report suggests that this will be a top priority for every company in 2021. 

Supply Chain Investment Priorities in 2021
Source: Bain & CompanyOpens a new window

Supply chain resilience is integral to the global economy, and companies must prepare for what lies ahead. By catering to demand on time and minimizing waste, they can build the foundations of a robust business that can withstand the crisis and succeed beyond it. Digital transformation will be central to this process – leveraging IoT for real-time visibility on shipments, AI for demand predictions and inventory planning, data visualization for operations management, and digital collaboration for multi-stakeholder connectivity. 

“Technology can really solve a lot of your problems. While warnings of COVID-19 may have gone unheeded, there are tools you can use to amplify and analyze those warning signs in the future,” says Jennifer Bisceglie, founder and CEO of Interos. Supply chain managers can expect emerging new solutions for their domain, including upgrades for industry-best technologies.

2021 will be all about rethinking priorities by giving supply chain stakeholders a higher stake in business decisions, investing in supply chain resilience, and not treating it like a cost center. 

Do you agree that supply chain managers should deprioritize cost efficiency in the months to come? Comment below or let us know on FacebookOpens a new window , LinkedInOpens a new window , and TwitterOpens a new window . We would love to hear from you!