Supply Chain Management: what has changed in the manufacturing sector after Covid ?

In recent nweeks, the fear of a severe economic recession caused by new stringent containment measures seems to have disappeared. Recent Istat forecasts would confirm that at least starting from the second half og the year, the Italian production system could take the path of a timid recovery in production volumes. however, the health emergency does not seem to be completely behind us, therefore some of the issues that made us reflect during the lockdown days are back on time.

The Italian productive fabric is mainly founded by small and medium-sized enterprises, but extraordinarily capable of acting through the strong connections they have been able to create on international markets. In recent years, also due to the specialization of the products and the lack of importance attirbuted to economies of scale, due to the drastic downsizing of production volumes, many companies have been forced to commission intermediate goods to the outside, so much so that they are absolutely “normal”, for some of them, to go beyond their own territorial perimeter, and to privilege a global “space” within which to sell and buy goods.

When the Covid-19 pandemic required the sudden stop of production activities, in almost all industrialized countries, the global trading system went into crisis, and many companies, located throughout the world consumption chain, suddenly stopped to work, showing the fragility of a mechanism heavily dependent on global procurement logics.

Why do we rely on Supply Chain Management?

Given that there is no company in the world that is not measured every day with a traditional Supply Chain model (the simple use of a raw material supplier represents the most essential form of supply chain), we know well that all those operations coordination and management of the entire life cycle of the product have become much more complex today than in the past, precisely because of an expansion of the “space” within which they operate.

For this reason, it is essential for every company to integrate and coordinate goods in transit efficiently, through effective management of internal and external processes. If the competitive advantage of our companies is therefore represented by their ability to align all the partners in the supply chain quickly and precisely, when this possibility should be lacking, as happened during the weeks of lockdown, the costs to serve our customers would increase considerably.

Does programming adapt to a dynamic and fragmented context?

Let’s recognize it as well …. we measure ourselves every day with a production scenario in which the supply time of goods and services represents the real success factor for every company, therefore, it is necessary to know how to quickly change one’s production priorities, taking into account, in my opinion , of at least two factors: the availability of goods upstream of the system and a market that is increasingly connected and digital.

In such a dynamic and fragmented context, it is necessary to enhance the ability to intervene in the supply chain, especially taking into account the possible moments of imbalance and drop in demand, such as those we saw this spring.

I mean that the current management method of the Supply Chain risks, in the not too distant future, of becoming obsolete, because it is linked to a highly programmatic vision, which responds to forecasting needs dictated exclusively by internal production objectives.

Efficient management of the supply chain allows companies to optimize stocks, delivery times, to better integrate production choices with effective management of financial flow. But to do this, we need to simplify our logistics flows, moving from an approach that mainly measures cost performance, to an approach that instead measures the response and adaptability of the system.

The programmed system has its problems

It is difficult to recognize that you are exposed to the risks of a total blockade of the production system, but it is enough to give an example to understand the extent of this risk: in 2017 the share of production of intermediate goods, coming from some districts of China, represented 45% of the entire global value chain of all world productions (the largest share is obviously represented by the automotive sector).

When the possibility of freely managing these exchanges is interrupted, the system begins to show all its fragility. The interruption of the production of intermediate goods, upstream of the global chain, causes the rapid depletion of warehouse stocks and consequently a supply shock in all the productions that use those goods.

I mean that shortening the chain and simplifying the Supply Chain means changing your business model; it means to radically change one’s own orientations towards suppliers, and that is to recognize more the value of the territory as an aggregative environment, in which to invest and create new development conditions.

I believe we need to reconsider the value of local supplies of goods and services, favoring a “short chain” structured on greater visibility in its internal process, therefore much more in keeping with current forecasting needs.

What to expect from the future?

We do not know how it will really go in the near future and if the forecasts of a possible recovery are reliable or not, what is certain is that in the future we will see more and more continuous fluctuations in demand and we will have to undertake new strategies and new business plans faster and faster.

If, moreover, we consider the continuous increase in protectionist measures, taking place worldwide, clearly witnessed by the change in US policy, but no less evident in the restrictive actions taken by other countries such as China or Great Britain, then it seems plausible to rethink the operating mechanism of such long and complex production chains.

I do not want to say that in the future it will be necessary to close the borders to have a healthy and lively economy, far from it, but I believe that it is right to reflect on the opportunity to reconsider our industrial production fabric as the epicenter of a global system and not always like the suburbs. Our companies must continue to produce semi-finished products and components for the global system – they know how to do it very well – but at the same time they must encourage the development of local partnerships and make them their real strength. A “short chain” amplifies the skills of each company and increases the well-being of those who are part of it.

Gaspare Amoroso
Chief Operating Officer
Sandro Mentasti

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