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COVID-19, Digital Supply Networks, and Resilience

The term “supply chain” has been in the news daily because COVID-19 both underscored the essential role of the industry and because it stressed supply systems. The sudden shifts in demand and the specialization between industry-focused and consumer-focused food distribution chains, for instance, caused imbalances between supply and demand. Rerouting produce typically distributed to industrial customers or the hospitality industry to retail grocery has many challenges. The product is available but in the wrong place and form. Besides the apparent rigidity of some distribution channels, two crucial aspects of the issue in such imbalances are information transparency and the lack of means to connect supply and demand rapidly. Both facets imposed tremendous challenges to organizations and leaders.

Transparency, mismatch, and agility issues were not limited to the food industry. For instance, over 50% of hospitals nationwide have reported shortages in the healthcare supply chain and sought opportunities to connect with available inventory. Ultimately, the issues are common across industries and chains worldwide. An early lesson from examining anecdotal evidence of organizations navigating the crisis more effectively is that digitally supported capabilities, such as network-wide transparency and connectivity, can reverse fortunes and aid recovery in a black swan scenario as the current global pandemic. Digital transformation and innovation were already providing competitive advantage to leaders before the pandemic, but the tempo now added a whole new dimension to managerial agendas. How might organizations and leadership teams proceed amid a global crisis and on what to focus? Let’s first briefly examine a few examples from three distinctive scenarios and geographies.

How might digital capabilities strengthen supply chains making the news?

Let's start with the healthcare sector, where the surge in the number of cases and the risk of contagion overwhelmed and challenged the system and medical staff. As the pandemic spread in the U.S., health care facilities nationwide faced a threatening shortage of personal protective equipment. The majority of the country's facilities reported having less than two weeks of available supply. While governance and supply chain design issues played a significant role in the overall situation, the capability to match supply and demand digitally could add some immediate relief and potentially long term agility and resilience to the system.

In this regard, the surge in online platforms during the pandemic to match hospitals needing personal protective equipment with those with available inventory exemplifies the potential of such digital capability. According to the American Hospital Association's Chief Operating Officer, such platforms have been of tremendous assistance. Underlying those platforms is the capability to connect supply and demand, creating visibility digitally. One such platform is The Exchange, through which hospitals and frontline healthcare providers experiencing supply shortages can submit requests for specific items and be matched with peer organizations that can supply them through a safe, secure, and trusted network. There are other projects on the works to link hospitals to nontraditional sources of equipment. The crucial takeaway is that leaders must take note of such out-of-the-box experiments driven by the urgency caused by the pandemic and invest in further developing the promising ones in preparation for the future.

Let's come back to the food supply chain, where the shutdown of intermediary stages imposed challenges. As the examples in the introduction point out, the delivery channels' apparent rigidity was perilous to many stages of the chain. Farmers across the country faced the challenging decision of having to dispose of their crops or animals, as their supply chains are geared towards industrial customers. A few cases across industries indicate that there were immediate opportunities to leverage digital capabilities in some of those scenarios. For instance, the meat distributor, Marx Cos, which serves both commercial and consumer channels, pivoted the last mile logistics to accommodate the surge in direct-to-consumer sales online. Other hospitality suppliers have leveraged digital solutions to serve customers directly. Seattle-based digital freight load-matching provider Convoy Inc. is rolling out a digitally-enabled program with the hunger relief organization Feeding America. Convoy covers transportation costs for U.S. businesses that donate truckloads of shelf-stable food and canned goods to its network of food banks, soup kitchens, and food pantries.

An intriguing experience in this realm comes from China. During the lockdown, some farmers and wholesalers started using the shopping app Pinduoduo's marketplace to move their soon-to-expire products that would otherwise have been thrown away. Farmers also turned to an online news agency and social influencers for help. The latter usually publish a post of farmer's stories, illustrated with pictures of fruits and vegetables, and, most importantly, a direct link connecting the readers to the producers. Since 2017, online selling promoted by influencers through live video streaming has been growing. This digital channel experiment seems to have come of age during the pandemic. According to China's Ministry of Commerce, the online retail revenue of agricultural products in the first quarter increased by 31% and reached over $13 billion. According to the monitoring of big commercial data, there were more than 4 million e-commerce live broadcasts in the first quarter, and more than 100 county heads and mayors did live broadcasts to endorse their local products.

Items for the leadership agenda in “not letting a good crisis go to waste”

As the illustrative cases suggest, the digitization of supply chain processes can play a crucial role in increasing resilience and survival in the face of events such as COVID-19. The point here is not that such experiments are viable finished models for the long term, but that they should prompt leadership teams to examine how we can design and operate supply networks and operating models differently. New technology and their convergence provide momentum for disruption and tremendous opportunities for organizing supply networks differently.

Many digital experiments are going on to accommodate rapid changes in demand and disruptions caused by the pandemic. It is soon to predict which ones will stick and which ones are just climbing a momentary hype curve. Organizations in some sectors are thriving, others are adapting, and many are struggling. Many businesses and small suppliers have been distressed, but there are successful cases. As discussed earlier, some have moved to direct-to-consumer leveraging digital processes. The pandemic should thrust digitization to the top of the leadership team's list. Leading organizations, SMEs, and even governments have picked up on this trend. For instance, the city of Detroit launched the Digital Detroit program that teaches SMEs businesses how to build an online presence. But, how might leadership teams proceed?

A practical leadership framework for digital innovation during the crisis

Leaders are confronting the realization that not only possible future waves, but also other black swan events are not far-fetched planning scenarios in a global and interconnected environment. As such, you need to navigate your organization wisely out of the crisis while simultaneously preparing for the future. Lack of digital capabilities has hit harder organizations of all sizes and sectors that had not attended to this aspect before. So, it will help if you start thinking about and investing in the new normal "now" and scale the ideas as we emerge from the crisis – as the saying goes, “flying the aircraft and fixing the wing at the same time.”

The practical framework below provides broad directions about how to proceed based on analyses of cases from successful organizations undergoing digitalization. Creating a sense of urgency is one of the first steps in implementing change. The current pandemic has focused everyone’s attention on the economic and industrial landscape, so there is a tremendous opportunity to leverage the momentum and make a more transformative impact. As suggested by the illustrative cases explored earlier, the creative use of digital capabilities to "reimagine" operating models can enable organizations to navigate the crisis and strengthen for the future.

You can start by examining the pain points identified during the pandemic that proved most disruptive, and that is the most impactful for creating customer value. Focusing on technology first is more often than not ineffective. Instead, ask yourself what types of problems the crisis has caused your customers and how the crisis has affected your ability to create and deliver value. New technologies, changing customer expectations, and increasing drive towards sustainable practices were all imposing disruptive challenges to the supply chain industry even before the pandemic. Consider how these market forces impact the way you do business.

Figure 1: Practical framework for thinking about digital innovation and decisions in face of the global crisis

Source: E. Bernardes

Amid the current wave of technological innovation and the challenges imposed by COVID-19, many time-honored managerial mental models and assumptions no longer apply. As leaders prepare their organizations for the post-pandemic, they should seek to digitally strengthen the resilience of their processes and supply networks to face new waves of the pandemic or future black swan scenarios. An effective mechanism for that action is to challenge their teams to question the status quo and how the organization has been doing things while examining pain points revealed during the disruption. It is simpler to steer an organization in new directions when it is traversing a momentous crisis. Leaders should inspire interdisciplinary teams to focus on opportunities to do things differently in the value chain or scale unique experiments that can produce more value sustainably while increasing flexibility and resilience.

In an economic scenario where organizations must conserve cash and preserve liquidity, focusing on pain points and an organization’s main competitive thrust should serve as a guiding principle for prioritizing initiatives while not stifling serendipity and creativity. Organizations and leadership teams can build on or leverage ongoing experiments with digital capabilities to think differently about how to design and operate supply chain processes. However, two aspects are of foremost importance here. First, resist the tempting approach of leveraging technology to automate to cut costs and improve efficiency merely. While those performance metrics are critical, such an approach dangerously assumes that technological developments and the crisis will not intrinsically change your industry and your customers’ expectations.

Second, leaders must provide strategic clarity and an overarching unifying strategic direction to guide the efforts, mainly in a scenario where you might be conserving cash and attempting to preserve liquidity. It is also essential that you don’t approach your digital strategy as separate from the business strategy. Many organizations are running experiments to cope with the rapidly changing environment and uncertainty about the future. In the absence of strategic clarity, such experiments will lean towards a tactical nature. They will not grapple fundamental strategic issues. Ultimately, you may not be able to scale them and will waste resources.

Reenvisioning is the centerpiece of the framework. Shifting from merely automating aspects of a given workflow towards reimagining them by leveraging digital capabilities will help organizations prepare for the post-crisis. The pandemic has compelled organizations and customers to break with traditional ways of doing things, which constitutes a tremendous opportunity for leadership teams to envision novel ways to perform work and deliver value.

It will help if you challenge the status quo and describe what a reimagined process would resemble. You can use design thinking to identify precise customer needs. Many pain points might not have been practical to address before, but the pandemic enacted a sense of urgency favorable to changes. For instance, visibility and agility have proven crucial during the pandemic. However, most organizations still operate in separate silos with systems and data across units and functions still fragmented. This state precludes the aggregation of data and delays the generation of insights and decision-making speed.

Finally, consider following an iterative mindset of testing and learning, focusing on digital capabilities that are the main competitive thrust for the organization. Bear in mind that the journey will not be linear, and leadership teams will need to continuously shape the initiatives within the broad guidelines of the organization’s strategic direction. There is no point in moving to a place the same size, so think big in the strategic direction. However, exploit small existing or new experiments aligned with the strategic direction. Then, draw lessons and revise iteratively. Prepare to scale quickly as the organization emerges from the crisis, and the environment stabilizes.

The analysis of several cases suggests that the practical framework proposed in Figure 1 can produce incredibly innovative outcomes, even in the most traditional of industries. You should note that the building blocks in the structure are not a sequence of orderly steps, but a system of overlapping and iterative spaces.

Bottom line

Organizations had been facing challenges with technological disruption, changing customer expectations, and other market factors when the pandemic hit, so now they are facing unprecedented difficulties amidst uncertainty about the future. Under such a scenario, while deceptively simplistic, must have a strategic sense of direction in driving change, as organizations face not only the current crisis but also other ongoing disruptive forces. Many innovative organizations have recognized opportunities and are quickly shifting their original operating models leveraging digital capabilities. Those that proactively seize the chance to drive or reinforce new behaviors are likely the ones that will come up on top.

Reimagination is one of the critical factors in the process. Leadership teams must navigate the crisis while also planning and investing carefully in reimagining for the future because their competitors certainly are doing so.


For more about digital transformation of supply networks, consult our new book Digital Supply Networks and engage with us.

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