How Sourcing Strategies Ensured Supply Chain Continuity During COVID-19
By Oliver Mihm, Executive Vice President – Global Supply Chain & Operational Solutions, Plexus
The COVID-19 pandemic disrupted global supply chains as international trade came to a halt due to national lockdowns – but this disruption will be felt in supply chain practices for years to come. In early 2020, manufacturers adapted operating procedures to meet the ‘new normal.’ At Plexus, proactive risk mitigation has been a priority for years. We managed through the 2017-2018 component shortages, the challenges of trade tariffs and now COVID-19. This cumulative expertise, coupled with our experienced digital supply analytic systems, helped us weather the COVID-19 crisis and will help us overcome future disruptions.
When China announced Wuhan City would lock down in February 2020, Plexus immediately established a central command center that brought together our ‘Tiger Team’ task force. Our team was empowered with the authority to act on outside of the box thinking, to tackle nimbly the massive number of shortages we faced. The Tiger Team included experts from multiple regions and disciplines, including commodity, supply chain management (SCM), logistics, strategic sourcing and component engineering. Taking a global view, we were able to reach across regions, tackling issues with support from team members local to a supplier. With these tactics, we were able to identify quickly the best way to address problems and design new workflows, metrics and processes.
There were two key issues to tackle: first, we needed to understand the status of each supplier and the status of our specific component supply chain. We began with suppliers in the Wuhan area of China, but quickly expanded our strategy to look across impacted regions – stretching to our entire global supply chain.
We immediately went to work contacting suppliers to determine their operational status. Affected suppliers were logged and interviewed to understand their lockdown period and recovery plans. Where possible, Plexus assisted companies in obtaining the approvals required by respective authorities to operate during the lockdown. Our suppliers are our partners – and the challenges they faced were immense. It was vital that we worked together wherever we could.
The interruptions we faced varied across our suppliers or, in some instances, their suppliers. Challenges accessing materials or components, high absenteeism limiting the ability to operate at full capacity and movement control orders all disrupted our supply.
Wherever possible, we have supported our suppliers – helping them comply with legal regulations, accessing available aid packages or financial assistance. During an internal risk review process our supply chain team identified over 1,000 partners and suppliers, from a list of more than 7,000, that could be disproportionately affected by the pandemic. Multiple risk factors were considered including movement control orders, employee stability, health and availability, working capital, free cash flow, burn rate as well as evaluating the material and logistic challenges faced in our suppliers’ own supply. Following this, we then engaged directly with vulnerable suppliers to understand the risks they faced.
A handful of our suppliers were facing immediate chapter 11 insolvency. During this phase, we faced challenging questions of who to help, how to help or should we even help at all. We stepped in directly by placing large last-minute buys or creating flexibility around accounts payable, to help the suppliers generate enough working capital and free cash flow to stay operational.
Once we understood suppliers’ status, our second priority was to ensure our supply status. The team prioritized and expedited material based on critical shortage lists provided by our sites. Plexus has multiple toolsets that allow our manufacturing sites to determine what stock is available on the open market. Teams used those tools to close supply gaps, share supplier specific information, assess the impact of disruptions and recommend mitigation measures. Through our internal market alert system, core information such as supply lead-time in our ERP system is automatically updated.
Using our predictive analytics solution, we identified parts facing supply disruption and were able to propose alternative parts. Wherever necessary “drop in” replacements, with similar electrical and dimension parameters including form/fit/functional compatibility, were found to avoid design changes at PCBA level. Where this was not possible, we provided a specification comparison table for incumbent and alternate components, to allow our customers to be able to evaluate any proposed changes effectively.
As the pandemic constrained product availability, distribution partners saw a rush in orders from companies that usually buy direct. As the market normalizes, these companies will likely revert to buying direct. In Plexus’ case, the long and steady relationships with our distribution partners helped us to buffer some of the supply disruption caused by the pandemic.
At Plexus, we are proud of the measures we took to overcome the supply chain challenges created by COVID-19. Because of these efforts, our customers were able to deliver more product. The challenges faced in 2020 saw our supply chain risk identification tools strive through the ultimate test. Reflecting on this past year, the pandemic strengthened the confidence in our tools and highlighted the importance of continuous risk mitigation practices, as well as robust strategic partnerships.
Already this year we have seen how a single event – like February’s power outages in Texas or the blockage of the Suez Canal in March – can create ripples of disruption. This is in addition to supply fluctuation due to industry needs, for example, the ongoing shortage of semiconductors and electronic components, which, while largely driven by the rebound in the automotive market, will be another significant test of supply chains.
We are already seeing customers interested in alternative supply chain designs and expect to see many shift away from ‘lean’ supply chains. We may also see increased market concentration, especially among suppliers, as increased uncertainty fuels demand for larger, more resilient suppliers. There is no question that COVID-19 accelerated the adoption of digital technologies, which aids in the rapid capture of key supply chain data and provides real-time communication of that data to relevant parties. The digital transformation of SCM, along with predictive analytics and proactive ecosystems for risk assessment and mitigation, are key parts of Plexus’ visibility into the global supply chain and our ability to minimize disruption – be it from COVID-19 or other significant events.