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KNOWLEDGE HUB

The global COVID-19 crisis continues to disrupt manufacturing and global supply chains with severe consequences for society, businesses, consumers, and the global economy. On the supply-side, lockdowns in China – the epicentre of the outbreak – halted production of critical components, causing global supply chains to seize within a few weeks. Much of the damage to these supply chains was due to a traditional, siloed, segmented approach to dealing with other entities – with each supplier only concerned about those immediately above or below them. Indeed, Lora Cecere, founder of Supply Chain Insights, believes two-thirds of businesses do not know the locations of their second and third-tier suppliers, and as a result, she predicts 70 per cent of global manufacturers could find themselves without the supply of inexpensive components critical to producing many items. As Peter Hasenkamp, who led supply chain strategy for the Tesla Model S and now heads up purchasing at Lucid Motors, explains: “It takes 2,500 parts to build a car, but only one not to.” 

Meanwhile, on the demand side, since the start of the outbreak, the global production system has been challenged by shifting consumer preferences towards online over physical purchasing, surges for essential goods, stockpiling and panic-buying. Such rapid, monumental disruption to both supply and demand requires global supply and value chains to seek a new approach in order to build resilience, enable economic restoration and protect against future shocks.

One trend to emerge from the pandemic is unprecedented collaboration across companies and industries. While the evolution of focus from cost to value has been slowly evolving throughout the global manufacturing sector, the shift from competitiveness to collaboration was almost instantaneous, with public and private companies, and governments around the globe forming alliances to overcome the world health crisis.

For example, in the UK, the Manufacturing Assembly Network (MAN) – a collective of sub-contract manufacturers and engineering design agencies that work together to share best practice – called on its members to work together to come up with solutions to COVID-19 disruption. Peter Davies, chief executive at Lister, part of the MAN alliance said: “Since the beginning of the COVID-19 lockdown, there have been regular weekly or bi-weekly video conferences between members of each of the MAN Group, Nationwide Hygiene and Make UK, but we have now taken this collaboration further, exploring how we can use our collective engineering and design expertise to produce equipment to counter COVID-19. This has resulted in a MAN commitment to tooling up, at our own cost, for a new product that will help protect lives on the frontline,” he continued.

Also in the UK, a consortium of significant industrial, technology and engineering businesses from across the aerospace, automotive and medical sectors, quickly came together to produce medical ventilators for the government. The VentilatorChallengeUK Consortium – which includes Airbus, BAE Systems, Ford, Rolls-Royce and Siemens –  have accelerated the production of two agreed ventilator designs, which can be assembled from materials and parts in current production. They are working on the delivery of 15,000 units ordered by the government. Dick Elsy, chief executive of High Value Manufacturing Catapult, leads the consortium and said: “This consortium brings together some of the most innovative companies in the world. They are working together with incredible determination and energy to scale up production of much-needed ventilators and combat a virus that is affecting people in many countries.”

In addition, Rolls-Royce has set up a partnership of data analytics experts challenged with finding new, faster ways of supporting businesses and governments globally as they recover from the economic impacts of COVID-19. According to Rolls-Royce, Emer2gent will combine traditional economic, business, travel and retail data sets with behaviour and sentiment data, to provide new insights into, and practical applications to support the global recovery from the pandemic. The alliance members, including; Leeds Institute for Data Analytics; IBM; Google Cloud; The Data City; Truat; Rolls-Royce, and ODI Leeds will work on open innovation, data publication, licensing, privacy, security, data analytics and collaborative infrastructure, to identify lead indicators of economic recovery cycles and provide insight that helps get people and businesses back to work. Caroline Gorski, global director of R2 Data Labs, the Rolls-Royce data innovation catalyst which started the alliance, explained: “We want the global economy to get better as soon as possible so people can get back to work. Our data innovation community can help do this and is at its best when it comes together for the common good.”

Meanwhile, in the pharmaceuticals sector, GlaxoSmithKline and Sanofi, which combined have the largest vaccine manufacturing capability in the world, are working together on a hi-tech vaccine they say could be in human trials within months. The pairing is significant because, if successful, the two companies have the capacity to manufacture the hundreds of millions of doses that are likely to be required worldwide. Emma Walmsley, the chief executive of GSK, described the collaboration as “unprecedented” saying: “What is not common is you’ve got two of the biggest vaccine manufacturers in the world coming together.”

The impact of COVID-19 on global value chains demands global cooperation on a scale that is
too big and too urgent for any single entity to address by themselves. Yet, while multiple companies are currently cooperating across industries to provide urgently needed medical supplies or support each other, these collaborations are not only a necessity in the short term, but also a great opportunity for the future.

The examples of hyper-collaboration above, and the many more that are out there, show what is possible when entities work together to pool their expertise. Collaboration allows cross-industry learnings, sharing supply chain capacities (supplier, manufacturing and supplier capacities), and jointly pushing innovation, for example, in logistics. All of these will increase supply chain resilience, agility and efficiency at the same time.

However, traditional supply structures dictate that collaboration is bad for business – so there is a danger that once the pandemic is over, companies will slip back into their silos stepping away from the potential collaboration brings. Therefore, if industry can agree that whilst cost effectiveness is important, other dimensions that assess the overall value are also critical to success – entire economies could be realigned.

This new way of thinking could enable a new paradigm to emerge in which supply chains are defined by values such as ethical contribution, responsible sourcing, heightening innovation and solving global challenges – making the world a very different place.

Interestingly, it may be that this transition is already under way. During a study of 400+ senior executives in operations and supply chain management, respondents stated that they expect the current crisis to allow the opportunity to build and intensify relationships with external partners. “Global value chains are undergoing profound changes. Stakeholders should no longer stand alone in this complex environment but rather form new partnerships and take a multi-stakeholder approach to more efficiently use, transform and trade resources,” said Borge Brende, President, World Economic Forum (WEF).

Therefore, in order to garner the most benefit from collaborative efforts, there is an urgent need for new, innovative digital platforms that facilitate dialogue, help manage difficult trade-offs and align the disparate interests of governments, businesses and consumers.

These digital platforms would also serve to disrupt traditional global value chains rules, allowing interpersonal and cross-entity engagement and collaboration. Most fundamentally for the current crisis, digital platforms make physical distances less relevant to the flow of information and services. One need only be online to participate, heralding significant opportunity to improve inclusive trade and development efforts. Consequently, if collaborative digital platforms can be delivered, cooperation could be the key to unlocking the solution to global challenges such as inequality and climate change.

During a crisis, partnerships and increased sharing of information and strategies is critical to overcoming the inertia that would otherwise hinder decisive action in the face of uncertainty. Cooperation between the wider stakeholder ecosystem of a global value chain therefore facilitates flexibility in responding to the highly complex ongoing disruptions.

Geopolitical tensions have already disrupted how value is created and distributed along global value chains, affecting how businesses define their strategies and nations advance sustainable development. COVID-19 could therefore be the tipping point that accelerates the concept of collective, cooperative and collaborative supply ecosystems, into the mainstream.

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