The COVID-19 crisis is reshaping the world around us in profound and unpredictable ways, not least of which has been the widespread disruption of global supply chains. The fragility of some supply chains is so stark that some economists are signaling the end of globalism as we know it, causing business and government leaders to fundamentally rethink how much they rely on partners in other parts of the world.
But what’s really at stake? And how can businesses prepare for the next pandemic — or for that matter, any international crisis?
What’s at stake varies, since every company’s exposure to international trade is unique. Until this year, it seemed inevitable that international trade and interdependence would only increase in the coming years — and it still may — but regardless of how the COVID crisis resolves, we can reasonably argue that global supply chains will see dramatic changes.
But supply chains cannot be remade overnight. Most American companies with overseas partners cannot immediately shift their entire supply chain to the United States even if they wanted to.
At Cisco, we managed to revisit and revise our supply chain strategies during and after various crises: the tech bubble popping; SARS and Swine Flu; the 2008 financial crisis; devastating Asian tsunamis; and more.
What we learned is that companies can create better failsafes, optimize supply chain processes, and foster an environment of collaborative fulfillment and mutual benefit rather than cutthroat competition.
It starts and ends with business benevolence. Supply chain partnerships should be about fostering a relationship rooted in trust and mutually-assured success. Simply put: partners should not be willing to screw each other if things inadvertently go sideways.
The last thing any organization wants in the midst of a crisis, large or small, is some kind of winner-take-all mutually destructive standoff. And there are ways to avoid this:
Build an ecosystem where all partners support and trust each other
While it’s obvious to avoid single points of failure — for example, single-sourcing a mission-critical component from only one supplier — partners across the ecosystem should feel that they can rely upon and supplement each other in time of crisis.
Partners should not feel pushed beyond their limits but rather supported, even if that means that other partners may sustain marginal costs as well.
Distributing costs (e.g. lines of credit or other kinds of IOUs) across ecosystem partners requires trust and transparency, but it also helps to ensure the long-term survival of all partners.
Put another way: if you have five boats attached by rope and one begins to slowly sink, it behooves every other boat to take a bucket of water to ensure they don’t all sink. In some cases, you may only delay the inevitable, but during a crisis, buying time is critical.
Create real incentives for transparency, fairness, and equity
Transparency involves getting all the important stakeholders in the same room in order to align. Alignment, early and often, which is to say before a crisis, is critical. If you only give half the info, you only get half the insight.
It’s important to have a broad collaborative approach, whether it’s transparency about second-sourcing or openly sharing ERP data across all the supply chain, in order to plan for that which you can’t see or manage on your own.
Part of this is how you structure your relationships going in: transparency, fairness, and equity language should be built into your contracts in order to secure multilateral buy-in — as opposed to just a squishy platitude or afterthought.
Incidentally, this may help you ferret out less scrupulous partners, with whom you may not be able to build a lasting benevolent relationship. It’s also about how embedded you are as a partner; at Cisco, we worked hand-in-hand with our partners to train and educate their employees and vice-versa so that we were deeply committed to each others’ success and knew how our businesses operated.
Memorize this number: 613
Have a plan for your supply chain six months, one year, and three years after a crisis: everything from rates and payment deferment schedules to logistics to raw materials suppliers.
Again, these plans must start from a benevolent paradigm in which mutually-assured operation is viewed as the single most important outcome.
When the crisis is over, you’ll want partners who remember you as being in their corner, which pays in lasting dividends: nurturing these relationships will go far in securing favorable deals in the future, particularly if partners weigh your proven loyalty to your unproven or disloyal competition.
Don’t be like Amazon
My team’s culture was to prioritize: employees, customers, and suppliers, — and ordered by who was in the greatest need. In that order.
We never lost sight of who to take care of because the number one factor as predictor of future business was our ability to ensure our customers’ and partners’ success. We never let customers or partners fail, if we could help it.
Compare that with Amazon, which uses its tremendous scale and profit margin to exploit its own employees, to say nothing of its partners and customers — many of whom are locked into long-term contracts that are favorable for AWS. AWS, for its part, is doing little to help its partners or customers during the COVID crisis, instead forcing them into impossible choices about how they can ensure business continuity in an unprecedented economic downturn.
We all hope that the COVID-19 crisis will be over soon and that things will get “back to normal” — but the reality is that it would be a huge missed opportunity if things went back to exactly the way they were. We have been confronted with a monumental challenge, but not an impossible one.
This wake-up call for businesses and governments around the world should prompt thoughtful questions about not only how to recover from the current crisis, but how best to prepare for the next one. If businesses approach their partner and customer relationships from a position of mutual trust and support, we will all be better equipped to weather future storms.
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