The world’s supply chains have been severely damaged by the COVID-19 pandemic; in fact there are already conversations around ending them as a practice all together.
But though some products should be built in the US (PPE, ventilators, and other vital medical equipment), it’s a different story for the tech industry as it relies on highly sophisticated components that are very complicated to put together.
Unfortunately, I don’t see capacitor and resistor manufacturing coming back to the US. We don’t have enough chip fabricators within the country to meet demand, and it will take years to build facilities capable of matching overseas capabilities such as 7nm fabrication.
So what should companies be doing to protect supply chains during this crisis?
Companies shouldn’t try to break up current supply chains but embrace and strengthen them. Before my current role as CFO of Pensando, I spent over 20 years managing Cisco operations and securing the company’s manufacturing needs.
In that time I navigated multiple crises that disrupted its supply chain including the SARS and Swine Flu pandemics, the 2008 recession, and the 2011 tsunami in Japan. Based on that experience, I’ve learned that the best path forward through a crisis is to be a benevolent partner to your suppliers and manufacturers. Being transparent and equitable while building long term plans that ensure everyone succeeds.
Be equitable and transparent
Right now, almost 75% of companies have supply chain disruptions in some capacity due to coronavirus-related transportation restrictions. You might be tempted to act selfishly to protect your own business, but remember, everyone else is struggling as well.
During good times you can be a hardass that squeezes suppliers for the best deal, but when things are rough it’s time to ease back. There will be pressure from other executives to improve the bottom line regardless of circumstance, but you’ll need to ignore that.
You’ll also want to stay honest in explaining your situation to suppliers and partners, even if that’s going to hurt your own business, and honor deals that have become costly due to the changing circumstances, even if it’s tempting to walk away.
These guidelines will mean you’re an open and fair partner, and people are going to want to work with you to solve issues. Your partner companies will want to put their best brains in the room with your team and find new solutions to supply chain problems, such as new component sourcing or prototyping, that you wouldn’t get on your own.
Planning for the long term
Always build a plan for six months after, one year after, and three years after a supply chain interruption. Then ensure these plans can scale - if you’re planning on shipping 25,000 units this year, create a downsizing plan for 15,000 units, while also laying out a “knock it out of the park” plan for 150,000 units.
This is crucial to making sure you don’t make false promises and can still honor deals. As part of these long term plans, you’ll need to determine how you can help out your partners. At Cisco we invested a great deal of time and money into strengthening our distribution channel. We trained, financed, and certified them, treating them better than everyone else. As a result, Cisco still has a phenomenal ecosystem of channel partners that sticks with them.
My old boss, former Cisco CEO John Chambers, always said you want a partner for life. Eventually the crisis will be over, and you’ll want partners to remember you as someone they want in their corner. By preparing and investing in partners, you’ll ensure people want to continue working with you and thus ensure future deals and revenue.
Good partners require good company culture
Cisco was able to maintain its benevolent partner culture not only because of business rewards but because that was part of its company values. Cisco really pushes nonprofit work though its foundation, and strives to be a company where employees can become better citizens and community members.
Being a good citizen and supply chain partner are tied. When that becomes a cultural norm, you have to live up to it. For example, I wasn’t too surprised by HPE’s commitment of $2 billion in relief to struggling enterprises, on top of additional efforts to use its resources to assist COVID-19 fighting nonprofits. The company has a history of giving back to their communities, so it’s only natural they’d continue to do so during this pandemic. HPE and other companies on similar paths will ultimately come out of this pandemic much stronger than before.
They’ll not only improve their reputation, but their investments will pay off as their customers and partners will remember them as a partner to keep for life.