Authored by Jeff Jorge and Erich Bergen Over the past few years, manufacturers of all types have faced disruptions in their supply chains related to tariffs, trade agreements, natural disasters and now a pandemic. With supply chain turmoil becoming more frequent in volume and more significant in impact, manufacturing and distribution companies have to become increasingly nimble and knowledgeable about their supply chains, not just to thrive and grow – but often, to survive. The pandemic was initially so disruptive to supply chains in large part because the global economy shut down so quickly that most companies did not have time to lock in alternate sources for key supplies. The pandemic was disruptive to supply chains for a variety of reasons – dependency on China, the shutdown of ports, the just-in-time philosophy for supply management – but largely because many companies had little insight into how interlocked the different tiers of their supply chain are.  Prior to the pandemic, however, manufacturers were already looking for alternatives to China for key supplies, primarily due to tariffs. According to the U.S. Census Bureau, from 2018 to 2019, imports of manufactured goods from China declined by about $90 billion, a 17% drop. U.S. manufacturing imports from Mexico increased by $13 billion. There is certainly a maturity spectrum for supply chain disruption preparedness. Regardless of where your an organization is on the maturity spectrum, organization leaders should be prepared to consider provocative strategies for their suppliers, their management and work forces, and their data systems, and they should be prepared to act.  Supply chain yoga – inject flexibility When supplies and trade with China shut down at the onset of the pandemic, supply chains – which traditionally have difficulty pivoting – proved they could shift more dramatically than anticipated. That being said, this was mainly true for manufacturers that had already started their pivot away from China because of tariffs and trade wars. For example, a manufacturer of machined metal parts for the U.S. market sourced most of their supply from China. Their business had been hurt by tariffs, but when the pandemic started it accelerated their search for suppliers in India, Vietnam, Eastern Europe and Mexico to provide them not only with redundancy in the near term, but also potentially an alternative source in the long term. Prior to the pandemic, many companies were attempting this search for alternate suppliers on their own, but they struggled due to language barriers, cultural barriers and lack of contacts in different countries. They also were proceeding in this search in a somewhat casual way, until the pandemic severely disrupted supply chains. An alternative approach is for companies to seek assistance from firms with experience in quickly breaking down these barriers and with the right connections to help find alternatives for key suppliers. Companies have to seriously consider what their supply chain of the future is going to look like, and have the organizational structure in place to pivot as necessary regardless of disruption.  Questions to consider: If the pandemic constrained access to a key China or Asia-based supply, were you able to pivot your business in the last several months? Have you accelerated a redesign and created alternative supply chains to propel growth during these times?  Have you been able to plan for and create new strategies to deal with ever-changing issues within your supply chain?  Tariffs, trade wars and the pandemic all led to supply chain disruptions. With disruption common, is your company prepared to handle it? To onshore or not onshore – consider the question and find the answer specific to your company  Organizations should deconstruct operations, which may lead to entertaining reshoring, or moving the supply chain away from Asia and closer to the U.S. While reshoring is not for everyone, a 2020 study from Foley & Lardner noted that 70% of manufacturing executives agree that because of the pandemic, companies will reduce their focus on sourcing from the lowest-cost supplier in favor of higher supply chain resiliency.  Organizations first have to do the work to truly understand all the tiers of their supply chain, as well as the key data for their business. The challenge is that not every company has the ability to get the data they need from their own systems to make sense of the truth, nor do they have a good process through which they can look at supplier options and make a thoughtful assessment of what they should do. In general, key supplies are freight-, capital- or labor-intensive. Freight-intensive products are usually heavy and expensive to export, and usually produced close to where they are consumed. For example, the costs of reshoring a car frame that could be built inexpensively in China and shipped to the U.S. would be prohibitive, just looking at the cost of freight alone. These types of products are generally already made in the Americas, so there is no business to “shift.” Capital-intensive products use high-precision machine operations and automation, with a small amount of manual labor. Examples would be manufacturing a car’s drive train and steering system. Many of these types of products have been made in low-wage countries for many years, but interest is skyrocketing in reshoring or near-shoring these operations. Why? Because serious supply chain disruption makes the decision to rely on a supplier in a low-wage country suddenly look like an expensive decision. It therefore makes sense to consider reshoring or near-shoring manufacturing of these types of products, even when moving this manufacturing may be difficult and expensive in the short term from an operations perspective. Labor-intensive industries include agriculture, mining, hospitality and food service production. Automation investments to replace human labor in these industries often do not make business sense. Many of these types of products are still made in China or other Asian countries. As the price of labor increases in these countries, however, the appeal of moving production closer to the U.S. increases – assuming a business can find a capable operator for a site and the right equipment, and find, hire and train the right people from local populations. Ultimately, a company will launch a facility in the place where it can get the greatest benefit and the lowest risk of supply chain disruption. As part of their reshoring research, organizers likely will also re-evaluate just-in-time (JIT) inventory policies and hold more supplies closer to their main offices or plants. The Foley & Lardner study noted that 62% of manufacturing executives said they will decrease their focus on JIT manufacturing models. Questions to consider: Has the global pandemic accelerated a desire for your organization to create alternative supply chains and supply bases? 
- If so, how have you acted upon such need – such as evaluating the business case for near-shoring, or executing analytics to better understand how (and when) to take action? 
- If not, what specific measures are you taking to insulate your supply chain from its current footprint structure? Have you been able to establish alternative locations closer to home? How do geopolitical considerations factor into your reshoring strategy, and which response to specific outcome scenarios gives you the greatest supply chain resilience? Revitalization of product, market and client mix Supply chain disruption gives organizations an opportunity to think about new sources of revenue, which could be through new product development, partnering with other businesses or moving into new markets.  The pandemic has created an environment where products or services can come together in ways that organizations would not have contemplated prior to the pandemic. A “contact-free” economy, with an increase in e-commerce, telemedicine, online education, and automation throughout the organization will create opportunities for new delivery models and new ways for organizations to meet customer demands. Questions to consider: Has your organization embraced business model reinvention?  As part of your enterprise strategy, have you identified new product development partnerships?  Have you identified new markets to penetrate with new or existing product mixes?  Does your overall product strategy need to shift to accommodate for supply chain shifts?  What have your competitors done to change focus? What strategic partnerships are possible in your area? X-ray vision meets truth serum – increased visibility and transparency A more transparent supply chain can help organizations move from being merely responsive to understanding, anticipating and becoming fully proactive. Part of this is just understanding the important data a business needs to operate. Sometimes the data doesn’t exist in a useable format, but often the data is hidden and siloed within different divisions of a company, in programs that are not easily assimilated with each other. Visibility is not just about data, however. It’s also about organizational culture. The manner in which an organization behaves – with one another in the organization or with the market – sets the course for organizational development that outshines industry peers. Vulnerability and psychological safety among organization members plays a major role in breaking down silos and making it easier for team members to act quickly in a time of crisis, like the pandemic. Questions to consider: How well do you know the tiers of your supply chain beyond the first tier? Do you have access to real-time data that creates supply chain visibility, spend and sourcing analysis, and logistics support to create necessary insights? Is your organizational culture one of brutal (but kind) honesty and transparency, where team members – irrespective of seniority or experience – raise issues, discuss solutions and address challenges openly? How does your organization’s technology strategy tie into your overall enterprise strategy? For example, has there been a movement from on-premise data storage to cloud storage?  Decentralize and empower While many companies may prefer to execute many organizational functions – accounting, technology, human resources, marketing – in house, times of rapid, significant disruption expose the perils of vertically integrating non-core operational activities. Organizations need to focus on core things that, as a business, they need to keep in-house because if they don’t, the business doesn't move forward.  When it comes to staying on top of the supply chain, training and retraining your global trade management people might not make sense if they can't stay current enough with the pace of change. Strategic supply chain decisions may be better managed with help from external specialists. Top supply chain operators recognize this and demonstrate world-class performance in ways that best benefit the business. Questions to consider: Have you assessed organizational/team capability considering the pace of external change and knowledge requirements and made choices about re-skilling, new hires or outsourcing functions to support organizational success? Have you comprehensively evaluated all your organizational processes and systems?  Have you examined shared services which can support rapid recovery capabilities to help you operate smoothly and equip decentralized teams to respond well in a crisis? Put the unknowns to work Great organization leaders never let a good crisis go to waste. Leaders will discover team qualities they otherwise would not know if it were not for a crisis. Some teams form a sense of unity and defy the odds and do something spectacular for the business. How can executive leaders leverage the perfect storm of supply chain disruptions during periods of increased trade tensions and business disruption due to a pandemic?   For example, in 2006, Ford Motor Company pledged its famous Ford blue logo along with its headquarters, factories and other assets to qualify for $23.5 billion in loans so it would not have to get a bailout loan from the federal government. Ford’s business stabilized and grew, and in 2012, it was able to “buy” its assets back. Collateralizing assets is outside-the-box thinking that can manifest if an organization has the right culture where risky ideas can be freely discussed. Questions to consider: Does your organization have the right culture for creative team engagement during times of crisis or ambiguity?  Have you maximized the impact of dynamic strategic planning in clarifying organizational priorities and unearthing untapped capabilities?   Do you know how to leverage the impact of uncertainty to supercharge team performance and unlock unknown organizational abilities? Do you have a culture of “psychological safety” so key team members can safely offer ideas during a pandemic or other uncertain time? Do you have adequate cash flow or access to debt or other financing to ride out disruption until normalcy or a pivot happens? The impact of the pandemic likely will continue well into 2021. Organizations that leverage their visibility and insight into their supply chains will accelerate the transition to more responsive business operations. Decentralizing and empowering decision-making will help an organization become more proactive and make decisions that will enable a more streamlined and resilient manufacturing and distribution process.  Baker Tilly’s supply chain professionals are equipped to help your business, for more information on this topic or to learn how we can help, contact our team.  

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Supply Chain Network Optimization

Distribution

Supply Chain Resilience

Supply Chain Analytic & Financial Solutions

Supply Chain Strategy, Planning & Optimization

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Manufacturing and distribution coronavirus resources

Supply Chain & Operations Stabilization

Supply chain pivots can support organization resiliency

The COVID-19 pandemic has disrupted critical supply markets around the world. Organizations reliant on transoceanic shipping, air travel and ground transportation to reach suppliers and customers are now tasked with navigating halted operations and shipment delays due to varying regulatory restrictions and shelter-in-place orders.   Every industrialized country has been impacted by the pandemic. “Economies and supplies are way more interconnected, if not more codependent, than ever before,” said Jeff Jorge, principal and international services practice leader, during Baker Tilly’s webinar, From survival to recovery: shielding your supply chain from COVID-19. The heightened awareness of the global economy has stunted the movement of people and slowed or idled the production of goods – resulting in dwindling supplies and increased costs for goods and freight. Jorge said that sourcing and product flow have not changed much in the United States, and will not do so until inventory depletes. Currently, the biggest impact on the economy stateside is the volume of products being transported and restrictions on products by customs and border protection agencies. Some products, such as medical supplies and personal protective equipment (PPE), have fewer restrictions and enjoy priority status as they are processed; other products are stalled indefinitely. Additionally, restrictions and processing times are expected to increase with impending U.S.-Mexico-Canada Agreement (USMCA) standards, which will factor product origins into the manufacturing and distribution process. Historically, the supply chain has heavily relied on China for labor and goods, including the city of Wuhan, where COVID-19 is believed to have originated. As the virus spread in the early months of 2020, economic activity across China was brought to a standstill – affecting customers, employees and organizations throughout the world.  Supply chain flexibility As governments create tentative plans to reopen economies, and factor in the possible resurgence of infections, it is more important than ever for organizations to create flexible business models that convert COVID-19-related challenges into opportunities to find innovative ways to make and move product.
By embracing new ways of conducting business, organizations can serve customers, reduce costs and capitalize on supply chain responsiveness – helping to ensure a successful, sustainable future. The first step is prioritizing next steps for the foreseeable future, as outlined below.   NOW – the first 30 days To the extent possible, focus on tactical, forward-planning activities. Shift thinking from making decisions based on organizational priorities and assumptions to making decisions based on customer needs. This will help create an immediate benefit to your organization and establish the framework for a more resilient supply chain. Communication is key. Companies should establish a cross-functional crisis management team to communicate status and plans with owners and shareholders – engage with customers to manage expectations regarding delays, prioritizing products critical to meeting their immediate and near-term needs. Provide appropriate hygiene and safety protocols and supplies for employees Assess options for adapting manufacturing to products that assist in combating COVID-19 Review safety stocks and inventory levels of critical products and materials across supply chain Mitigate potential disruptions due to supplier constraints and service reductions; if possible, renegotiate agreements Assess alternative supply providers, networks and markets; consider reserving or procuring air freight, international shipping or ports with fewer restrictive requirements months before future orders and inventory are expected to ship, so you can more seamlessly resume operations Consider tapping into existing lines of credit and apply for any relevant government-sponsored COVID-19-related assistance Even while taking these immediate actions, “don’t take your eye off of cybersecurity,” said Jeff Peterson, director and supply chain and operations services leader. Bad actors attempting to compromise organizations and their data are more creative and vigilant than ever, taking advantage of the uncertainty and ensuing anxiousness of the pandemic’s effects. Secure and accurate data creates a secure foundation for efficiently managing potential disruptions to inventory, manufacturing and operations, transportation and logistics. NEXT – 30 to 120 days out Forward planning intersects every aspect of the supply chain and requires leadership to consider different scenarios about how an open economy or global recession may affect businesses. Each executable plan should strategically refocus product offerings and supply chain planning tools to align with customer priorities, eliminate complexity and consider the possibility of expanding into new markets in the post-pandemic period. Review manufacturing strategy and contract service providers; consider insourcing production of components or parts previously sourced from high-risk regions Determine the cost advantages of relocating manufacturing and distribution based on labor availability, as furloughed workers may have found jobs elsewhere Establish capacity with distributors, who will likely see an influx of service and capacity requests as businesses around the world resume operations; procure air cargo capacity to offset likely long lead-times for ocean freight Develop plans to implement, expand and optimize online shopping platforms, enterprise resource planning (ERP) software, intelligent automation, data analytics and manufacturing technologies to help eliminate repetitive work and streamline operational functions LATER – four months to two years out Begin implementing tools and processes based on strategic insights and crisis scenario plans. Leverage your visibility of and insight into the supply chain to accelerate the transition to more responsive business operations. Be proactive and make decisions that will enable a more streamlined and resilient manufacturing and distribution process. Prepare for significant rehiring and retraining efforts as operations resume or increase Integrate functions to respond to, prepare for and relaunch into new market economy Consider targeted M&A transactions for capacity, market share or innovation Establish online channels for sales and customer service Implement redesign across manufacturing and distribution networks Implement redesigned sourcing strategies for critical materials, components or equipment While supply chain interruptions related to the pandemic threaten the survival of many businesses, focusing on this “now, next, later” strategy is an effective way to focus your company’s resources and prepare it to better address future trade policy shifts and supply disruptions.  For more information on this topic or to learn how Baker Tilly specialists can help, contact our team.
Baker Tilly COVID-19 support Baker Tilly is ready to help you with practical advice on informing and supporting your employees as well as keeping your business running.

While supply chain interruptions related to the pandemic threaten the survival of many businesses, focusing on this “now, next, later” strategy is an effective way to focus your company’s resources and prepare it to better address future trade policy shifts and supply disruptions.

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Supply chain flexibility key to turn COVID-19 challenges into opportunities

Prior to the coronavirus (COVID-19) pandemic, economic development professionals supported local and regional businesses with their business needs stemming from the local economy such as workforce, incentives and regulatory compliance. Largely absent from this list was support for supply chain optimization as many businesses seeking lean operations functioned with international supply chains. These global supply chains proved to be vulnerable during the pandemic due to shutdowns and slowdowns in various parts of the world.  Post-pandemic, as local economies start the reopening process, economic development professionals must include or elevate the importance of supply chain optimization as a part of their economic development strategy.     Disrupted supply chains One of the significant impacts of the pandemic are the serious issues in companies’ supply chains, endangering their ability to fulfill orders. The economic shutdown has created disruption in all parts of the supply chain: Inbound, representing raw materials and assembled components needed for finished goods Conversion process, or assembling components and raw materials into a finished product Outbound, or the storage and distribution of finished goods For years prior to the pandemic, much of the raw material and component assembly parts of the supply chain was centered in Asia, taking advantage of the lower cost of labor overseas.  The pandemic has abruptly shuttered these supply chains. This has resulted in businesses looking to alternative sources either in or near the United States. Businesses, however, may not have all the information they need to understand or address the gaps in their supply chains, which is where economic development professionals can help.  Economic development response  Three steps that economic development professionals can take now to prepare to support businesses with supply chain needs in the months and years to come include: Connect with your customers: Reach out to the key businesses within your jurisdiction to understand how their supply chains have been impacted during the disruption and what their needs will be in the future. Do they need to identify new sources for inbound materials? Do they need to relocate the conversion process closer? Do they need additional warehouse space to store outbound goods? While you may not have the ability to support all of their needs internally, you can make connections and identify resources that may be able to help them.   Perform an industry cluster and supply chain analysis: Review the economic data to understand the existing clusters of businesses in your jurisdiction. Take stock of your economic assets and identify targeted industry clusters for future economic growth.  With these key industries identified, you can then map the critical needs of the supply chain within those industries. Revise your economic development strategy: Your post-pandemic economic development strategy should include a new focus to support your existing and targeted industry clusters with policies to attract and retain critical businesses within the supply chain. This new economic development strategy will guide decisions made in the years to come regarding staff time, technical resources and financial incentives. In the emerging post-pandemic economy, companies will likely make their site location decisions with a heightened emphasis on the reliability of their supply chains, and economic development professionals who understand and can support this need will be well-positioned for success. Government officials and economic development professionals with questions about this topic are encouraged to reach out to a member of the Baker Tilly Municipal Advisors economic development team.

Guidance for economic development professionals to support local businesses with supply chain optimization.

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Economic development response to disrupted supply chains

Authored by Jeff Jorge and Kate Crowley As the coronavirus (COVID-19) pandemic in the U.S. spread in March, leading to shelter-in-place orders in most states and a rapid slowdown of the national economy, businesses started adopting Baker Tilly’s “now, next, later” framework to address supply chain challenges. “Now” is focused on the first 30 days; “next” is focused on the following 60 days; and “later” focuses on 90 days and beyond. In an article for Area Development, Jeff Jorge and Kate Crowley noted that in the coming months, successful companies will be the ones that manage their cash flows well, support and protect their employees as they shift to new working environments, demonstrate their continued value to customers, and stabilize their supply chains. The article can be accessed here.

Read this article from Area Development, in which Jeff Jorge and Kate Crowley discuss Baker Tilly’s “now, next, later” framework to address supply chain challenges amidst the coronavirus pandemic.

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A “now, next, later” approach will guide supply chain shifts related to pandemic challenges

The American Institute of Certified Public Accountants (AICPA) recently released new guidance for the System and Organization Controls (SOC) for Supply Chain assurance examination and report. This supply chain examination is part of the AICPA’s suite of SOC services. The report is intended to provide information about an organization’s manufacturing, production or distribution system, and the effectiveness of controls that mitigate supply chain risks.  Benefits of the new reporting framework Benefits to the manufacturing organization issuing the report SOC for Supply Chain can serve as a way for suppliers to demonstrate to their customers that they are adequately managing their risks. Serving as an increased assessment of risk, the examination can not only help management assess and manage their risks, but potentially save the organization money, and allow for a focus on business growth and more informed decision-making.  The examination could provide a competitive edge within the supply chain and increase market demand.  The report also has the potential to reduce the communication and compliance burden on organizations by decreasing the number of information requests or on-site visits. Benefits to organizations receiving the report from their supply chain partners The SOC for Supply Chain report demonstrates good business governance for the intended users. The report provides a set of common criteria for disclosures about an organization’s system for assessing control effectiveness, and as a result, can be used as a tool for organizations to monitor the controls of their supply chain partners to make more informed decisions about the potential risks associated with their supply chain partners.  New developments in supply chain Recently, supply chain risk management has become a significant issue for many organizations and their stakeholders. As COVID-19 continues to cause disruption across the globe, the threats to and vulnerabilities of suppliers in the chain have increased dramatically. Failure to successfully manage these supply chain risks can result in reputational damage, disruption of business or potential litigation. Steps to take now Consider requesting key supply chain partners provide you with a SOC for Supply Chain report.  Proactive suppliers should consider undergoing a SOC for Supply Chain examination to be ready to respond to these requests. To help position organizations for a successful examination, we strongly recommend performing a readiness assessment prior to starting the examination period. For more information on SOC for Supply Chain or a readiness assessment, contact our team.

The AICPA recently released new guidance for the System and Organization Controls (SOC) for Supply Chain assurance examination and report, intended to provide information about an organization’s manufacturing, production or distribution system, and the effectiveness of controls that mitigate supply chain risks.

Risk Advisory

Assurance

System & Organization Controls (SOC) Reporting

AICPA releases new SOC for Supply Chain reporting framework

Welcome to the Baker Tilly video series where we bring leaders across our firm to discuss timely, relevant and impactful topics that can enhance or protect your value. In this episode, Chris Anderson, Baker Tilly Managing Partner, sits down with Simon Oddy, a partner in Baker Tilly's global forensics group who works with insurance organizations and other entities, to discuss how current supply chain and cybersecurity risks may present other, downstream risk areas insurers and policyholders need to prepare for. video To learn more about areas of risk to mitigate as COVID-19 impacts become apparent, listen to the full podcast episode with Simon Oddy, partner, for insights on what organizations should be doing both today and tomorrow to address uncertainties, and recommendations for recovery initiatives going forward.

In this episode, Chris Anderson, Baker Tilly Managing Partner, sits down with Simon Oddy, a partner in Baker Tilly's global forensics group who works with insurance organizations and other entities, to discuss how current supply chain and cybersecurity risks may present other, downstream risk areas insurers and policyholders need to prepare for.

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Simon Oddy discusses mitigating impacts of COVID-19 on insurers and policyholders for supply chain and cybersecurity risks

 Businesses with a manufacturing or distribution sector have most likely had their supply chain impacted by the coronavirus pandemic. At a time when both COVID-19 news and resources can feel overwhelming, having a knowledgeable source for clarity and structure is both a respite and a source of strength.  Listen to Baker Tilly’s, informational, on-demand webinar to learn about different approaches leveraged by some of the world’s leading companies to protect their supply chain against the pandemic’s impact, strengthen it from future disruptions, and explore practical insights and resources to help your business protect and enhance their value now, next and in the post-pandemic stage.   Our informational discussion addresses:  An understanding of the pandemic’s impact on supply chains  Best practices to overcome obstacles when dealing with disruptions to supply chains and how to spot the next wave of vulnerabilities Areas to improve resilience of your supply chain today and better position it to thrive once the crisis has past. For more information on this topic, or to learn how Baker Tilly’s Value Architects™ can help, contact our team.


Listen to Baker Tilly’s on-demand webinar to learn about the effects  COVID-19 has had on supply chains and explore best practices to  safeguard your business.

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From survival to recovery: shielding your supply chain from COVID-19

What life sciences companies need to know The coronavirus pandemic has caused major disruptions to commercial life science companies conducting clinical trials. To effectively plan the continuation of trials during this period, companies must first consider the Food and Drug Administration (FDA) and European Medicines Agency (EMA) COVID-19 guidance documents and consider what resources are available to effectively manage patient visits during this pandemic in order to conform to the relevant regulatory requirements. Listen to Baker Tilly’s on-demand webinar for an informative discussion that will address: How study teams can maintain clinical trial continuity through various remote/virtual or centralized solutions Supply chain disruption and strategies organizations can adopt to ensure trial participants have uninterrupted access to study drug   The future state of clinical affairs and the key considerations companies should make now to adapt to the new normal Video
 For more information on this topic, or to learn how Baker Tilly's Value Architects™ can help, contact our team.

Listen to our on-demand webinar for a discussion about how COVID-19 is forcing commercial life sciences organizations to rethink optimal approaches to conducting trials when patient access to clinical trial sites is prohibited.

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Navigating clinical trials and supply chain disruptions during the COVID-19 pandemic

Welcome to the Baker Tilly video series where we bring leaders across our firm to discuss timely, relevant and impactful topics that can enhance or protect your value.  In this episode, Chris Anderson, Baker Tilly Managing Partner, sits down with Jeff Jorge, principal and international services practice leader, responsible for helping clients solve their most complex operations and international growth challenges, to discuss how supply chain is being impacted by COVID-19. play video To learn more about how supply chain is being impacted by COVID-19, listen to the full podcast episode with Jeff Jorge, Principal, shares insights on what manufacturers should be doing both today and tomorrow to address uncertainties, and recommendations for recovery initiatives going forward. 
 Podcast

International

Manufacturing Analytic & Financial Solutions

Jeff Jorge addresses the impact coronavirus is having on manufacturers and supply chain 

Welcome to the Baker Tilly video series where we bring leaders across our firm to discuss timely, relevant and impactful topics that can enhance or protect your value. In this episode, Chris Anderson, Baker Tilly managing partner, sits down with Jeff Jorge, principal and international services practice leader, responsible for helping clients solve their most complex operations and international growth challenges, to discuss how supply chain is being impacted by COVID-19. To learn more about how supply chain is being impacted by COVID-19, listen to the full podcast episode with Jeff Jorge, who shares insights on what manufacturers should be doing both today and tomorrow to address uncertainties, and recommendations for recovery initiatives going forward. 

Welcome to the Baker Tilly video series where we bring leaders across our firm to discuss timely, relevant and impactful topics that can enhance or protect your value.

Cross-sectional analysis and recommendations regarding COVID-19’s impact on supply chains

The coronavirus (COVID-19) epidemic has spread to nearly every industrial country in just a few months, and global suppliers of key commodities are either slowing or stopping production. As supplies dwindle, both commodity and freight costs are increasing. Companies have to consider how to mitigate both immediate and mid-term (two to four months out) disruption related to procurement, manufacturing, replenishment and customers. Because global suppliers of required commodities are reducing or idling production, companies must assess current stocks and alternative sources, provide guidance if supply shortages require slowing production, evaluate logistics and transportation alternatives, and establish COVID-19 customer response teams.  Procurement In the short term, companies must assess which of their critical components are sourced from tier 1 suppliers located in areas where COVID-19 has led to quarantines or production slowdowns. They then have to focus on how existing inventory, production and purchase order fulfillment will be affected. Companies also must identify locations of all tier 2 and tier 3 suppliers that work with their tier 1 suppliers to assess the potential inventories of key commodities. If any of these suppliers are at risk of shutting down, companies have to research alternate sources of supply. This may include reviewing suppliers in other parts of the world, determining if supplies can be moved from a COVID-19 affected area to another location, and identifying methods to expedite the product qualification and approval process (PPAP) for alternate suppliers. Finally, companies have to review safety stocks and inventory levels for all critical products across their supply chain, ration critical parts if necessary, access aftermarket supply banks and increase near-term orders of raw materials in limited supply. In the mid-term (two to four months), companies must continually assess the supply chain and identify areas of product supply risk. This may lead to arrangements with alternative and near-shore suppliers for key products. Companies must set budgets and approval processes for emergency spending and track COVID-19-related costs as a baseline to determine the financial impact of supply chain changes. This cost tracking can also help prepare for future adverse events as well as support documentation for tax write-offs or incentives related to possible COVID-19 stimulus packages. Companies also must review all supply chain contracts and business interruption insurance policies, engaging legal counsel as necessary. Manufacturing Manufacturers in the U.S., especially those who rely heavily on Chinese suppliers, are feeling the impact of COVID-19 now. To minimize this impact, companies must designate a central supply chain function that can communicate and coordinate updates among planning, procurement and sales regarding inventories of raw materials, work-in-progress and finished goods. In the mid-term, companies can focus on internal initiatives around best practices regarding lean manufacturing, offshoring and outsourcing. Replenishment  In addition to quick action regarding critical supplies, companies must immediately evaluate logistics and transportation alternatives. They should consider moving inventories from quarantine zones to ports where products can be more easily accessed. They also need to procure and reserve space on international shipping and airfreight carriers. In the mid-term, companies should implement supply chain sales and operation planning (S&OP) software, if they aren’t already. This will help companies optimize planning over a three- to six-month window and segment products based on supply availability. Companies also should determine if they can make critical components in-house instead of buying them. Customers Stay close to customers! Align customer support staff with each external customer to communicate updates on supply constraints. Establish COVID-19 customer response teams across core work streams: human capital, financial analysis and risk management, supply chain, sales and marketing, and information technology. In the mid-term, review customer demand patterns, since customers likely will buy more essential goods and services and fewer non-essential ones until the crisis passes. Also, review supplier payment terms and work with the finance department to discuss revised payment terms if necessary. Companies should develop portals so that customers and suppliers can access updated information in real time without communicating with an employee. This will save time for everyone. Work closely with customers, who are likely affected by COVID-19 in their own way, on flexible ordering models and revised payment plans. Long-term outlook The U.S.-China trade war initiated in 2017 accelerated manufacturers’ diversification of their global supply chains. The pandemic has amplified the urgency. For low-cost manufacturing, China continues to maintain advantages such as developed infrastructure and concentration of facilities supplying key global industries. However, the days of thinking of China as the default one-stop shop have passed. Southeast Asia, Mexico and Brazil are emerging as attractive longer term alternatives with a reduced risk profile.

Companies have to consider how to mitigate both immediate and mid-term (two to four months out) disruption related to procurement, manufacturing, replenishment and customers.

Mitigating coronavirus-related supply chain disruption – to customers and the bottom line

The fourth wave of the industrial revolution is now upon us! Industry 4.0 refers to the combination of several major technology innovations, all maturing at the same time, that will significantly shift the landscape of the manufacturing industry. These technologies – advanced robotics, artificial intelligence, sophisticated sensors, cloud computing and big data analytics – all exist in manufacturing today in some form, but as they integrate with one another, the physical and virtual worlds will interlink and transform how we do business. Industry 4.0 is still in its early stages, but it’s already changing the manufacturing sector in terms of better transparency and agility, responsiveness to customer needs and cost savings. The key objective of Industry 4.0 is to develop manufacturing to be faster, more efficient, and customer-centric while pushing beyond automation and optimization to discover new business opportunities and models.  Technological advancement will drive manufacturing capabilities to new heights We can expect to see major changes in the manufacturing industry in coming years. Today, for instance, data capture is at an all-time high thanks to advanced scanning and machine-to-machine technology. Industry 4.0 will introduce a new level of automated data exchange technologies where information is collected from machines, sensors, computers and humans, and then analyzed and shared in the cloud, leading to new processes, products and services. Manufacturers need to adopt these leading-edge technologies in order to maintain relevancy and remain competitive. With the new wave of digitalization and integration in the manufacturing industry, pioneers are beginning to capitalize on these innovations. Major manufacturers are already transforming their strategies to align with the new trend of automation by: Creating a sustainable IIoT strategy supported by cloud business technologies Using connectivity to drive productivity and process improvements Transforming the shop floor with sensor data, automation technologies, M2M integration and mobility Enhancing complete supply chain visibility
Industry pulse Massive investments are being made by leading manufacturing companies to gain a first-mover advantage into the world of Industry 4.0. The investments in Smart Factories, where information technology and operations technology are combined to create new value, have already paid large returns to those who were willing to make the jump. General Electric’s $73-million Smart Factory in Greenville, S.C., for instance, expects to save the company over $100 million by 2019 in reduced design expenses, sourcing and manufacturing costs. More often, companies are utilizing technologies such as RFID, cloud ERP, digital-to-physical transfer and prepackaged analytics solutions to position themselves as strong competitors as the new waves of IIoT technologies are introduced. As IIoT technology is improved upon and updated, these first movers have an exponential advantage in adding new technologies quickly. Building up a technological foundation is important, but the real value lies in how these technologies are integrated with one another. Well-integrated technologies provide the building blocks for customization and better responsiveness to customers – a driving principle for all companies. Benefits to manufacturers Advanced manufacturing technologies are scalable and affordable for businesses of all sizes. Mid-size manufacturers can utilize this technology now, and then add new capabilities as the company grows. By embracing available technologies early on, mid-size companies will gain the flexible, technological base required to thrive in the coming manufacturing marketplace. Companies will see huge cost savings as technologies connect. As systems are integrated, data capture and other functions will become optimized and automated. An entity with optimized and automated business processes will be responsive to customer demands and have the resources to cost effectively fill those needs.
Understanding where your organization is in the IIoT maturity model is a key first step in addressing the challenges and changes happening in the manufacturing industry. Identify value driven from Industry 4.0 Develop Industry 4.0 strategy from the top down Initiate company-wide culture change to embrace Industry 4.0 advancements Conduct small-scale pilot projects Develop data analytics abilities Determine what capabilities are within the scope of the entity Execute larger scale of digitalization Interact with customers and suppliers to monitor available technologies within the industry. 

Baker Tilly Digital

Industry 4.0

Plex Manufacturing Cloud

Supply Chain Solutions & Applications

Industry 4.0: Technology + Connectivity = Manufacturing Productivity

Supply chain design is a critical component and important  differentiator in effective management of supply chains for  middle-market manufacturers. Jackie Hensgen (Director, Risk Internal  Audit and Cybersecurity Practice) and Dan Bolinson (Consultant, Middle  Market Advisory) hosted a webinar,  which provided step-by-step guidance on the execution, planning, and  design of an effective supply chain. The webinar also included an  overview of the SOC report on supply chains that likely will be  finalized by AICPA later this year. According to Bolinson, “Supply  chains are systems by which you communicate information, money, and  products, through your supplier networks, to your customers. This  includes the tools, processes, and people at all levels that are inside  this supply chain.” Manufacturers looking to put in place a new  supply chain or enhance an existing one need to first think through what  they want the supply chain to achieve, and then understand the  execution, planning and design capabilities needed to meet that goal.  Bolinson noted that each capability has several levels of  sophistication, which generally range from a passive, backward looking,  labor-intensive level to an automated, real-time level that can help  drive forecasting and value-added strategic services. Execution Regarding execution, Bolinson noted that in its most basic form, a supply chain has – Unclear metrics and reporting requirements Little automation Daily plans based on past experience and business rules Communication by file transfer, email, and phone. At its most sophisticated level, a supply chain includes – Real time reporting on individual and company metrics Extensive use of automation, such as robotic process automation Optimized adaptations to a plan Customer portals and shared data warehouses to provide effective insights, not just information Planning Likewise, with planning capabilities, Bolinson said that in its initial stages, planning capabilities include – Sales driving production, or production driving sales “What-if” planning that is siloed and time consuming Forecasting based on historical information Plans shared with partners only as deemed appropriated A highly evolved supply chain will feature – Planning in an integrated environment including sales, production and finance Models of various “what-if” scenarios that are widely socialized Machine learning models that help drive forecasting Input from partners leveraged into decision making Bolinson  noted that by having a model of the end-to-end supply chain,  manufacturers can start to understand how different customer  demand-shaping approaches affect their by-product management. He said,  “Once this model is in place, detailed scenario forecasts can be  generated for any range of what-if questions that the organization might  have. These scenario forecasts include both the operational  considerations, such as the impact on their bottlenecks and client  capacities, as well as the bottom-line financial impact.” Design In its simplest form, supply chain design features – Manufacturers monitoring asset capacity at a high level and then check how annual planning will affect that capacity No technology roadmap Primarily transactional relations with partners A fully integrated supply chain approach will feature – A supply chain Center of Excellence which maintains a strategic vision Clear strategic priorities related to supply chain capabilities as part of a capital plan Partners providing value-added strategic services with controls to manage risk Bolinson  said, “Great design flows out of great planning. It involves the  mapping of growth of the organization to operations, and what that means  related to asset capacity and your ability to provide services to your  customers.” How to get started  Bolinson said that in building the supply chain team, it is important  to have an executive champion, but that people at all levels of the  organization need to be leveraged to get the right perspectives and  skill sets involved. A company needs to assess properly its current  state and required future state to develop short-, medium-, and  long-term plans regarding service levels, lead times, or cost. SOC for supply chain The  AICPA is developing a SOC report for supply chain as part of its suite  of service offerings to provide system or entity level controls for an  organization. Hensgen said, “The purpose of this SOC supply chain report  is to provide users of the report with information about the system  used to produce, manufacture, distribute those goods, and the controls  within that system. And then address those risks associated with doing  business with them, and allow for companies to communicate that  information and understand those controls within the system.” She added  that this report, which is intended to be voluntary, “could be helpful  or the board of directors and senior management as they're evaluating  risk of doing business with a supply chain entity.” An “exposure draft”  of SOC for supply chain was released in January 2019 and is currently  being revised; AICPA will release the final report later in 2019. For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.

Supply chain design is a critical component and important differentiator in effective management of supply chains for middle-market manufacturers.

Cooperatives

How a sophisticated supply chain can reduce risk and create competitive advantage

Baker Tilly’s advanced analytics specialists help food and beverage industry executive and operational management teams focus on and prioritize the potential profit centers within their current business or their desired future asset base. In the examples below, Baker Tilly used statistical scenario-modeling and data visualization to evaluate the business case for multiple supply chain optimization projects. Middle market dairy company Client need: Our client, a middle market dairy client had seen increasing transportation costs and headwinds in the market. To address these challenges, they were evaluating a new asset; the business case was premised on reducing the transportation costs while adding value to the raw milk. Baker Tilly approach: Working with the client, we pulled ‘farm-to-plant’ movements at the truck level over the course of the year. Blending in their growth forecasts, we developed network optimization models that accurately reflected their current transportation costs, and used these models to understand the future state costs of a range of siting alternatives, and considering major factors like the seasonal nature of the business. Result: Contrary to expectations, the new asset was estimated to increase haul costs in all scenarios. By demonstrating that a key assumption related to the business case did not hold at an early stage in project development, the client was able to pivot and dedicate resources to other strategic initiatives. Large food and beverage company Client need: Our client, a large food and beverage client had a complicated multi-tiered supply chain to produce a wide range of products for mostly B2B customers. A strategic partner wanted to purchase a new product in substantial volumes, so the organization was trying to determine approaches to meet this need. Baker Tilly approach: By collating data from all significant material movements throughout the organization, the supply chain was mapped in unprecedented detail. This information was then used to take a supply chain design approach, considering a wide range of alternatives to meet the need. The resulting cost estimates, coupled with detailed water, wastewater, electricity and natural gas utility information, were used to evaluate the net-present-value to select the best option. Our team partnered with the project team throughout the development process; by collaborating closely, the critical drivers were understood throughout the project’s evolution. Result: After many detailed reviews, a new Greenfield project was selected as the path forward, which met the customer’s needs while substantially reducing the total supply chain costs incurred by the organization. These estimated savings were considered in the bankable business case and used to secure New Markets Tax Credits and traditional financing for the asset, which is now in service. Joint venture with three large food and beverage processors Client need: Three large food and beverage clients had each seen significant volume growth in the past few years, which left them each short on production capacity. To address this need, they were negotiating a possible joint venture to construct a Greenfield production facility, both to minimize the capital outlay required from each partner and to achieve economies of scale. The supply chain impacts of the project were expected to be very significant, but the partners were unwilling to share detailed production and customer data with their counterparts, which prevented any kind of analysis or evaluation of these benefits. Baker Tilly approach: After securing non-disclosure agreements with all parties, we collected this highly sensitive data from all three joint venture partners. This data informed supply chain network design models to understand the impacts on the joint venture partners, their suppliers and their future customers. We then curated this analysis, coupled with detailed rate studies, utilities capacity analysis and possible incentives, and shared back transparently to all joint venture members the results of the analysis in pre-approved formats. This approach provided each executive team with the intelligence needed to make a decision, while protecting the confidentiality of all parties. Result: As negotiations progressed, the model was rapidly adapted to changing circumstances and assumptions. This maintained momentum in the dialogue between the parties through a range of different possibilities. After a multi-year effort, the joint venture agreed on a $400M asset meeting the needs of all parties. For more information on this topic, or to learn how Baker Tilly advanced analytics specialists can help, contact our team. Manufacturing dashboards >

Food and beverage companies achieve supply chain optimization through advanced analytics

A recent report released by Navigant Consulting found hospitals could save $25.4 billion by optimizing supply chain operations and using data to inform decision-making. The report, which analyzed and compared 2,300 hospitals’ supply cost per adjusted patient day, produced several key findings about top-performing hospitals: They encouraged physicians to use data to both determine and standardize physician-preference items and medications that result in the same outcomes at a lower cost  They hired staff to help gather and analyze data that link costs to patient outcomes to determine further efficiencies They encouraged healthcare providers to collaborate with members of IT, supply chain and finance departments and to engage with suppliers to create value-based contracts The report emphasized the importance of streamlining the supply chain management process and standardizing vendor contracts, the bidding process and item sourcing. The report found that those hospitals that standardized such elements also had better Medicare condition rates and value-based purchasing scores. View the full report. Let us be your source for monthly updates on the ever-evolving healthcare industry. From legislative changes to policy updates, we’ve got you covered. For more information on this topic, or to learn how Baker Tilly healthcare specialists can help, contact our team.

A recent report released by Navigant Consulting found hospitals could save $25.4 billion by optimizing supply chain operations and using data to inform decision-making.

Hospitals can save billions through supply chain optimization, data utilization

Download now >  Supply chain design is emerging as a critical component and important differentiator in effective management of supply chains in middle-market organizations. By enabling your teams with the tools and systems to take a step back and look at your supply chain as a designed system rather than a daily operational challenge, they are able to identify operational savings and make targeted capital improvements. The process of baselining performance, identifying opportunities and implementing new systems can be a long — and at times painful — process. A phased approach allows organizations to score early measurable wins while pursuing a strategy that often means challenging the nature of how they think about their supply chain. This whitepaper provides a high-level introduction to supply chain network design and optimization, and describes a phased approach you can use to adopt these methods within your own organization. Read more - download the whitepaper > For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.

Craft Beverage

The five phases of supply chain design

Client Background #1 faucet brand in North America that designs and manufactures kitchen and bath faucets, showerheads, accessories, bath safety products and kitchen sinks for residential and commercial applications. Subsidiary of $1B holding company. Business Challenge Lack of supply chain and marketing data visibility to more accurately forecast product demand and plan accordingly Inability to leverage sales data to better define marketing initiatives for specific niche markets / regions. Use of a variety of data sets across the planning, sourcing and delivery processes was resulting in more time spent on determining “correct numbers” than on business process analysis. Inability to efficiently identify and act on prevention and improvement opportunities along the supply chain Definition of units of measure was inconsistent The Baker Tilly Approach Developed a business intelligence platform for visibility of critical data around the company’s supply chain, marketing and warranty issues to provide an understanding of: Warranty issues and root cause analysis Supply chain - what is selling and how to better analyze demand forecasts Geographical sales data to inform development of location specific marketing efforts Business Impact More accurate demand planning resulted from an integrated view of Point of Sale (POS) data across many vendors Integrated view of product and sales information by geography from a single interface A new integrated analysis database base and application which supports consistent analysis across the planning, sourcing and delivery processes of the business. Visibility into the full product lifecycle - from sourcing to sale Download the case study in PDF format >

Big Data

BI & Management Reporting

Analytics

Business intelligence:  Supply chain, marketing & warranty analytics

Challenging economic conditions are driving businesses to evaluate the resiliency and efficacy of their supply chains, manufacturing sourcing, and supply networks. Businesses need to mitigate risks, improve operations, reduce costs and take action more rapidly than ever. 

As global and domestic supply chain complexity grows, organizations need to understand their end to end supply chain and operations. This will help you manage risks and opportunities to properly adapt and prepare for the future. 

Baker Tilly’s strategic advisory services can help your organization optimize, realign and build resilient supply chains and operational environments focused on driving value for your clients and customers. 

Supply chain resiliency evaluation, planning and improvement

Customer segmentation and cost-to-serve analysis

Inventory and working capital optimization

Process improvement 
– Demand forecasting and planning
– Manufacturing planning
– Distribution and inventory planning
– Sourcing and procurement

Applied solutions 
– Sales and operation planning technologies 
– Advanced supply chain analysis 
– Automation/robotic process automation (RPA)
– Integration strategy 

Our team of professionals are ready to help you reassess, redefine and optimize your supply chain and operations.

Principal, International Services Practice Leader

We can help you optimize, realign, and build resilient supply chain and operations. 

Baker Tilly’s supply chain strategy, planning and optimization consultants help manufacturers optimize or realign their supply chains and operations. 

We bring insight across the supply chain to improve efficiencies, reduce risk and offer solutions as market disruption continues.

Helping family businesses achieve their full potential through growth strategies, succession planning and next generation leadership development.

As supply chains become more complex, having visible data to remove constraints and make informed decisions provides your organization the direction for growth.

Distributors rely on Baker Tilly to help them streamline operations, automate processes and capture data critical to daily decision making. 

Baker Tilly works across the automotive and mobility industry supply chain to deliver accounting and mobility advisory services rooted in analytics.

Baker Tilly specializes in food and beverage manufacturing and distribution accounting and advisory services, rooted in analytics across the supply chain.

From field to fork, globally across the supply chain

Baker Tilly’s agribusiness practice combines agricultural, cooperative and manufacturing experience to meet the changing landscape of agribusiness with industry-tailored advisory solutions.

Baker Tilly’s consulting team helps manufacturers redefine and optimize their supply chain and operations, making their enterprises more agile, supply chains more resilient and communities stronger.

Baker Tilly’s supply chain and operations consultants help manufacturers redefine and optimize their end to end supply chain and operations, positioning their enterprises for growth, agility, innovation resulting in greater supply chain resiliency.

Whether your company builds automobiles, manages warehouses that support e-commerce or develops life-saving medical devices, understanding and properly leveraging your data is essential to sustain and grow your business.

Become insights driven with data and analytics.

Analytics are being used to harness vast amounts of internal, external, structured and unstructured data to extract insight for more intelligent decision making.

How do you leverage ERP technology to help drive more business and improve revenue growth?

Baker Tilly provides comprehensive enterprise resource planning (ERP) strategy, evaluation, implementation and optimization solutions.

Baker Tilly’s data visualization team helps your executive and operational management teams focus on and prioritize potential profit centers within your current business

Organizations that rely upon a supply chain to provide products for their operations will need to understand how their supply base has been impacted by the crisis, whether temporary or permanent sources will need to be considered, and how their operations may be impacted based on changes to the supply chain. 

International companies turn to Baker Tilly for global foresight, insight and resources to help them stay ahead of, and quickly respond to, change.

Baker Tilly international service specialists help current and aspiring multinationals conquer new markets, successfully overcome challenges, and thrive across international borders.

Helping clients conceive, assess and execute large capital-spend projects

We advise development project owners as they plan and execute capital projects, including establishing a business case, identifying feasible options and obtaining funding.