Even before the current crisis brought to light the weak points of the system, the term “cost benefits” was all too often associated with low wages, poor working conditions and lax environmental standards. Resistance to this way of dealing with people and resources started forming long before the coronavirus pandemic. The awareness that a purchasing decision also affects how people on the other side of the planet live and work is growing. COVID-19 has hit like a bolt of lightning. Individuals and society at large are suffering the consequences. The global economy has come to a standstill, disrupting many a supply chain. The current shock has inspired those in charge to take a new look at processes and their networks. Many businesses are now noticing how vulnerable this cleverly calculated approach actually is. Minimal warehouse capacities and tight schedules leave little room for error. The virus has led to a near total breakdown of the system.
What can we expect next following this first, acute phase? Will companies have to decide between affordability and resilience? One extreme would be a return to globalisation as it was in the past, with those in charge continuing to consciously accept their production processes’ lack of resilience in order to reap the cost benefits. Depending on the industry, this approach carries the risk of alienating customers who care about environmental and labour standards and do not make purchasing decisions based on price alone. However, striving for maximum resilience by focusing on highly local production could lead to niche markets. The expense of old-school, fully local manufacturing is incompatible with mass markets.
A solution can be found in another major trend in recent decades: digitalisation. Modern systems and applications can help businesses to develop stable, local processes while keeping costs under control. IT-supported automation, artificial intelligence in warehousing and highly personalised production are all already possible today. Digitalisation is not only limited to video conferencing and sharing documents – it is the key to business success in the post-coronavirus era. It paves the way to a third, smart path between low-cost/high-risk and low-risk/high-cost manufacturing. People in management should take advantage of the forced disruption triggered by the pandemic to prepare their companies to head down this new road.
Once COVID-19 has been dealt with, we will need more digitalisation expertise and less cost controlling, more end-to-end processes and fewer media breaks, more values-oriented management and less focus on profit.
I believe that businesses will be focusing their energies intensely on these concerns – if they do not want to be caught off guard by the next crisis, that is.
Prof. Dr. Volker Gruhn