Covid-19 has shown our businesses must be more resilient

Has the ‘just in time’ method had its day?

We live in a “just in time (JIT)” economy – JIT means companies receive goods as close to the point of being needed as possible, meaning manufacturers hold less stock, and there is little room for delays or disruption. We have grown used to supplies of fresh produce, some flown in from a great distance. However, in the last few months, we have seen how quickly disruption can happen witnessed by gaps in supermarket shelves. So, is it time for us to change our operating model?

The JIT system left businesses waning as supplies dipped due to the outcomes of the pandemic, Brexit and global travel conditions. Shortages of microchips are affecting the supply of everything from cars to scientific instruments. To mitigate this risk in future, businesses need to look at how they can improve their resilience, and use it to inform their operating strategies.

As part of my role in the Royal Society of Edinburgh’s Post-Covid-19 Futures Commission, I chaired the Building National Resilience working group. We uncovered key areas which businesses should honestly test themselves against to discover their weaknesses. Even if some conditions cannot be mitigated, the outcomes of these tests will help companies to operate under the kind of conditions that a crisis may bring.

One of these key areas is diversity. If businesses have single entities in their supply chain, be that customers or suppliers, they have a single point of potential failure. Securing a more diverse set of suppliers reduces risk. Diversifying to work with other similar companies could also bring benefits. We saw many hospitality businesses diversifying their offer in response to the pandemic and this was a natural adaptation to the circumstances, but few had thought about different scenarios in advance.

Risk registers are easy to run, even for small companies. They help to create discipline around the thinking needed to put plans in place for different eventualities. Even if a pandemic might not have featured on risk registers, serious supply chain disruption should have and government should be in a position to provide advice to businesses about systemic risks like pandemics. By doing this work, businesses will find the gaps in their operating model, allowing time for preparations to ensure these issues are mitigated. For example, holding a stock of PPE and using it to reduce absentees from seasonal colds and flu has benefits beyond those associated with pandemic risk management.

We saw the hospitality sector close overnight with restrictions, but most were able to adapt to offer delivery or outdoor arrangements to keep revenue coming. Testing adaptability against different imagined scenarios in normal circumstances will reveal the other routes and opportunities available to businesses, should they need to pivot their service offering. Some businesses may opt to take risks but at least they should be made explicit so that there are no surprises when risks actually materialise.

Businesses should act now to build resilience into their operations and supply chains. The more that do this then the more resilient the whole system becomes. The biggest crisis of our time can have a positive legacy if we use it to transform our understanding of risk and embed this culturally in business decisions and structures. The saying ‘fail to prepare or prepare to fail’ has never been more apt.