How to reboot your supply chain
Supply chains around the world are badly impacted by the corona-virus outbreak. Almost no industry is spared. Entire value chains are interrupted, delivery schedules are distorted, manufacturers have stopped producing and inventory imbalances have become the ‘new normal’.
When the Covid-19 lockdowns will be gradually relieved, we can expect a spike in demand for scarce resources in some industries, yielding fierce global competition and even more pressure on supplies. The hoarding seen in supermarkets around the globe, is finding its way in industrial contexts too. In other sectors, demand might shift in time or remain lower than before, exposing companies to continued inventory imbalances, reduced sales and potential write-offs.
Re-booting global supply chain networks will not go unnoticed. So be prepared.
Here are 4 essential actions to improve your supply chain on the short and longer term.
1. Ride the storm
Panic buying and hoarding cause major swings in inventory. The impact of this ‘sudden’ demand is magnified as it moves upstream in the supply chain, a phenomenon called ‘the bullwhip effect’ and this will lead to a period of unprecedented pressure on the value chain. Panic reactions in the marketplace are fueling the disruptions in the supply chain. The biggest priority at this point, is to get on top of things and regain control.
Let’s list some immediate actions:
- Bring together the key players across your supply chain and create a virtual end-to-end crisis team.
- Make sure each key-node of your supply chain is represented: your manufacturing plants, your distribution centers and your most experienced planners.
- Have them aligning their actions so they can put out the daily fires in an orchestrated way.
- Provide them with insights in the direction they need to move in order to be successful: clear allocation rules and prioritization rules, as they dig their way through a growing list of backorders.
These teams have to make daily updates to their plans as supply and demand evolves. Clear prioritization rules will help them save time. Think of ABC-analyses, for instance, that determine which customers or products come first, and which are less critical. Set up daily or weekly escalation meetings where blocked topics are de-blocked quickly.
As a general rule: keep it simple, be lean and be ready to make brave decisions.
2. Adjust your inventory policies, your target levels and your MRP
Extraordinary times call for extraordinary ways of working. Many companies have embedded inventory policies into their MRP and planning systems, which (in normal times), help planners manage their inventories efficiently. However, if you don’t review and adjust the parameters that drive these systems (safety stocks, reorder quantities, reorder points, coverage periods…) to the new Covid-19 reality, your planning systems will generate a lot of noise. Simply running MRP the way you did before, will create a lot of unwanted replenishment signals, which in turn will create loads of manual correction work for your already overstressed planners.
While the initial natural reflex might be to jump right into action and fight the fires of the day, you should stop and take time now to assess and change your inventory management parameters.
And why don’t you go one step further, in times of capacity constraints? Think about (temporarily) reducing the number of SKU’s and limit your product portfolio to more effectively streamline demand and allocate production capacity where it is really needed.
3. Build a Supply Chain Control Tower to keep a close eye on your pipeline. End-to-end
When this corona-storm has passed, you might want to get started with that Supply Chain Reporting project that you never really finished. The crisis teaches us already one big lesson: having a detailed (Control Tower) view on the supplies throughout your entire value chain, can really make the difference between surviving or not surviving…
You have a real advantage over the competition
- if you know what levels of stock you have with retailers, in local depots, central DC’s
- if you know exactly what component stocks and supplies are with your vendors
- if you know where exactly your stock in transit is located
- if you have a real-time view on demand
Control Tower Reports (using BI technology, blockchain and IoT data) provide you those insights and allows you to orchestrate your supply chain during these rough times. The Covid-19 outbreak will create momentum for continued integration of supply chains, leveraging the latest digital technology to bring end-to-end visibility.
4. Assess and mitigate the risks embedded in your supply chain
The flip side of global supply chain networks has become painfully clear. The past decades, value chains have gone global and many manufacturing companies now have a foothold on different continents. The emergence of Asian super ports is proof of this evolution. All the while, businesses have sought (and found) supply chain cost optimization in view of economic success.
All seemed to go well. Until now. Now we are faced with a global lockdown which causes global disruptions – inevitable when you organize your supply chains on a global scale. It exposes the vulnerability of the system.
Being vulnerable without risk mitigation plans is setting yourself up for disaster. Global supply chains need to have global risk mitigation strategies. Supply chain managers need to buckle up for a VUCA world (Volatile, Uncertain, Complex, Ambiguous). We need to do more than focus on the short-term economic benefits, we need to weigh in the risks of going global.
Is going global a bad idea? No. Of course not. Yet we need to acknowledge and manage the fact that global supply chains trigger bigger risks and other challenges. So do run a Risk Mitigation program across your entire value chain, identifying your suppliers and the suppliers of your suppliers. List all the risks you face, for each node of your value chain. Assess how big the implications could be and what mitigation actions you can take or prepare. Make sure you list the alternative sources of supply and dare to be bold about making supply chain configuration changes (location of certain critical operations, fall-back capacity…).
Business continuity planning and risk migration approaches will result in a higher-quality supply chain that makes your company more resilient and successful in the VUCA world we live in.