Covid-19 and the Supply Chain; Complicating an Already Complex Entity

Covid-19 and the Supply Chain; Complicating an Already Complex Entity

One of the most complicated processes in any manufacturing business is the supply chain.  Regardless of industry; automotive, high tech, life science, or consumer packaged goods, the supply chain (even before Covid-19) was a complicated entity.  On any given day, one of the links in that chain could break.  Come to think of it, should it even be called a chain?  Most chains I have seen while moveable the links themselves are stiff.  If you are trying to compete in today’s complex manufacturing markets; should the “chain” that is the lifeline of your business be rigid?  Shouldn’t there be some flexibility and elasticity?  Considering all of the complexities that manufacturing supply chains have encountered recently, a rigid chain is bound to snap.  The value chains of every industry have expanded. 

There are more ways for businesses to buy products from each other. And the avenues for consumer purchases have expanded as well. Technology, government regulations, geo-political factors and changing consumer preferences are complicating not only the supply chain but the very basic functions of every manufacturing business.  And if that wasn’t enough, the global pandemic has brought even the strongest supply chains to their breaking points.  Here is all you need to know about Covid-19 and how it impacts Supply Chains globally.   

Covid-19 has brought new life and new meaning to the term “Supply Chain”

Regardless of where you are in world, what industry you might be involved in, whether you are old or young; one thing is for sure, you are hearing more people use the term “Supply Chain” than ever before. Political leaders, news broadcasters, doctors, and most importantly, people in day to day environments whom you would normally not hear speaking about supply chains are now talking about at as much as yesterdays weather.  This is because the pandemic has been a supply chain disruption like no other.  Many facets and elements of the supply chain of most industries have been impacted by many factors.  There are three significant components that have had significant impact. And will continue to affect how supply chains operate long after the world gets a handle on the pandemic.

E-commerce

Over the last several years, E-commerce has been growing into one of the most significant layers of the value chain for many businesses. But also for industries and manufacturers.  In food and beverage and many consumer packaged goods sectors, the popularity was really gaining momentum just prior to the Covid-19 outbreak.  The pandemic caused an explosion.  Lockdowns, product shortages, school closings, working from home forced people to turn to E-commerce who never have before.  The world still needed  critical and essential goods and services but people were unable to leave their homes or were at best, extremely restricted.  For those in certain countries and parts of countries who had a bit more freedom; there was fear that kept them in self lockdown. 

Yet, everyone has to eat and there are many other products people needed so they turned to E-commerce.  This caused significant transportation and distribution issues.  In many cases, increased demand to where manufacturers could not keep up.  Many producers had to turn to contract manufacturers and third party distribution partners to keep the flow of goods moving through the supply chain.  The result is now a change of lifestyle for many people that will continue after the pandemic. 

Consumer preferences

Consumers are fickle, picky and their tastes, preferences and desires change on a whim.  There has been a worldwide movement to healthier and sustainable lifestyles that have impacted what manufacturers produce. But also how they deliver the supplies to other manufacturers and then on to the consumers.  Consumers want full traceability.  Cradle to grave, field to fork and many other catchy terms. In other words, they want to know a products complete lifecycle from start to end. From beginning to when it gets into its hands to make sure it meets their personal sustainable and safety criteria. 

The pandemic has not only accelerated the need for sustainability checks but many have reverted back to shelf stable products due to fears of catastrophic offshoots from the pandemic like store closures, power outages and many unthinkable disasters.  The products consumers are now buying prior to the pandemic have greatly changed. Covid-19 has changed the Supply Chain operation and  it impacted what manufacturers produce, what they use to produce things and how they produce thus in a domino effect, impacting the distribution and delivery of the goods.  An offshoot to this is a glut of products that the consumers now do not want leaving retailers, distributors and manufacturers with excess and obsolete inventory.  Consumer preference change is another critical element that has been altered by the pandemic.

Manufacturing operations

Manufacturing has been a two headed monster in the disruption of the supply chain.  First, it is a critical link in the chain.  And second, it is a major factor to the disruption of the supply chain.  Because of the change in consumer preferences, E-commerce and others, manufacturing during the pandemic has had to change.  Depending on the products being produced and product mix, many manufacturers could not keep up with the volumes of demand.  On the other hand, due to limits and breaks in the supply portions of the chain due to lockdowns, labor shortages, many manufacturers did not have the materials needed for production.  Automotive had a global shutdown.  This impacted every tier in the industry from OEM’s to every player in the supply chain.  When the shutdown was over, the return to normal was slow and a ramp up that took weeks and months.

Even today, gaps in the supply chain are impacting the supply of critical products to the automotive and electronic industries.  Food manufacturers especially in those segments that require close proximity workspaces; faced shutdowns due to the spread of the infection itself.  Manufacturers have had to reengineer factories and in many instances change the entire manufacturing process to accommodate safety precautionary measures.  In addition to these issues, manufacturers have used the situation to take advantage of people being at home and their eating and personal habits changing.  Many manufacturers are using the pandemic as a massive test market to introduce new products and capitalize on the changes to people’s lives and environments.  This has added a new ripple to the manufacturing process and has in turn complicated and disrupted the supply chain.

How do manufacturers deal with the impact of these changes and prepare for future repercussions?

There are a few basic principles, processes and steps that we should take to navigate around, minimize and offset these disruptions.  First, if an overall supply chain risk management process is not in place that needs to be designed and implemented as quickly as possible.  While that plan is being executed, the supply chain needs to be evaluated from beginning to end and needs to become agile, flexible and nimble.  This will help manufacturers to survive both small and large disruptions by having the ability to adapt quickly and easily because the supply chain can flex.  This is where you build that elasticity into the chain. 

Now to do this takes some patience but diligence at the same time.  The discussion of supply chain planning typically starts with breaking down the horizontal silos between departments.  Many departments in an organization have conflicting objectives. Long production runs or cycled campaigns are good for manufacturing efficiency metrics but not so much for inventory metrics. 

The goal is to balance those objectives

As important, is to synchronize the vertical planning process.  Many companies have multiple layers of planning with strategic at the top of the process moving downward through operational (tactical) through the execution or detailed stage.  The planning horizons are dependent on the industry and the products we make.  Each of these planning layers have specific purposes, whether it be to determine where plants will be, distribution channels, product mix, enacting a contract manufacturing network, evaluating alternate suppliers, etc.  What we have seen throughout the pandemic period is that these layers have not only had to shrink but often, merge. 

For a number of companies, their strategic plans had to change on a dime. They have included the people making the execution level decision into the strategic and tactical levels and vice versa. A process that is usually static in nature has now become a fluid ongoing process. The message here is that we should design these planning levels to change and be interchangeable. 

Covid-19 proved the necessity of an agile & digital Supply Chain

A major component of an agile and nimble supply chain is the digital supply chain.  Embrace it.  It can be scary but technology can be a piece of the overall strategy, a tool and assistant, not the controlling component.  Using the power of technologies to manage the planning, manufacturing and procurement processes integrating with an overall sales and operation and financial planning methodology can synchronize the business.  Focus on time, have the agility become part of the daily ecosystem and plan and align all processes first then automate.  An agile supply chain is conducive to rapid change.  An agile supply chain (especially after the Covid-19 pandemic) provides the ability to quickly identify, evaluate and execute alternative scenarios and decisions to adapt daily complications and disruptions of the supply chain. 

Stephen Dombroski
Stephen Dombroski is QAD’s Senior Manager for the Consumer Products and Food & Beverage vertical markets. Steve has over 30 years experience in manufacturing and supply chain, and has helped multiple companies in a number of industries to implement S&OP concepts and processes.