A Three Part Article Series from QAD DynaSys – Supply Chain Organizations Concerns in a Post-Pandemic World
Part Three and final part of our article series. Read Part One 10 COVID-19 Lessons for the Resilient Supply Chain . Discover Part Two The 6 Greatest Challenges to your Supply Chain if you missed them.
In this series, discover how the COVID-19 pandemic gave us the keys to build a resilient supply chain. However, the COVID-19 Pandemic is far from over. What most concerns Supply Chain organizations in a post-pandemic world?
Supply Chain Organizations’ General Concerns
Regional Pandemic Relapses
Can COVID-19 become seasonal, like the flu? A related question: How quickly can it mutate and propagate new, more resistant versions of itself? And just how common are symptomless carriers in our populations?
The scientific community is still learning how to answer these questions. And other questions that will not only help all of us manage our lives with more certainty. Same problem for supply chain professionals to make decisions. But other factors beyond viral behavior enable possible relapses: Political will and social attitudes.
The willingness of the populace to follow disease prevention protocols varies across states in the US and among countries. As does the willingness of leaders to promote them. As months go by, if we do not see a working vaccine coming relatively soon, people may just get tired of following protocols and let their guards down.
And, there is a variable impacting emerging markets, which are major suppliers of so many commodities and inputs for global industry: Can limited medical infrastructures handle devastating disease upticks?
Your viability as a business depends on following the pandemic news in your customer and supplier markets.
Global or local supply chain bottlenecks
In April Smithfield Foods closed a few large US meat processing plants for several weeks due to a COVID-19 outbreak. That decision threatened to bring potential meat shortages. Earlier, production issues in China caused global shortages of antibiotics and other pharma products. And there have been shortages of PPE products, medical devices, reagents for testing and other products needed for fighting the pandemic.
These are just a few high profile examples. We will continue to see these in various markets and sectors as more come on line. There is competition for resources, though more infrequently and less dramatically as time passes. Some may be caused or exacerbated by pandemic relapses.
Supplier, customer insolvencies or difficulties
Know the industries and markets that your suppliers and your B2B customers most rely on. Understand their sources of income. Some markets are higher risk than others, and this will evolve as time goes by. For example, suppliers heavily invested in entertainment or travel-related service sectors may have issues, as may aerospace tier suppliers.
In addition, major customers with high debt-to-equity ratios or cash flow problems are also at risk.
Supply Chain Organizations Concerns about Political Risk
Look out for changes to local laws, new or revised trade agreements, worker mobility rules and other regulatory modifications that can impact your business. Most visibly, there are a host of new health and safety regulations in most jurisdictions. Beyond that, however, the pandemic has disrupted business and economic relationships, as well as sunk the economy itself. From this environment, legal and regulatory changes at the national, local and industry levels arise. Look for those that can impact your supply chain. Some examples may be rules restricting availability of transport stock and routes, laws limiting workforce liberties or effectiveness, short-term working capital guidelines, etc.
Also under the umbrella of political risk, be on the lookout for unrest and upheavals in your markets. Riots and violent protests connected to the pandemic have occurred diverse places like Serbia, Nigeria, Bolivia and even Berlin. In the US, though serious race-related issues go back centuries, some regard the pandemic as being a catalyst for recent mass protests.
Product line reconciliation opportunities
Disruptions do not only bring risks and problems. Where there are problems there can also be opportunities. One key strategy your business has complete control over is the complexity of your product line.
Pinpoint the biggest profit-makers in your planning system and then commit to only offering the most predictable and reliable products until the disruption has passed. If you can, offer just a few products that will turn profit quickly. This may bring benefits that last beyond the crisis period.
Opportunities for streamlining your supplier-to-customer cycles
Shorter cycles, simpler orders increase cash flow. Products with the fastest conversion cycles, from supplier to customer, will help you rebuild your business’ cash flow faster. If your business model permits it, focus on faster, simpler orders than higher-margin specialty orders, since operations must prioritize cash flow at this time.
How Planning is Essential to Recovery and Resilience
The pandemic-driven supply chain crisis is far from over. As of September 2020 the greatest percentage of CEOs (42%) believe that the global economy will experience a 1 – 2 year recovery, with 32 percent projecting a longer L-shaped recovery. Beyond this, we’ve already discussed how much more frequent disruptions have been occurring.
The Near Term Supply Chain Organizations Concerns – Pandemic Containment Period
What should a supply chain team address over the near term?
Understand all of your potential demand scenarios. Focus on those of highest probability, and on those most able to dramatically impact your operations. Plan especially for those high probability scenarios that can drive the greatest impact.
“Time series forecasting cannot predict unprecedented events, disruptions like staff absenteeism, supplier or line loss, and even switching to producing a new product requires using cleansed historical data.” But if your company has relied just on historic sales data for forecasting, it is likely that the pandemic crisis has given you a rude awakening.
It is all about your data
Considering the disruption has been an external one, it has made evident one thing. The need to integrate economic and COVID public health data into your forecasts. Income and consumer confidence data, unemployment rates by region and by sector, and sales in benchmark industries like hotels and air travel are worth considering. Watch also national and regional COVID infection rate data. These should inform your own historic data, which has never existed in a vacuum anyhow.
Understand your risk/reward choices and your alternatives, and develop mitigation plans for moving forward as reality meets your forecasts. Maintain a diversified customer base and set of channel partners (if applicable). Have a set of plans in mind and on file to draw from for when you need to act on your forecasts.
You should also focus on your product lines and make decisions on which to get behind. “The focus should be on the most strategic and/or profitable product lines to fulfill. You also need to assess quickly where the marketplace will be after any run on inventory” according to Pat Bower, Director of Demand Planning at Combe.
Many of our customers use an ABC classification system for their product line. This lets you know which products produce the most revenue. Your type A products, and those that produce the least, the Type Cs. Be familiar also with rates of demand fluctuation across your product line by comparing pre-COVID and more recent demand for each. Knowing these factors will help you determine which products to suspend or discontinue and for which to anticipate volatility.
The overall objective of network design is to develop the most efficient network possible, meet your customers’ service requirements, and accomplish this at the lowest viable cost. Although pandemic recovery will increasingly benefit from the experience we gain month by month. Challenges will continue to pop up stemming from regional outbreaks, partners and customers having financial difficulties, and related issues.
Any combination of owned distribution centers, channel partners, fleets, and logistics service partners may comprise a company’s network. Prolonged shutdowns, significant volume slowdowns, and staffing issues can turn distribution norms and relationships on their heads. During the COVID pandemic so far, companies have been forced to close or shutter warehouses. Others have faced the closure of partners, or the inability of transport partners to provide service, or situations where their networks were unable to adjust to crisis-induced product line or strategy shifts.
Having a nimble scenario planning capability easily pays for itself under these circumstances. The ability to use variable costs, fixed costs, logistics expenses, transport formats and other key variables to model network structure scenarios can put you ahead in two ways:
1. Help your team have options and alternatives in mind should critical or high probability network events occur.
2. Help it refine and optimize decision making when they or unforeseen events hit your network.
When it comes to inventory planning, the notion that what happened yesterday will probably happen tomorrow has been erased by COVID-19. How to approach the new reality?
Pay close attention to end user or consumer demand signals. Find a set of reliable demand signals, as noted above under Demand, to determine essential supply and inventory – agreed to in your S&OP process. Use these to inform demand forecasts to guide inventory and supply decisions.
Considering the increased unpredictability of transportation lead times, supply sources and even production, planners must have easy visibility into the current inventory status, including excess inventory or shortfalls, as well as demand across the product line for the short and medium terms.
Above all, build some inventory slack into your supply chain. The School of Just-in-Time Rigor has closed and may not reopen. Look back at historic demand and inventory data for the pandemic crisis period and determine a base level buffer stock to cushion your expected inventory. In most industries you can’t rely on suppliers, or even your own production lines, being ready for orders as much as you could pre-pandemic. And if a competitor has issues, you may experience an unexpected order surge – be ready for volatility. (Some manufacturers are exploring DDMRP as a possible tool for managing this).
However you support your processes, you should be able to forecast inventory based on current and future shipment schedules and inbound supply or ongoing work orders. Plus, have an early warning for excess inventory as well as data feeds for inventory from all global locations.
Visibility and Decision Making
The planning function’s greatest net contribution to the supply chain, beyond helping management make advantageous decisions, is to improve visibility and reduce decision lag to better support execution. After all, all correct decisions have expirations, and the unavailability of relevant data or the inability to process it compromises the decision process.
At no time is this more evident than during supply chain crises and disruptions. Here are two actions you can take now:
1. Reduce the forecast horizon to one year. Taking this further, QAD DynaSys suggests up to three different forecast periods within this year, depending on the company and industry.
2. Start leveraging your planning capabilities with state-of-the-industry advanced analytics and data visualization.
Having the means to process all useful, relevant data streams from any source in any format, and draw helpful conclusions from it, is where the industry has been heading. The tip of this iceberg is the ability to visualize supply chain data in formats digestible by all stakeholders. This makes a great difference during a supply chain crisis, when volatility is the rule and speedy but productive decisions are imperative.
Refine your S&OP or Integrated Business Planning (IBP) process to fit your current reality.
Sales & Operations Planning brings together all of the business’ siloed plans from all supply chain stakeholder departments into one integrated set of tactical plans. IBP takes it to a higher level and connects these to the company’s strategic and financial plans. Regular meetings involving managers from these departments are the hallmark of the S&OP method.
While we wait for a vaccine, confidence and behavior will continue to shift, changing consumer, supply chain and staff priorities. This requires reviews of demand variables, KPIs, macroeconomic indicators, and the spread of Covid19, along with current operational metrics as part of your S&OP process, conducted at least monthly. A large number of companies have made S&OP meetings, or shorter interim meetings, more frequent during this pandemic crisis.
Supply Chain Organizations Concerns: the Future For Maintaining Resilience
Scenario Planning. Incorporate an always-on scenario planning capability. COVID-19 created an environment of heightened uncertainty that will last indefinitely, and supply chain crises and disruptions of various forms have been occurring ever more frequently. “Stress testing and scenario planning are critical. Doing what-if scenarios with different demand scenarios and probabilities is key”. – Eric Wilson, Institute of Business Forecasting.
Alerts and Continuous Monitoring. Gain benefits from continuous monitoring, extending beyond ERP functionality to the planning team so it can support management with the most current, valid scenarios and forecasts in near real time. Continuous monitoring will allow companies to detect changes quickly and adapt processes to new scenarios.
Machine Learning. AI-driven planning functionality can help provide actionable insights that the planning team may not have considered, as well as contributing greater data analytics capabilities through automation.
From Descriptive to Predictive to Prescriptive Analytics. Over time your supply chain analytics will evolve from a focus on historical data (Descriptive Analytics) to forecasting the future (Predictive Analytics) to, finally, suggesting decisions (Prescriptive Analytics).
Collaborate The industry is evolving towards an environment in which all relevant parties are integrated with planning and, in this sense, participate in the planning function itself. This can include internal stakeholders such as production, procurement, sales and marketing as well as suppliers, channel partners, and even key customers.
“Never Let a Good Crisis Go to Waste.” – Winston Churchill
Learn from it, and get better – and become resilient.
Times like this help you identify weaknesses in your supply chain to prepare for the future disruptions that are inevitable. Knowing these weaknesses allows you to identify and manage them, and both come out ahead of your competition and look good in the eyes of management.
Crises offer opportunities for supply chain and planning professionals to show what they can do, to prove their true, considerable worth to their companies.
To learn more about how to achieve greater resilience in the face of supply chain crises and volatility, contact QAD DynaSys today.