My Thoughts About COVID-19 and Supply Chains

COVID 19 Supply Chain Impact

The emergence of COVID – 19 impacts the foundations of the economy and society that we know. The supply chain is no different as we see the current global model falter.

The appearance of the virus has burst with force impacting all the actors involved in the supply chain. In this article, those elements that are most impacted will be highlighted.

Flow of Materials Restrictions

The evolution of the pandemic has caused countries to adopt insulation measures, internal and external, which have increased the complexity and timing of the flow of materials, whether they are finished goods, semi-finished products, or raw materials.

In addition, the fact that the pandemic started in China, the world’s factory, meant that before the virus reached different countries companies had already noticed its effect due to the slowdown in the world’s largest exporter of goods. This slowed the supply to companies that are outside the country causing total or partial cuts in production and/or distribution.

Supplier Restructuring

The current situation makes us see how the local supply chain is dependent on activity abroad, especially China, and how relying on specific international supply chain partners can impact the business. This scenario should make companies ask if there may be some type of local relocation of some players or processes within the supply chain to avoid future international shocks, or at least to mitigate them more quickly.

A relocation of suppliers to closer geographic areas would increase the agility of the supply chain, reducing the impact of external crises on the business and local economy. In addition, having suppliers nearby can bring more benefits, such as smaller batches, lower transport costs, better communication, and shorter lead times.

Transparency for the Flow of Information

The flow of information has also been affected by the appearance of COVID-19 and companies have to rethink their relationship with their suppliers and customers. They should ask themselves if they have a relationship of trust and transparency that facilitates the most up-to-date data and information on the state of the supply chain. Sharing information with the different participants in the chain promotes agility, avoids delays, and mitigates supply problems. We should exchange information with suppliers to not only know the status of our inventory but also to be able to provide suppliers with visibility to demand information.  This way, the supplier can manage its production more in line with business needs, avoiding the possible bull-whip effect.

Information exchange also affects customers. If your company shares up-to-date information with customers, such as available inventory and, in return, they share POS data, your demand planners can more realistically manage forecast models and adapt all processes to respond to demand at the point closest to the end customer.

The greater the transparency between the different stakeholders in the supply chain, the better companies will be able to manage a disruption situation by proposing contingency plans more quickly.

Workforce

Worker mobility is also affected by the virus; most countries have restrained mobility, even declaring total confinement. Working conditions have had to be modified by companies to respond to new regulations as increasing distances between workers, providing personal protective equipment, and enforcing protocols to avoid infections become the new normal.

Many processes are impacted, such as the capacities of the production lines or the number of workers sharing the same spaces.

Demand Planning

The demand before, and throughout, the emergence of COVID-19 has experienced great fluctuations. Therefore it needs adjustments and constant monitoring by the demand planners to be able to get the most accurate and trustworthy forecast possible to adapt the business processes to the new demand patterns.

The exceptional nature of the situation requires the experience of the demand planners to be able to build a good forecast since these disrupted demand patterns can cause statistical models to give erratic results. Furthermore, it is recommended to use external information and intelligence to complete the demand planning process in an effort to provide visibility and insight into possible demand restrictions and disruptions.

The premise: It is very important to take into account bad forecasts. This might help demand planners be proactive and question statistical results, especially for those products with a high contribution to the business or those considered strategic.

To sum up, the disruption wrought by COVID-19 has disrupted most of the world’s supply chains. Although this situation has been a setback for the achievement of business objectives, companies should take the moment to rethink their supply chain and ask themselves if any change is needed to achieve the necessary agility for the future.

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