The COVID-19 outbreak is a major disruption to the global economy. The confinement measures taken by many countries are causing demand and supply shocks. Most companies are confronting sharp falls in their sales. Others are dealing with shortages due to factories shutdowns. Consumption patterns and trends are changing – for instance, online shopping is increasing. Reduced income is causing changes in consumer behavior. Non-Perishable Food sales, for example, are increasing while cinema and entertainment are decreasing.
It’s clear that the outbreak is –and will be- a major disruption of the supply chain. But disruptions in the supply chain are not new. They have always existed and will exist in the future. This is inevitable.
Supply chain resilience to unforeseen events is a core competence and a business differentiator.
According to the legendary Chinese General Sun-Tzu: “In the midst of chaos, there is opportunity”.
Scenario management enhances supply chain resilience by helping companies have a quick response and recovery to unforeseen events and therefore minimize the impact of disruptions and maximise the opportunity to exploit new possibilities.
Anticipate Demand Shocks
Customer’s consumption patterns are changing. In some sectors, drops in sales represent lost sales (for instance, in person restaurants, personal care, travel…). In others, these drops could correspond to a deferred demand. Sales not met during the crisis may be postponed later (for instance, Home Repair/Renovation Products, Shoes & Apparel…). In this case, companies should be prepared for unusual peaks of demand after a period of lower sales. Scenario planning helps demand planners choose which trend/figures to take into account. It helps procurement managers assess the impact of these changes on product supply – or production managers on production capacity optimization.
Monitor Supply Shocks
In case of shortages, deploying the existing inventory needs to be managed to respect customer orders priorities. Scenario planning will help supply chain managers studying the penalties due to delays of each customer. The best scenario would be the one with minimum penalties costs or where most strategic customers’ orders are fulfilled.
Redefine Inventory Strategies
During the confinement measures taken by many countries, consumers shifted their habits by ordering through online channels. This change, in addition to demand and supply shocks, requires a redefinition of inventory strategies and stock levels. Pushing for multichannel distribution, changing the location of inventory from a distribution centre to another or increasing safety stock levels could be the decisions to be studied.
A range of scenarios with key indicators should be developed to choose the best inventory strategy.
Redesign the Network
The time of COVID-19 exposure -and lockdown measures- vary from an area to another. At the beginning of the outbreak, China was almost the only exposed area. But later, new cases in China were reduced to a trickle and Europe and then the US became the peak areas of the exposure. Thus suppliers’ shutdowns varied depending on time and location. That emphasizes the importance of diversifying the suppliers. Identifying new suppliers and evaluating manufacturing locations that are geographically different may be a change to take into consideration.
Some scenarios could lead to higher costs but increase the supply chain resilience and higher costs could be offset by higher volumes as a company’s competitors fail to adopt resiliency.
Generally, refreshing and refining scenarios periodically is essential in order to fit to the updated situations. The COVID-19 outbreak is a good example of how fast the perspectives are evolving.