Disruption of Supply Chains : how to cope with demand?

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If the health crisis led to a collapse of nearly 25% of manufacturing production in the spring of 2020; it has now bounced back and returned to a level of production close to what it was before the crisis. However, this reality hides a certain disparity between concerned sectors. Thus, the production index of the manufacture of transport equipment is 24 points below what it was in February 2020; whereas that of the agri-food industry has returned to its pre-crisis level (+0.9) and that of the pharmacy is 10 points above. (*INSEE Source No 262 published on the : 10/05/2021)

The question then arises for these companies that benefit from the recovery; how to gear up to meet a higher demand ? 

And for those affected by the disruption of supply chains : how to ensure the required level of production?

How can one then meet demand that exceeds the available production capacities ? 

Unfortunately, there is no miracle solution, we can only play with 2 parameters : 

– short term capacity increase 

– demand smoothing.

Increasing capacity

Increasing production capacity is not easy. In a highly automated industry, it is possible to increase machine opening times up to 24 hours a day. However in this case, it is necessary to also increase labor capacity to control the equipment and to ensure optimal maintenance in order to avoid breakdowns that may become more frequent due to higher use of equipment. It is this human capacity that will be limiting; especially if the necessary skill is high and requires very long training…

To some extent, it is also possible to use capacity subcontracting, which is often at a higher cost than internal operations. However, this requires agreements with subcontractors who may also be heavily solicited during this period…

Smoothing demand

Smoothing demand ultimately means not delivering products to the customers within the desired timeframe. This is a difficult decision to make and it must be subjected to a negotiated agreement with customers; while initially focusing on the company’s strategic customers. 

The sales department must also ensure that customers order the “right quantity” of products corresponding to what they need, to avoid overstocking to the detriment of other customers. 

To « limit » delays, one must be careful not to « overproduce » in order to avoid storing unsolicited products. The notion of “economic lot size” must then be reviewed in favor of a “contextual” lot size (to the extent of regulatory possibilities).

The short-term solution is generally a mix of these 2 levers but it is not a sustainable solution. During this period, the company must strongly communicate with its employees and customers to explain the current situation and the areas of sustainable improvement that will be implemented by the company. 

Relying on better planning     

These improvements require senior management putting the performance of the Supply Chain processes at the heart of the company’s strategy. These processes make it possible, on one hand, to anticipate medium/long term capacity needs to meet demand’s evolution, and on the other hand to streamline short-term execution operations. 

First, the S&OP (Sales and Operations Planning) process must  be confirmed by senior management as the process for validating the company’s capability investments. Moreover, company’s leaders need to learn to trust the results of this process (although forecasting is not an exact science) to decide on their investments…

A breakdown at the operational level

The result of the S&OP is broken down at the operational level through the planning sub-processes: MPS, MRP, CRP, Scheduling. These processes must be based on reliable planning parameters, and therefore be reviewed regularly!

A “DDMRP” approach also makes it possible to define “decoupling stocks” and to judiciously position them, in order to avoid the « Bullwhip effect » caused by the demand’s variability on the production system. 

Relying on Lean principles

The efficiency of production operations must also be the subject of dedicated action plans to accelerate flows. This involves relying on the philosophy and techniques of “Lean Manufacturing” to eliminate wastes. 

It is also relevant to develop the versatility of operators to ensure greater flexibility in the organization of production operations. Whenever possible, agreements should also be made with staff representatives to allow for greater working hours flexibility. 

To conclude

Depending on the context of each company, many other leads are to be explored. However, it is important that a full-fledged entity (or at least a dedicated department) is the guarantor of the implementation and monitoring of continuous improvement action plans within the different departments of the company.

Olivier Beaurain - Advents
Advents is an independent consulting firm that relies on the business and sectoral expertise of its consultants to support its clients' transformation projects by intervening in organizations, processes and information systems.
Bruno de Larrard - Advents
Advents is an independent consulting firm that relies on the business and sectoral expertise of its consultants to support its clients' transformation projects by intervening in organizations, processes and information systems.