Factors like globalization, population demographics (younger population in Asia) shifting demand, and regulatory and tax optimization have transformed supply chains across industries in the last two decades. As a result, supply chains have become complex, non-linear, and vulnerable.
Additionally, the strong focus on reducing supply chain cost due to global competition has resulted in cost-driven strategic sourcing (consolidation of suppliers), outsourced manufacturing, and just-in-time inventory policies forcing suppliers to keep inventory at their locations. These factors have added a significant amount of risk with limited ability to scale.
For example, the COVID-19 pandemic has caught every industry leader by surprise in terms of disruptions caused by lockdowns, border closings, and travel bans. Simultaneously, the drop in oil prices to an all-time low and the stock market sell-off have caused a black swan event that has disrupted many industries, leaving business leaders with no method to follow in overcoming this disruption. There are three immediate steps that can ensure stability as supply chain leaders focus on building resiliency by mitigating the points of failure in their supply chains.
1. Supply chain visibility
Companies will need end-to-end transparency of their supply chain, which may include suppliers, contract manufacturers, and suppliers’ suppliers. Supply chain leaders will need to know the flow of material and the geography of each location. This may exist as tribal knowledge in companies, but not necessarily be documented. Some of the contracts with suppliers may not extend beyond the supplier.
The next step is to estimate the inventory at each of the plants, distribution centers, suppliers, contract manufacturers, and suppliers’ suppliers. Most companies do not have this in a single application.
Often, it is a challenge to pull this data from several ERP systems, advanced planning systems, and custom databases. Some of this information may reside with suppliers and may not even be accessible. Establish a nerve center and assemble the subject-matter experts (SMEs) from business (e.g., supply planners, material requirements planning controllers, raw-material planners, distribution and inventory planners, etc.) and IT that can enable that visibility and anticipate inventory in the supply chain.
Figure 1: Sample inventory worksheet to show inventory by region and by country
The supply chain model can be developed in a spreadsheet if an advanced planning system is not available. Identify vulnerabilities in supply chain nodes that could cause disruption due to product shortages. For instance, integrated business planning applications can enable visibility for customers to overcome disruptions.
2. Optimize capacity
After identifying all the vulnerable nodes in the supply chain, work on options to mitigate the risk and document assumptions. If a supplier’s plant is shut down, then identify alternate suppliers – either from your existing suppliers or new sources that will need to be provisioned and certified. Monitor suppliers’ financial health to ensure they are able to ramp up capacity and have the ability to scale.
The availability of logistics providers is also becoming a challenge with border closings and lockdowns. Continue to monitor the availability of transportation and logistics providers internally, as well as those of suppliers and contract manufacturers. Rely on business networks to identify suppliers, whether for a critical raw material, logistics provider, or even a 3D manufacturer that can make parts on demand.
Figure 2: Sample cluster map to identify sources of supply based on manufacturing capability
After identifying alternate mitigation options, run scenario planning to determine the impact to service levels and cost. If there are multiple options, then optimize each scenario and compare them to identify pros and cons that will impact cost and service levels in the short and long term to make decisions. Document assumptions when making changes. Share the decisions with sales and operations planning stakeholders for approval daily, if necessary, until disruptions are addressed. All these capabilities can be performed as an outsourced service if you lack internal competencies.
3. Demand prioritization
The COVID-19 situation has caused a global pandemic with more than 1.3 million people worldwide infected and the caseload growing. Government lockdowns combined with border closings and redeployment of private assets to governments are causing shifts and variability in demand.
Companies will need to stay ahead and anticipate changes in demand based on the consumer behavior and government policy guidelines. The surge in demand for personal protection equipment (PPE) is causing companies to increase capacity and retool their production capabilities to meet this surge in demand for products including masks, ventilators, and sanitizers. Consumer product demand for things like groceries is seeing a higher variability as consumers are panic buying and increasing the bullwhip effect.
Figure 3: Variability in demand
Companies also need to be able to segment customers, markets, and products so they can prioritize demand and offer differentiated levels of service based on the consumer’s needs and business strategy. Most companies do this offline in spreadsheets; however, building a disciplined approach and competency in managing segmentation models within ERP will enable companies to excel in their ability to manage demand, service levels, increase margins, and grow segments that are strategic to their business.
Anticipating and predicting the demand downstream based on the COVID-19 effects as well as resulting consumer behavior to your supply chain are key in managing variability and smoothing disruptions.
Learn more about “How COVID-19 Exposed Weaknesses In The Global Supply Chain.”