HOW COVID-19 DISRUPTED THE SUPPLY CHAIN?
- Labour Shortages (due to lockdown and quarantining the labours): because of threat of catching a virus and government advisory to not head to work to inhibit community transmission, there are acute labour shortages in critical supply chain nodes
- Forced Factory Shutdowns: to inhibit community transmission in many places the factory were forced to shut down, hence drop in supply
- Trepidation of Consumer Demand for certain segments and Surge in Demand (Panic Buying) for some segments
- Shift in natural Demand Patterns: Eg: places with good population of migrant workers are witnessing a drop in demand while interior places are experiencing a spike.
- Transportation restrictions within country and internationally
Major issues arising out of disruption:
- Short term demand has fallen sharply
- Geographical distribution of Demand has shifted a lot
- Trucking capacity to ship goods from factories to port are operating at 60-70% of normal capacity
- Delays of 7-8 days due to lack of transportation resources
- Natural optimum supply routes and supply chain has taken a hit
- Compliance Risk in supply chain due to lack of trained labour at the key transit points
- Quality Risk: Compromise the quality of products by opting for tertiary suppliers
- Security Risk: Shortage of labour at key transit points may lead to ease of pilferage and theft
- Extreme shortage of Supply: Because of serious halts and disruptions from the key production centres of the world, supply of products, components etc is disrupted
- Working Capital Adjustments that organisations have to make due to shift in demand patterns
- Aging of existing stock may result in reduced shelf life
- New product introduction plans will be hit
How to respond to the above disruptions?
“Need is the mother of invention”, and hence with the disruptions mentioned above and the issues posted to companies and supply chains, many companies have attempted to reinvent the supply chain and try to find solutions.
However, If we try to find solutions in existing theory of supply chain management, Demand Driven Sales & Operations Planning may be the way to go for the next few months.
What could go wrong in your response to Supply Chain crisis during Covid-19 Crisis?
- Inadequate Discovery: We normally fail to essentially asses the length and breadth of problem. The problem of optimistic bias leads us to believe that the crisis will soon get over.
- Poor Decision Making: because of not acting giving the excuse of limitation of facts and trying to base the decision on some past experience which has no relevance to the new crisis scenario
- Limited Solutions Design: We normally have a tendency to develop a solution design with what we have. However, our focus should be on what needs to developed and then find at the organisation level on what resources need to roped in for the new supply chain solutions design
- Failure to execute: We might come up with the best solution but if not executed well it makes no sense.
- Lack of transparent and real time data. This would be data of stocks, in-transit stocks, demand revival and supplier capacities.
Now that we know the common pitfalls whenever business leaders are planning to reinvent their supply chain, let’s look how business leaders can lead recovery of supply chain during and after Covid-19
What can companies do to recover their Supply Chain after Covid 19?
“Finding the evolution of demand in times of crisis is the key to plan supply chains effectively”
Organisations need to do scenario planning and need to make simulations basis the evolution of demand and understand how they can address the same with their existing warehouse capacity and production capabilities.
At the end one needs to understand the inhibition of fulfilling the demand because of limitation of transportation routes and shortages of labour at important transit points.
Short Term response to Covid-19 Supply Chain Crisis:
- Create transparency on multitier supply chains, establishing a list of critical components, determining the origin of supply, and identifying alternative sources. Work with existing supplier to find out how they are ramping capacities. Look at labour requirements, specially for contractual labour. Work with your contractual labour providers. If required look at training plans for hiring and training new labour.
- Estimate available inventory along the value chain—including spare parts and after-sales stock—for use as a bridge to keep production running and enable delivery to customers. Include Finished Goods, Work in Process and Raw Material. Update existing inventory management systems with stock that is actually usable, as some may have degraded, some may just be non-traceable.
- Assess realistic final-customer demand and respond to (or, where possible, contain) shortage-buying behaviour of customers. This is tricky as no statistical model will have any pre cursor data to work upon. The best would be to try to get public domain data of countries that are ahead of the curve in containing the pandemic – like China – and try to use post Covid demand patterns to try to model demand revival. Of course there will be many constraints that will still be in place like movement restriction, import issues, transportation asset availability etc. Work with your first level customers to get inputs on how they are anticipating demand.
- Setup and conduct shorter cycle Sales & Operations Planning meetings with multiple scenarios: No one knows how to predict the future in this kind of a scenario. What one can surely do is to have multiple scenarios from demand to supply. Those will take care of all the uncertainty in demand, supply and operations by feeding more real time data as input, and then recalibrating the company response to it. I would actually suggest a real time S&OP control tower.
- Optimize production and distribution capacity using a supply chain network optimization software. Constantly evaluate multiple scenarios of your S&OP, and check the possibility of execution and the costs of that execution.
- Identify and secure logistics capacity, estimating capacity and accelerating, where possible, and being flexible on transportation mode, when required.
- Manage cash and net working capital by running stress tests to understand where supply-chain issues will start to cause a financial impact. This would be covered as part of the S&OP.
- Evaluating your existing new products and future introductions into the market: Do you have a capable supply chain to take care of the demand surge for new products.
Intermediate to longer-term response:
It is not easy to find answers to the above important short term requirements.
The complex supply chains of most industries require analytics to be leverages to assess all sorts of supply chain risks. Most existing tech capacities which are driven by ERP and Planning Systems are not good enough to help you to develop supply chains which can stand the test of crisis situations like Covid-19.
The need of the hour is to look at principles of supply chain and then marry them with scenario building and analysis. The scenarios need to be fed with real time data.
GAZELLE CASE STUDY – How an edible oil brand in India can overcome COVID -19 Crisis
Cooking Oil becomes one of the important ingredients in the preparation of food in India. Hence during the lockdown and Covid -19 crisis, food hoarding was bound to start.
A large manufacturers are able to cater to the rise in demand, because of excessive hoarding among consumers, and also address the limitations of supply chain using Gazelle’s sophisticated Supply Chain Technology powered by Oracle.
Large manufacturers will have various production capacities spread across the country which it could adjust based on forecasting demand and market supply. Depending on the forecasting, it will also be able to determine which products and packaging types need to be kept in priority by keeping in mind the stock in hand and available production capacities. As Oil/Oil seed is a commodity, it would also be very important to monitor in availability of stocks and the prices related to it. These would then be used as input to arrive at the product cost.
For eg: Our Supply Chain Forecasting Technology could determine that the demand for 5Ltr packaging is going to peak in certain geographic areas unlike the usually popular 1Ltr pack. However there was a limitation to produce 5 Ltr.
So the Company can come out with a new combo of 5 – 1 Ltr Pack. This will help them to address the demand and cater the same with the available supply.
Using Gazelle’s Oracle Powered technology, the company can create updated Supply Chain route plans by tracking limitations and restrictions of traffic. The company can also collate information on shortages of labour from local managers. We can run simulation after simulation to find series of plans that can cater to the demand and available supply.
And the best part of the entire exercise is that it can be achieved in speed.
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