Question: How do you protect supply chains during a pandemic? Answer: Design and execute an action plan to tackle current difficulties and build resilience into the recovery phase. Here’s how.
Before your supply chain breaks, put it under the microscope. Do it fast; diagnose its vulnerabilities; fix what you can; and develop an end-to-end coping strategy.
Writing for McKinsey Insights, Knut Alicke, Xavier Azcue, and Edward Barriball present a strategy to deal with current difficulties and build resilience into supply chains going forward.
ESTABLISH SUPPLY CHAIN TRANSPARENCY
You need to know where your supply chain has broken down or will break down, focusing first on supplies from particularly affected regions, and/or that you can’t live without.
Approach tier-one suppliers, asking for an analysis of their supply chains, and collaborate to figure out what’s likely to break and when, and devise a strategy to keep production running.
When suppliers don’t know or won’t tell you where their own supply chain vulnerabilities are, business-data suppliers help by triangulating “facility exposure by industry and parts category, shipment impacts, and export levels across countries and regions”.
“Most businesses would be surprised by how much inventory sits in their value chains and should estimate how much of it, including spare parts and remanufactured stock, is available. Additionally, after-sales stock should be used as a bridge to keep production running.”
Taking inventory is key to capacity planning. Check everything:
- Finished goods including stock earmarked for “sales, quality control, and testing”.
- Spare parts – decide how much stock to use for new-product production against the amount of stock required to maintain an acceptable degree of after-sales service.
- Consider remanufacture of used parts or the viability of reworking inferior parts.
- Expedite delivery of parts in transit including, when possible, speeding up progress through customs.
- Work with dealerships and customers to requisition or release stocks to the satisfaction of both parties
Crises result in increased demand for some goods and services and sharp declines for others. Successful sales and operations planning depends on building reliable estimates of demand as different scenarios play out.
1) Set the parameters for demand forecasting. What is a realistic time frame to consider? To what extent do you need to define demand? Whose demand and for what?
Question to what extent demand surges and drop-offs reflect underlying demand trends versus panic-driven behaviours, especially when basing forecasting on customer feedback. Planning for shorter time frames and reduced quantities increases agility.
2) Use data modeling to establish a baseline for demand so you can say, “In these scenarios, minimum residual demand is likely to be this much.” Include your customers’ customers in your forecasting:
“Direct-to-consumer communication channels, market insights, and internal and external databases can provide invaluable information in assessing the current state of demand among your customers’ customers.”
3) Prioritise order fulfilment using:“A triaging process that prioritises customers by strategic importance, margin, and revenue will also help in safeguarding the continuity of commercial relationships.”
4) Reforecast and reforecast as the situation evolves.
FINE-TUNE PRODUCTION AND DISTRIBUTION
“Draw on a cross-functional team that includes marketing and sales, operations, and strategy staff, including individuals who can tailor updated macroeconomic forecasts to the expected impact on the business.”
Devise a strategy for meeting demand while protecting your workforce from the ravages of the pandemic. Establish effective communications so you can advise your workforce of new directives and control measures; establish supply of appropriate PPE; design, test, and implement strategies for working from home.
Scenario plan for a prolonged shutdown, looking at both operational considerations and financial implications. Prioritise suppliers and customers so that when production resumes, you serve strategically important parties first.
PLAN FOR DISRUPTED LOGISTICS
Partner with suppliers and other organisations to share logistics; collaboration increases combined capacity, boosting your ability to deliver priority orders, improving your chances of attaining priority for your shipments, and achieving better terms.
Pre-book transportation to avoid rising costs, and be prepared to use whatever mode of transport gets your product to where it needs to be within the required time window.
The better you are at monitoring your own goods in transit and the wider logistics picture, the better you will be at anticipating and resolving bottlenecks to keep shipments moving.
Crisis means squeezed supply chains, lower margins and lower revenues. Build a realistic picture of capital costs and liquidity based on the scenarios for which you forecast and pressure test your resilience at weekly and monthly intervals.
Look at ways to release cash from the supply chain and to reduce capital expenditure, for example by more efficient fleet management. Save money by cutting the number of finished goods sitting in warehouses. Restrict purchasing to essential items only and negotiate better terms with suppliers.
ANTICIPATE THE RECOVERY
Use the lessons you learn from the current crisis to help you build resilience into your supply chain going forward.
1) Monitor. Create a “supply-chain-risk function tasked with assessing risk, continually updating risk-impact estimates and remediation strategies, and overseeing risk governance”.
2) Digitise. Digitise your supply chain to create a single data source from which you are better equipped for“anticipating risk, achieving greater visibility and coordination across the supply chain, and managing issues that arise from growing product complexity”.
3) Collaborate. Make collaboration with suppliers and other partners in the supply chain part of your strategy for building supply chain resilience
COVID19 is the first pandemic of the global supply-chain era, but it’s unlikely to be the last. Crisis supply-chain resilience must form an integral part of your company strategy now and in the future.