Why it’s time to rethink supply chains as global ecosystems
Previous outbreaks of disease and natural disasters such as the 2002-2004 SARS epidemic and the 2011 tsunami in Japan may have disrupted global supply networks, but their limited geographic spread meant that organisations could mitigate the effects on supply chains through various means, such as sourcing elsewhere, rerouting shipments or reallocating inventories.
Companies learnt valuable lessons from these incidents, such as the need to diversify supply chains and provide more visibility to operations, but the coronavirus brings an entirely new test. What began as a local difficulty in China rapidly became a major global health pandemic and business disruptor as it has moved from Asia to the US, Europe, the Middle East and African nations.
Every business is rapidly trying to assess the impact on its supply chain in both the short and medium terms. With some supply chains grinding to a halt while others are being tested to breaking point, leaders need to focus their actions on preserving and protecting their operations and the communities they serve. Of the various actions they can take, three are particularly significant.
The first is to create a virtual sales and operations planning ‘control centre’. An integrated view of the end-to-end supply chain will help leaders actively manage shocks, keep tabs on supplier shortages, monitor cash flows through the supply chain, and optimise short-term operations – particularly with regard to critical suppliers and customers. It’s a capability some organisations have already implemented to manage other shocks to the supply chain, and is now critical to managing the current uncertainty. The use of machine learning and data analytics tools to forecast demand spikes and disruptions has been shown to increase forecast accuracy, often by as much as 10-20 per cent.
You’ll need to quickly build your intelligence network, actively communicating with suppliers to understand the changing situation and emerging risks. And your centre will need broader intelligence such as identifying countries that are moving out of lockdown or specific hotspots of the pandemic, as well as data analytics support to give early alerts to upcoming problems and inform future plans.
Scenario modelling will be key. Leading companies are now including modelling of the pandemic spread and containment as a critical part of their operational planning. For example, you’ll need to plan your actions in those countries emerging from lockdown when supply and demand restarts while other locations are still in lockdown. Early movers and those that plan ahead will be better prepared to win business and also manage any second spike that may come along. One thing is for certain, decision makers will not have all of the information they need to make risk-free decisions. So, the information that is available needs to be transparent and accessible.
The second thing you can do is to give logistics the same prominence as stock – it’s not only what you have but where you need it to go.
The impact of consumer pressure on parts of the pharmaceutical sector and food retailers has been particularly evident on stock levels in stores. While pharmaceutical companies typically hold up to 12 months of supply in case of emergencies, spikes in demand and logistics issues have led to shortages of specific products such as paracetamol on retail shelves.
This flow of exports and goods has become a real challenge. Difficulties may be exacerbated by problems such as ships’ crews needing quarantining because of infection, or in the logistics chain because of a shortage of haulage capacity. Drivers still need to adhere to safety rules about double-cabbing and allowing drivers to have the rest breaks they need. Global air freight is also being slowed down as many airlines are not flying freight in passenger plane holds. It highlights the fact that logistics chains are as critical as manufacturing capacity and availability in the short-term, with a major factor for leaders to remember: these supply chains are links of people – and their needs and wellbeing must be a central focus. The welfare of those keeping logistics moving must be a priority, it’s the right thing to do and in turn it is the only way to ensure customers receive the supplies they need.
Finally, you can learn on the go with new business and operating models. The speed of the current crisis calls for an agile response. While no leader should take unnecessary risks, the reins must be loosened to steer your way through tough times. Organisations will need to look beyond their own four walls and think about the wider ecosystem. The rapid increase in demand for online platforms and e-commerce, for instance, can set you up for continued success and position you better for any later return of the coronavirus, or future disruptions. Increased use of automation, for example, in processes such as purchase to pay or order picking can reduce the reliance on people to maintain the day-to-day supply chain, allowing for an increased focus on managing the risks.
Supply chain leaders will better manage risks and sustain delivery by acting as part of an ecosystem rather than as an individual entity, working with government and industry to prioritise customers, repurpose production lines, reallocate employees and adjust opening times and data-sharing arrangements. This means temporarily placing competitiveness to one side to prioritise community needs. For example, UK supermarkets have agreed with the Government for elements of competition law to be relaxed, allowing retailers to pool stock, exchange stock data, and to share warehouse space and delivery vans.
The global impact of Covid-19 is likely to have a further considerable effect on supply chains as the outbreak comes under control in some geographies while others try to manage through restarting communities without reigniting a second outbreak.
As our world becomes increasingly connected, we need to better prepare for, and anticipate, such shocks in future. But the long-term lessons can wait. For now, leaders should focus on the actions I’ve described here to preserve and protect the communities they serve.
Shanton Wilcox is US manufacturing lead at PA Consulting
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