From crisis to the new normal
This article first appeared in Manufacturing Management
Those of us working in supply chains probably saw the disruption from the Coronavirus outbreak coming earlier than most. What started as a worrying story in China has now become the defining challenge of our times. Where the initial disruption was seen mainly in businesses with extended supply chains such as automotive and consumer electronics, now almost everything is affected. Deep disruption from factory shutdowns caused by travel restrictions on worker movements are hitting us in addition to the existing supply chain disruptions. This is a new way of working, and companies must adapt quickly. But it will end – and what companies do now will lay the foundation for future success.
What needs to happen now
Each and every company is feeling under pressure from every direction. Whether your sector is closing down and going into hibernation, or is ramping up to meet the huge changes in supply and demand the most important steps to take are to get the best view of the situation possible by ramping up your sales and operations planning (S&OP) process into a central control centre, making good and quick decisions based on facts and data, and communicating with your supply chain. Remember, all your suppliers will be under the same pressure as you, so this is a time to work out together how to react, using the relationship and structures you have built up in better times. Be flexible on terms – change MOQs or lead times as necessary, extend payment terms to support smaller suppliers, cancel or expedite orders – but make sure you continually communicate.
It is important to recognise that supply chains are multi-tiered and the best chance of understanding what is happening in the deeper supply chain is by talking to people who are closer to it. This will give you advance warning of new developments and this information can be fed back into your S&OP control centre. This active risk monitoring of the supply chain will be critical.
Coming back when this is over
It is now clear that the progress of the pandemic will be uneven and this comes with its own challenges. The recovery will come in lumps as different areas come back online, creating ongoing fluctuations in supply and sudden spurts of demand. This will test the most battle-hardened planners and they will need a clear strategy and continual support. During this whole period companies should therefore focus on their own planning processes to maximise the use of inventory. Closely managed, S&OP processes should be used to drive supply chain decision making on a day-by-day basis. Senior management’s view of S&OP processes should be enhanced to ensure quick decision making, high level awareness and executive accountability.
Moving into the future
In this fast-paced situation, it feels strange to think of the longer-term future. But things will recover and get back to normal, or at least a new normal. The lessons we learn in the coming months and the relationships and behaviours we build now will govern how that future looks. In particular, it is important to think deeply about supply chain resilience and managing wider supply chain risks in an increasingly volatile world. That means asking questions such as where do we get our supply from? What risks are we exposed to? How do we design supply chain fragility out? How can we spot and react to developing situations?
The answers will require companies to look beyond selecting on lowest price and instead move towards insourcing, managing regional risk through understanding the extended supply chain footprint, and considering the ability of suppliers to manage shocks. Digitisation and sharing of data can allow remote monitoring of the supply chain in real time so decisions can be made faster and better. These steps will help to build long term resilience and also improve the capacity of supply chain organisations to manage short- and medium-term shocks.
Stephen May is a supply chain expert at PA Consulting