How will supply chain management adapt to the new normal of the COVID-19 pandemic?
Supply chain management is a priority for almost all businesses in the era of COVID-19. Businesses are beginning to understand that the COVID-19 pandemic will not just pack up and disappear after a few weeks. Massive numbers of layoffs will not be instantly reversed.
Managers will begin to re-evaluate almost every aspect of their operational processes while throwing out much of the conventional wisdom and many of the long-established protocols that govern their operations.
For many manufacturers, supply chain management has meant maintaining a good business relationship with their tier-one suppliers. With the advent of COVID-19, a new normal is settling into place.
Businesses will require new and more complex processes, increased technological investments and a human commitment to accept change as the only constant in the daily life of the individual worker, manager and executive.
This will be necessary for almost all verticals and manufacturing segments. Even if an effective vaccine were to appear tomorrow, there will be a need to prepare for the next outbreak of a new strain or disease and those that follow.
Managing Supply Chain During the COVID-19 Pandemic
There may well be no area more impacted by the COVID-19 pandemic than that of supply chain management.
Deloitte recently published an excellent overview about managing supply chain risk in the time of COVID-19, and I recommend their report to anyone involved in developing improved supply chain practices for their business.
While much of this is written toward businesses that maintain production facilities in China, there are still many useful lessons to be learned for manufacturers around the world.
Many enterprises maintain extended supply chains that cross multiple international borders. Many businesses depend on one or two critical suppliers.
Virtually all businesses will need to unlearn some long-established beliefs and quickly learn new methods and processes for acquiring and obtaining the parts and supplies needed to produce their own products.
While no one can provide a specific roadmap for each business, we can provide an itinerary for the journey toward a more resilient, agile and responsive supply chain under the new normal.
Priorities for Developing Your New Normal
Contact Primary Suppliers
The first order of business is to collect the necessary intelligence needed to make informed decisions regarding your production plans, suppliers and customer commitment.
This will start with your primary suppliers. Like you, they will be wondering just exactly how this new reality will impact them. They should welcome the opportunity to share information regarding capabilities, needs and requirements related to moving forward.
Are these guys going to be there for you in the coming months and years? Can you commit to any particular level of demand? These two questions honestly answered will provide a good picture of what your relationship will look like in the future for you and your primary suppliers.
If you haven’t had regular contact with your primary suppliers previously, now would be a great time to set up regular recurring meetings to address issues that will surely develop during the uncertain months to come.
Extend Supply Chain Visibility Beyond Primary Suppliers
Supply chain professionals have long understood the value of seeing beyond the tier-one suppliers into the web or network of suppliers that feed them through their primaries.
This may require investment into additional human resources or knowledge as well as possible investment into some technologies that specialize in supply chain management.
You really need to be able to visualize inbound parts and supplies from raw material all the way through to finished deliverable parts, assemblies or supplies.
This will require the collection of localized information and data related to individual suppliers, market forces and other drivers that can affect the availability and scheduling of product delivery further down the chain. This will likely require some sophisticated analytical capability and dedicated headcount.
Plants will shut down, companies will go out of business, markets will collapse and weather and geopolitical forces will drive instability throughout your supply chain. Quality intelligence derived from quality data will give you advance warning for all of these developments.
Establish Redundancies and Back-Up Suppliers
Try to avoid exclusive supplier relationships in this era. The use of multiple suppliers rotating orders and actively participating in your supply needs is the best way to minimize the potential for the sudden loss of a critical supplier.
You can’t rely on an alternative supplier “bench” to pick up the slack for a supplier that becomes inactive. Keep your redundant supplier active by actually using them in a rotating fashion.
When the time comes, they should be happy to step up and provide additional product when needed.
Backups should be identified and brought into the supply cycle as other suppliers leave. They can be brought online as primary suppliers without the panic of trying to replace a single critical supply source that has suddenly gone out of business.
Rethink Inventory Practices
For years, we have been told to boost inventory turnover rates, rely on Just-In-Time shipping (JIT) and reduce localized inventory as a way to maximize cash availability within the enterprise.
It may well be time to make some serious adjustments to those practices. Operating on razor-thin time intervals is great if parts and supplies are reliably available from upstream.
When uncertainty enters into that availability, the production process can be halted for want of almost any part that suddenly becomes unavailable.
This doesn’t mean buying up a full year’s supply of widgets to ensure continuous availability. However, it might be time to think in terms of maintaining a larger onsite inventory to allow alternate sources the time required to come online when needed.
Demand response has been a critical aspect of production scheduling for many years. The new normal may well mean your make-to-order business will need to shift a bit toward make-to-stock.
This doesn’t necessarily mean that you should drop your demand-driven model; it simply means that you will almost certainly have new peaks and valleys in your production levels.
By using your newly acquired visibility upstream into your extended supply network, you will be able to anticipate many of these peaks and valleys and respond by adjusting production schedules.
Building assemblies and part combinations in advance will provide the ability to flatten out some of the availability shortages and to anticipate periodic demand increases.
This will introduce additional complexity into your production processes. But becoming more data-driven and using the intelligence you gather upstream will pay dividends in the form of less volatility in your production schedule.
Sales forces that make promise-by date commitments need to become involved in these processes as well. Technological tools such as order management systems and CPQ systems must also reflect the realities of the new normal. This may necessitate the modification of business rules that drive these systems.
Downstream, the business will experience many of the same challenges. Alternative shipping and delivery modes may be needed.
Start by meeting with distributors and customers to explore their new requirements in the post-pandemic world. They will have all of the same needs and requirements that you have with your upstream suppliers.
Many of the logistical rules of the day are being invalidated. Products that were previously moved by ship are now being delivered via airfreight. Last mile truck deliveries may well be moving a few rungs upstream to fill in where rail was once preferred.
Supply Chains Require Agility and Redundancy to Mitigate Disruption
The economics that govern all of these decisions are changing rapidly.
The supplier and distribution networks are frequently viewed as separate systems. However, in reality, they are all part of the same system with the enterprise serving as the heart.
By building in redundancies and an alternative up and down stream, the enterprise will develop the agility needed to react in a world that is less predictable and more volatile than ever.