The global pandemic has clearly exposed the vulnerabilities in the global supply chain and forced companies to reimagine their supply chain model, building effective contingency plans. Despite austere measures, businesses will suffer, and it’ll be a stuttered path to recovery. Key challenges companies will face in mitigating supply chain risks are:
- Excess stock or stock out
- Cash Flow, Liquidity crisis
- Loss of Productivity- Reduced or Nil Workforce due to lockdowns/Social distancing norms
- Impact on supplies for those who have contracted to manufacture offshore
- Congestion across the logistics value chain
- Transparency/visibility across the processes and the chain
- Other economic factors such as exchange rate fluctuation and freight costs
These will potentially disrupt global supply chains, especially the ability to balance demand and supply. When the recovery begins, it will be uneven, with deep swings in demand from market-to-market, industry-to-industry, and item-to-item.
According to McKinsey & Company1 , Companies need to think and act across five horizons as below .
How can companies respond to supply chain disruption?
The recovery process, too, shall be slow and gradual, and companies should plan and prioritize their actions spread over a short, medium, and long term.
Short term –Situation Analysis, Re-balancing of demand-supply
Medium-term– People, Process, Technology- Re-prioritization of investments
Long term– Building a resilient supply chain model to reduce the impact of future disruptions.
- Fixing the short term (six to eight months): The immediate focus should be to take stock of current demand, supplies, financial impact, and health and safety concerns of the workforce. The assessment should include getting total visibility into raw materials, in-transit and on-order items, critical suppliers, and also inventory levels at various holding points, including finished goods in own warehouses and dealer/ distribution/storefront.Next, forecasting models have to be recalibrated owing to low demands in the past couple of months. Demand trends in various geographies that previously were derived based on historical data/trends using AI/ML models need to be revisited, allowing for human judgment. Reviewing market data on the industry that’s of closest similarity in terms of product/market/channel /distribution mix would also be helpful in streamlining the forecast.According to Thomas March 2020 report2, Logistics remains a concern.
The movement of goods is impacted to a great extent due to reduced carrier capacities and availability of equipment. This, along with port and warehouse congestion, this will contribute to the sluggish growth in logistics handling.
Hence it is imperative to carefully look at the demand and then reposition or rework on the inventories based on short term and immediate requirements.
From a workforce standpoint, it’s still going to be a major challenge. Since the health and safety of the workforce are of prime concern, companies need to ensure that the working premises are safe for operations, taking all the mandatory precautions set forth by local governing bodies, and continually monitoring people for any health issues. Therefore, it is going to take more time before production resumes full capacity.
- Consolidating for the medium term (12-14 months) Post the initial recovery, companies need to take stock of their progress, leverage the understanding gained from initial experience and use that to re-balance and re-build the demand and supply processes.
This would include revisiting the strategies and contractual obligations related to sourcing, logistics, and, most importantly, re-prioritizing technology investments that are identified or/are in progress. The objectives of such re-prioritization will be to look at processes that are most vulnerable to business disruptions and focus the spend on those initiatives (supply side or demand side) that give maximum visibility and control. Doing so could further strengthen collaboration with tier-1 suppliers and enhance the trust and accountability factors with their value chain.Furthermore, blockchain initiatives, if already implemented or being pursued, could support in strengthening relationships, increasing overall trust, and improving supply chain performance as it keeps things open and transparent for all involved. Typical areas of usage include (1) Ethical sourcing by knowing the origin, quality of the items/Components (2) Trade document validations to ensure appropriateness and avoid unnecessary delays (3) Procurement, data, and analytics, smart contracts, digital payments etc.
- Planning for the long-term: Building supply chain resilience and implementing remediation strategies will be the key focus for the long term. The pandemic would have exposed the vulnerabilities in the supply chains in terms of productivity and financial impact, both. A deep dive and risk assessment into critical aspects of those vulnerable processes will help provide much-needed inputs to the potential gaps and its remediation possibilities. Once the gaps are identified and documented, tools, and techniques to dynamically monitor such events and exceptions should be instituted. This accompanied by the adoption of a comprehensive policy towards workforce health, safety, and mobilization during such situations is very critical to the business continuity.
The supply chain for Industry 4.0
One of the most pertinent questions will be whether the Industry 4.0 journey that some of the companies embarked on in the pre-crisis era will be relevant anymore?
According to experts, “The Manufacturer ,” it is far more relevant now than before, and the areas where Industry 4.0 initiatives would be of immense help include:
- Real-time visibility into the availability of raw materials, finished goods, WIP, people and assets and in addition use of IoT to have clear visibility of the in-transit goods
- Use of artificial intelligence and machine learning to continually reassess and re-plan activities
- Robotic process automation (RPA) to support non-value add labor-intensive activities
- The use of mobile technology and augmented / virtual reality to enable workers to perform tasks they were not trained for, more easily. This could assist skill shortages due to self-isolation or repurposing of manufacturing. The same technologies, together with digital twins and remote support from OEMs, would improve the availability of assets. The same technologies could also have enabled more remote and virtual working to help with the issue of lockdown and social distancing
- Goods to Person in Warehousing -Use of AGV’s, autonomous electric vehicles and drones to again reduce the reliance on people and to further assist with social distancing
The severity of challenges and responses will differ from company to company, based on their process maturity, level of intelligent automation levers leveraged (using complementary technologies – OCR/RPA/Smart Workflows, AI/ML, NLP), business agility, financial and there is no one-stop solution for recovery. However, this pandemic has opened the doors for all with the opportunity to right-size their companies, reimagine their business processes, dynamically monitor market conditions, and align to demand and try creating a new normal.