Businesses have, or had, perfected a fast-flowing just-in-time supply of materials and finished goods over long distances and across international borders. This included outsourcing and offshoring of production and processing. But COVID-19 introduced supply and demand challenges that few supply chain models could withstand. Many businesses adapted and stabilised their operations to ensure short-term survival. It is now vital that you develop a medium-term strategy as we emerge from the pandemic.
The concept of a new normal is, in fact, not new at all. Seismic shifts in business models often arise from domestic and global crises. In China, the SARS epidemic in 2003 coincided with Alibaba's launch of the Taobao e-commerce platform. It provided a digital marketplace for Chinese SMEs that revolutionised online retail in China.
Today, significant shifts are underway as direct-to-consumer supply models advance to new heights. Both businesses and consumers are undergoing 'forced experimentation' in their economic and social interactions. Our Consumer Sentiment Index has recorded significant shifts in how people transact and fulfil their consumer needs. Many of these changes are expected to continue after national lockdowns have been lifted.
As long-held assumptions are challenged, adapting supply chains to compete and succeed in the new normal requires fresh thinking. Businesses need to review their approach to three supply chain disciplines most affected by the pandemic:
In this article we will discuss how to adapt your approach to each of these disciplines.
A climate of uncertainty makes it difficult for businesses to know what they should be planning for. Pre-COVID-19 insights into consumer behaviour and operational fulfilment capabilities have lost relevance in the current environment, and projections of future demand and supply remain fluid and subject to change. The FMCG industry, for example, has been particularly impacted by changes in demand for 'essential items' as consumers have accelerated their transition towards digital sales channels and sought out lower cost alternatives and stronger reliability of supply. As a result, the industry has seen consumers relinquish long-held loyalties to favoured brands and increasing disintermediation between the producers of finished goods and their buyers.
These behavioural changes may become long-term or even permanent, especially if uncertainty continues until a COVID-19 vaccine has been secured, by which point these recent consumer responses to the pandemic may have become embedded. In this context, forecasting sales and aligning operational plans presents a new set of challenges. Successful businesses will be those that best detect local demand patterns. That means looking beyond the immediate downstream customer and upstream supplier, and understanding the demand and supply dynamics that affect their customers and suppliers respectively.
A business with a history of selling to or through distributors, for example, may lack the demand sensing capabilities that are required to capture what is happening outside of those channels and what is driving change within and between those channels. Without detailed and actionable insight into these trends, businesses will be unable to effectively develop a medium-term sales and operations plan, and may struggle to strategically assess how they may regain competitiveness under the 'new normal'.
Consider shifts in consumption across sales channels since the onset of COVID-19 and what you need to do to align with alternative channels that may hold stronger prospects for your business. Develop a gap analysis between your current capabilities and the required capabilities to drive sales through the most relevant sales channels available to you and convert that analysis into a sales transformation action plan.
Map both your tier one (immediate or direct) and tier two (secondary or indirect) suppliers, assess your communication and information sharing channels with them, and consider how you may collaboratively raise awareness of challenges in your sales pipeline and their supply chains. Strategic alignment with your suppliers will prove mutually beneficial in the context of ongoing uncertainty.
Invest in capturing demand data across your supply chain and work with your sales channel partners to understand who is buying your product, what is driving that demand, and how and why it was affected during the pandemic. Apply advanced demand sensing capabilities to your data, continuously developing your understanding of your market outlook and adapt your sales and operations plan accordingly.
Reducing risk in sourcing practices.
COVID-19 has exposed supply chain risks that many businesses had not previously identified or planned for. Existing sourcing strategies in particular have been found lacking as businesses have faced sudden changes in consumer demand as well as severe declines in manufacturing and transport capacity. In addition, over-reliance on the manufactured outputs of countries such as China and India has prompted questions concerning the resilience of global supply chains when faced with international challenges such as COVID-19.
Businesses must use this opportunity to de-risk their supply chains and reconsider their trade-offs between cost and risk in the context of supply chain interruption. For some businesses, this may mean making difficult decisions and investing for the long-term.
Consider the implications of known risks in your supply chain such as a resurgence of COVID-19 or the escalation of global trade disputes. Model each risk as a scenario against which you can develop alternative sourcing strategies and establish contingency or parallel arrangements that can be scaled up or down if and when those risks materialise.
Businesses with manufacturing and outsourcing arrangements concentrated in a particular location should consider multi-node manufacturing and regional presence to ensure local supply chain support. A multi-node approach can reduce risk through diversification whilst an in-house regional presence can offer 'on the ground' visibility and information sharing that can support a business to identify and react to emerging supply chain risks.
Building redundancy into existing manufacturing capabilities and outsourcing arrangements for essential products can provide a buffer against surges in demand and flexibility to move or rebalance production across multiple locations. This may take the form of parallel capabilities across regions as well as increased stock holdings.
Agreeing a standard approach to data sharing with industry peers and counterparts can support collaboration and may eliminate the need for investment in costly new manufacturing sites whilst improving utilisation of existing capacity across an industry.
When supply chains are interrupted, visibility is key to ensuring effective decision-making. However, establishing a clear view of operational capabilities across global supply chains involving a myriad of direct and indirect participants is a significant challenge. Close collaboration with direct and indirect supply chain partners is essential to ensuring the availability of data that can indicate the strength of a supply chain and the risks posed to it. Thankfully, technology can be leveraged to coordinate information sharing between supply chain partners and to synthesise that information into actionable insights.
Digital twins replicate the activity of a physical supply chain in a virtual environment. They allow a business to see its entire supply chain from end to end with each of its component activities and 'known' participants. The twin can also model external interruptions to the supply chain and the impact of potential enhancements or failures within it. As such, digital twins are vital to supply chain planning against potential future scenarios such as a new pandemic or a trade war that may affect trade with a partner country.
A visibility platform can provide a window into real-time operations across a global supply chain, harnessing proprietary and partner data, as well as publicly available resources such as air or ocean transport departures and extreme weather alerts. Real-time visibility that is 'pushed' rather than 'pulled' ensures that this information is at the supply chain manager's fingertips when he or she needs to make a decision; time isn't lost reviewing spreadsheets and email correspondence from distant suppliers and logistics service providers.
The natural progression from digital twins and real-time visibility platforms is automated and delegated decision-making. Businesses can improve their responsiveness by automating internal decision-making through Artificial Intelligence (AI) and by delegating external decision-making to supply chain partners. Delegating to third-parties doesn't mean relinquishing control. It means carefully carefully agreeing decision-making parameters and 'rules', and optimising the decision-making criteria over time.
Implementing strategic change during a time of ongoing uncertainty is challenging. As you move beyond stabilisation and start planning for the medium-term, we can help you develop a supply chain strategy that mitigates the risks that COVID-19 has revealed. We're ready to help you build a platform for success in the 'new normal'. Contact us today.