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5 Supply Chain Lessons Learnt In 2020 So Far

Vuealta

Who would have thought that, as we entered 2020, toilet roll would become the most sought-after product in the world? Or that so many people would be working and schooling from home?  Or even that our travel plans were about to be cancelled?  

This new reality has created immediate and hard-hitting demand shocks for global supply chains.  Never before has planning been so under the spotlight. 

Certain types of demand have been largely destroyed (such as 2020 spring clothing collections), whilst others have exploded in the short term (toilet paper and home-working supplies). 

This has garnered news headlines, yet the impact of shifts in distribution channels has been under-reported, even though they are just as significant. Volume levels have not necessarily changed, but have shifted to other distribution channels. 

For example, lunches have moved from restaurants to the grocery channel as people work from home.  Even the consumer demand boom for toilet paper was not entirely driven by stockpiling; there has been a shift from commercial to consumer channels as people are now using the bathroom at home,as opposed to the office.  

What the global pandemic has shed light on is that global supply chain systems are in real need of a rethink. 

So, what lessons can we take heed from to prepare businesses for the next crisis?

Event-based planning

Rigid and highly concentrated supply chains have struggled the most to adapt to the demand shifts caused by Covid-19, but even the most flexible networks have been unable to respond where planning processes are slow or rigid. 

Many problems with ‘steady state’ planning systems have been exposed by the pandemic, but this has really just magnified the problems that planners face from smaller shocks every day, such as price changes, competitor promotions or supplier shortages.  

Even before Covid-19, consistent surveys show that 50% of companies were not happy with their S&OP processes. 

We need real-time, event-based scenario planning to respond to changing situations as demand and supply side shocks become increasingly frequent. Consider the pandemic a “stress test” of your planning systems. What hasn’t worked well in this situation is not working well with smaller day to day challenges.

Scenarios are the bedrock during uncertainty 

With such uncertainty, most businesses should have multiple scenarios planned. There may be comfort in having ‘the plan’ but in reality, during an unpredictable return to a ‘new normal’ we need to be able to respond to a multitude of situations. To do this, we need multiple scenarios in our planning systems and agility in our supply chain networks to match the range of necessary responses. 

The fundamental building blocks of plans must change from a sum of ‘steady state’ product and / or customer forecasts to an event-based, scenario-driven plan.  The plan needs to be based on events and scenarios that can be updated and activated or deactivated real-time.  The simple construct is as follows:   

Events are things that could happen, such as a businesses reopening in June or a supplier going bankrupt.

Scenarios are a combination of such events (such as reopening businesses in June with no supplier bankruptcies or reopening in June with multiple supplier bankruptcies).

The plan is a base plan, overlaid with a set of selected scenarios.

While this seems so simple and necessary, the reality is that the majority of today’s planning processes and systems do not inherently support this approach.

We need agile and resilient networks 

Global networks need to be more agile and resilient in the face of more frequent storms.  As planning is the backbone of any response, S&OP also needs to be more resilient and agile.  This requires augmenting current capabilities. 

Over the past decade, many organisations have focused on making supply chains as lean as possible, supplying goods around the world rapidly and cost effectively. But the pandemic has exposed a number of cracks in global supply chains, and organisations that have previously focused on developing the lowest possible cost supply chain could well be those who have struggled the most over the last few months. 

Just like a flood is a good reminder as to why we pay for insurance, Covid-19 is a good reminder as to why we need agility. Long-term lessons for global supply chains may include an increase in local sourcing, which even though more expensive, will deliver shorter planning replenishment times and more resilience.

Processes need to be able to respond faster

As Covid-19 and lockdowns swept the globe, unprecedented demand disruption followed, and businesses needed to react.  Long laid and intricate demand and supply plans were torn up, tossed aside and needed to be reformulated within hours.  With little time to run full S&OP cycles, many C-level executives were left re-planning their businesses in Excel despite multi-million-dollar investments in planning systems.  

Then, almost as soon as we were through the initial reaction, the challenges of the recovery phase were quickly upon us as it emerged that different cities, states and countries were reopening at different speeds and even prioritizing different sectors.  

How this would translate into demand was almost impossible to predict, so we find ourselves in need of constant “sensing” of external data at a granular level, such as mobility trends, consumer confidence and even the financial health of our customers and suppliers to help us plan. 

At an unknown time, we will enter a final realignment phase as we return to normal.  Just as we were forced to abandon historic data on the way into the crisis, we will have to realign history on the way out.  However, as the dust settles, the biggest challenge for planning leaders may well be the looming executive post-mortems into why our S&OP processes were not better able to respond.

The definition of ‘fit for purpose’ S&OP is shifting

One thing that’s certain amongst the current melee of uncertainty, is that companies will take a stark look at how S&OP met the challenges of the Covid-19 shock.  

To use a highly simplified analogy, when cities in the world are forced to shut down with a mere dusting of snow, other cities such as New York or Chicago are able to effortlessly blast aside mountains of it. This is an indication of snowfall resilience and so post-Covid, we can expect to see a refocus on supply chain resilience. 

Supply chain resilience comes in the form of network resilience and also S&OP (or process) resilience.  Because S&OP is the organization’s brain, it needs to be ready to lead the response in any crisis.  

Since the dawn of globalization, supply chains have become increasingly susceptible to shocks; as their global reach increases, events anywhere in the world can impact on seemingly local supply chains. 

It is snowing more often and we are certainly receiving more than a dusting.

In the post-mortem, we must ask not just whether S&OP is fit for purpose but also whether the definition of fit for purpose has just shifted. The “steady state” systems of yesteryear are simply not cutting the mustard.  

The good news is that the ROI for upgrading S&OP is very compelling. The capabilities required to respond to shocks are the same capabilities that allow speedy and effective planning for the challenges we face on a daily basis (promotions, price changes or capacity changes to name a few).  

By upgrading S&OP, we are not just buying disruption insurance, we are also making the daily ‘planning brain’ of our business more effective.  

We need only look to companies like Amazon and Apple to witness the competitive advantage that can be gained from network agility and planning resilience.  While their supply networks were disrupted due to the sheer scale of Covid-19, they fared extremely well compared to peers and remain global leaders on a day to day basis.

We need to invest in planning capabilities to be more efficient day to day, to be ready for the next storm, and also to be able to plan for likely supply disruptions, structural shifts and geo-political tensions.

Final thoughts

The changing face of demand during the Covid-19 crisis has shed light on how supply chains need to adapt for the future. Agility, real-time planning and digitalization are all needed in tandem to ensure that global supply chains are resilient and can weather any storm. 

Having the ability to quickly pivot in a crisis and plan for significant mobility changes, will become the make or break for business continuity in the future.

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If you’re facing demand planning challenges this year, watch our 10 minute Demand Planning application demo to see how Vuealta can help.

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