COVID -19 Impact on Operations – Supply Chain
WHAT TO EXPECT?
We may not like how we got here but it is not a reality that supply chains that are resilient and anti-fragile would be considered the new generation of supply chains for the future. To understand resilient supply chains, first let us understand how things fell apart ie. the fragility at each level.
The first blow was struck as China closed their factories and sent workers home in January to contain the coronavirus outbreak, the uninterrupted supply of raw materials on the global supply chains stopped with very little time to respond. Most companies across the globe were not designed for such a sudden stoppage. The scramble for alternate sourcing became a boardroom imperative as companies running lean supply chains were feeling the pressure of sudden stoppage.
As the virus raged through each country, the shortage of labor now spread into the factory floor and the warehouses. What started as a mad scramble for parts now turned into a labor shortage and scheduling problem. Customer orders were increasing due to hoarding effects but manufacturing and supply chains were unable to keep up with the demand.
As global economies were hit by the pandemic, the demand died down. There was a significant drop in demand for goods and services across all sectors. This required a dramatic scale down in operations across organizations and supply chain downsizing.
Within a span of three months, we saw failure of global supply chains, a very short demand surge and a prolonged demand drop. All events happening in quick succession. How do we build supply chains and networks that can withstand such changes?
None of these events are unique or “once in a lifetime” events. Disruption of global supply chains is now going to be a regular feature that can be caused by geopolitical events, natural disasters such as earthquakes, significant weather events or cyber events and so on. The assumption of a low risk business environment is rapidly becoming an utopian reality.
Labor shortage has always been a challenge in the history of supply chains and this pandemic trigger was nothing new; it was the timing of events that led to this perfect storm.
Adjusting production to suit reduced or increased demand is one of the well understood concepts in supply chain. Being able to replan that in the midst of supplier shortage and labour shortage is the need for resilience.
Planning for Resilience
From Lean to Right Sized
Operating the leanest supply chains with the lowest cost vendor was best for a stable world that was running without any globally disruptive events. Anti-fragilty requires resilience to global events. This resilience comes at a cost. A cost that is higher than what supply chains previously incurred. So the challenge is to incur the additional cost today for a more resilient tomorrow. Those organizations who faced supply disruption in this pandemic would be amenable to accepting this cost since they understand the real costs of supply chain disruptions. Costs can come in the form of identifying alternate suppliers and having contracts in place (Toyota 60-20-20 model), building sufficient buffers in supply networks to ensure that small scale disruptions are not visible downstream and building analytics platforms to bring visibility across the entire network.
Bringing agility in supplier networks
Supplier agility can be achieved by a combination of reducing dependency on a single supplier and looking at finding suppliers in the local market of the consumers. By moving all work from an “offshore supplier” to say a supplier who has factories near your manufacturing facility, you can effectively reduce the risk of a single point of failure while asking each supplier to independently scale up/down their operations based on your demands.
Transparency, Collaboration and Insights
Cloud based supply chain solutions bring transparency across the network during this pandemic. Manufacturers demand better visibility across the supply chain and this visibility is enabled through cloud based collaboration tools. Harnessing supplier data and internal data and bringing insights through AI and ML would provide the kind of advanced insights to build resilient networks.
Decentralized and Empowered Teams
Bringing small teams working independently using the insight and analytics on consumer chains brings a new level of resilience through ability to rapidly make decisions and recover from failures compared to large single point of failure centrally managed teams.