Few months have passed since the outbreak of the virus in Europe, and it seems as if a geological era has already passed. In recent months we have gotten used to reduced physical liberties and production companies have had to face significant closures and many less orders.
There are several possible scenarios for the coming months: from a rapid return to normality following a significant and permanent reduction in contagion and therefore an increase in consumer confidence, to other surges in the spread of contagion with the risk of some markets’ partial closure in order to reduce the number of contagions. This uncertainty currently makes it impossible to effectively understand the extent of this risk and the different possible future scenarios.
This situation will also have profoundly different impacts depending on the relative business sector: some companies will suffer a persistent decline in demand, others only temporary, while others have been able to take advantage of this new reality to even increase their turnover.
There is, however, one key word that will always be present in the coming months: agility. Typically complex supply chains involve different actors and high dynamism on both the distribution and supply sides.
Here are some guidelines to keep in mind in dealing with this new situation with the right operating leverage:
Classical logic will not apply to demand volatility in the coming months and, depending on the evolution of the virus and the relative market, demand will be highly variable. It’s important to accept this variability and focus on the ability to adapt the supply chain according to the changes and elements that you can control. Becoming agile means organising your company to be able to intercept changes in time and increase the responsiveness of the entire supply chain.
Right product – right place – right time
Profiling customers, creating different service lines and prioritising allocation logic lets you privilege those customers who, for turnover, punctual payments or margin, bring your company the most benefits. Companies can increase their flexibility by completely decoupling the supply chain and the distribution chain, moving the goods allocation phase to the various channels and/or markets as late as possible. This first step must be aligned with a more dynamic and simulative allocation process: proactively simulating problem solving and thus intervening earlier. The allocation process must therefore not only consider on-hand stock, but also that which has already been allocated and future product contributions.
New inventory management models
Where possible, distribution centres must become capacitive warehouses to absorb last-minute variations. In retail, physical stores will increasingly become logistics hubs themselves, able to meet the demand coming from different channels. Improving the adaptability of inventory planning (sizing, parameters, simulations and trends) to changes in demand and avoiding stock-out or over-stock risks can be an important adaptive lever. This must be pursued by applying different stock management models and policies depending on product groups and their segmentation (best sellers vs slow movers), ensuring flexibility in impact assessments if customer orders are anticipated or delayed.
Companies need dynamic tools that let them re-plan often, benefitting from simulative scenarios from a what-if perspective. The finite-capacity planning process becomes daily, making it possible to manage critical issues with constant analyses and decisions. The resolution of capacitive impossibility is obtained through the use of capacity, temporal levers and the distribution of daily needs. Significant examples of agility are the ability to adapt work shifts, the use of alternative facilities/resources based on cost/benefit analyses, the maximum advance possible for protecting inventory value constraints, or the maximum delay for protecting target service level constraints.
Structuring a prosperous business process means the collaboration of different company functions, integrating data from different sources/systems and making it useful information for supporting the decision-making process based on KPIs, alarms and high-impact events. Remote collaboration is quite topical at the moment, and cannot be reduced to the use of tools for online meetings. The real challenge is to structure processes that allow the dissemination of information which is useful for decision making in a “just in time, just enough” perspective, going beyond the limits related to classic collaboration technologies such as telephone/email.
Integrating suppliers into the process
involving critical suppliers and raw materials with long lead times helps the entire value chain be more responsive. Beyond purchasing plans, it’s fundamental to have a collaborative approach with suppliers, synchronising your production plan with capacity and any other previously verified critical constraints. This allows improving the reordering process: the purchasing department is able to view unmet requirements with an appropriate amount of time and issue new orders in the right quantities and only at the right time. Finally, targeted reminders must only be sent where real critical issues are highlighted, allowing suppliers to focus their attention and priority on specific cases and to adapt to the new context.
Involving top management
a company can only truly become agile and responsive when top management is involved. The will to change must be shared with different functions, thus everyone can bring value. If purchasing, logistics, production, and the sales force don’t share this philosophy, the chain will never be fluid and a company will struggle to evolve, losing important levers of competitiveness within the market.