KNOWLEDGESTREAM AT-A-GLANCE
COVID-19 Impact on Global Supply Chains
ABSTRACT
PARTICIPANTS
OBJECTIVES
1. : Determine the challenges, drivers, trends and frictions specific to the scope.
2. : Develop a thorough list of alternatives, their strengths and weaknesses, supported by examples.
3. : Define the key characteristics that would need to be true to make the desired impact.
4. : Define the recommended path(s) for a viable solution and identify the critical success factors in deployment.
End Date: Jun 22, 2020
CONTRIBUTIONS
ACTIVITY
56 Days
4 Themes
20 Contributors
169 Posts
148 Comments
50 Followers
OUTPUTS
2 Slide Deck
1 Video
THEME #1
Understanding the Scope and Scale of the Challenge
THEME SUMMARY
Most companies are experiencing some degree of supply chain disruption; however, the degree and complexity varies by industry, geography and level of leadership and preparation.
- Policy and regulation decisions are directly effecting supply chain resiliency. Where there is thoughtful and sensible policy and practices, there are signs of a stronger supply.
- Consumer purchasing behaviors are "predictably irrational"; however, manufacturers were not always anticipating or prepared for these consumer behaviors.
- Supply chain networks which are highly interdependent, global and overly “lean” have faced more complex issues and struggled.
- The "supply chain pandemic" may have a 'half-life' that surpasses the infectious disease pandemic itself. Downstream suppliers will continue to struggle to get back to 'business as usual'.
RECOMMENDED NEXT STEPS
There are several insights and actions that can be extracted from the wisdom of this crowd: Covid-19 is a harsh warning for many manufacturers. It is unlikely to be a singular event. Rather, it is more likely to be a continuous on that will persist beyond this winter/spring. This implies a growing level of unpredictable and disruptive events that demands adaptation from manufacturers. Traditional demand forecasting models are based on the assumption of normal demand. It is essential to redesign models that can account for unexpected surges. Specifically, Covid-19 has provided a valuable window into consumer behavior and irrationality. Teaming up with behavioral economists can help prepare and better model supply / demand fluctuations so you be better prepared to resiliently supply goods. “Partners will rise or fall together.” Creating better connections among supply chain partners would improve the flow of information, ideas, and response strategies. Map your supply chain and provide for back-up in terms of your network of suppliers AND people. Cross-training your employees allows flexibility, for the company, and for the employee.
Globalized Supply Chains are Bending Under Consistent Stress
Globalization, financial short-term ROIs and lean organizations have demonstrated not being resilient in front of such risks.
Brands like Gap have asked its suppliers not to ship completed summer products and to be kept stocked for any future demand. As a result, finished inventories pileups can be seen at the manufacturing complex of the suppliers.
Customers have low levels of cash and are delaying payments to maintain critical operations. This has caused us to review credit limits. On the flip side, our suppliers are also concerned about cashflow and are expecting payments in advance for services. This is creating a squeeze.
The Ability of Organizations to Honor Commitments Varies
Many high end retailers are cancelling their contracts with suppliers, consequently large supply orders are dropped suddenly, without any prior indication. Similarly, supply side vendors are also breaching contracts with their customers, as downstream supply chains got broken for many products lines
The aircraft manufacturer has halted commercial aircraft production because these large order cancellation owing to Covid-19.
However amid this turmoil there are brands like H&M, M&S, Target, Tesco who have honored their orders and didn't cancel it.
Manufacturers have to Make Big Pivots with Economic Implications
The contract manufacturers locally are running at much lower capacity due to expert and experienced employees unwilling to take risks and come to work, or due to child care,etc. As well as having to restructure the factory floors to achieve social distancing
Some European firms are moving from ocean freight to more expensive but faster rail transport from China.
Lead times have lenghtened. In order to get supplies on time to keep the produciton lines fed, we have had to air ship very high cube shipments - resulting i n horrendous air freight costs - our overallcost of goods have been negatively impacted.
Supply chain teams have had to recalibrate how they manage and predict supply
traditional forecasting models have gone haywire and not fetching correct outcomes, the core reason is unpredictability of virus spread and its impacts on people and businesses.
Distribution of products is going through some unique challenges such as staffing of warehouses, a need for direct distribution and more intelligent and responsive allocation across channels.
Consumers are feeling the breakdown in the "last mile"
Supply Chain Analyst are clueless on exact demand, as consumer behavior during this time is tough to gauge. Buying behavior of consumers are changing very fast depending on spread of virus.
General customers will find a shortage of goods on the sales floor within 6-9 months post Covid and will be scrambling to find goods to sell .
Canada Post recently reported that current volumes are consistent with the normally high volumes of the Christmas season. And in some cases product arrives in the city of delivery and sits at UPS for days to weeks. This is forcing some shoppers back to brick and mortar locations for urgent items.
THEME #2
Leading Practices and Principles
THEME SUMMARY
The "Old Supply Chain Rules" are changing fast and there is a dire need to create "New Supply Chain Rules" in the Covid era
- Musical Chairs: Long term relationships have been upended - it has become a game of musical chairs and nobody wants to be caught without supplier back-ups when the music stops
- China Dependency: Companies that were heavily reliant on suppliers from a single region (China) have disproportionately struggled
- The Old Models: Supply chain dogma over the past decade suggests that companies lean-in to "JIT, Lean and VMI"; but those "olde models" have contributed to some of the systemic breakdowns
- 21st Century Tech to the Rescue!: Blockchain and IOT hold tremendous potential to improve supply chain visibility and enhance resiliency for the "next time"
RECOMMENDED NEXT STEPS
Overdependency: Assess your supply chain and be clear on how diversified your portfolio is. Know where the weak spots are and have clear visibility from month to month in the event of the unexpected. Move into the Next Century: Your company should be running experiments with "new models" of supply chain that include the use of IOT and Blockchain. It will be unnerving at first but can build the trust and resiliency that can help your business survive when another major shock comes along.
What Has Worked?
Conducted end-to-end supply chain risk assessment Identify - changes in demand and inventory Define - common goals and an actionable short-term resilience strategy with breakdown activities among suppliers Deploy - A fact-based dashboard, including aligned KPIs to for enterprise-wide visibility.
IoT devices for demand sensing and goods movement tracking to advanced forecasting solutions and social medial demand behavior monitoring
Many distributors implemented safeguarding measures with manufacturers to close the gap between supply and demand. This includes implementing order controls on customers. For example, a maximum 30-day supply shifting away from the normal 90-day supply on chronic medication refills.
What Has NOT Worked?
Most companies developed their strategic supply chain around China. Not only a single supplier / vendor failed, rather whole suppliers base of that country failed. In that circumstance, when China went into lockdown then all alternatives of supplies also got shut down.
Stockpiling inventory solely on news reports alerted distributors/wholesalers that something was amiss in the retail sector. They responded with restrictions and allocation policies. This led to more retail pharmacies being unable to get enough product to meet patient demand.
Organizations rarely have visibility into the operations & capacity beyond their first tier suppliers, if that. This lack of visibility translates to a higher risk & is the first bottleneck in achieving supply chain resilience.
Advice
Run supply chain stress test to understand when supply issues will start to stress liquidity . Supply-chain leaders can focus on freeing up cash locked in other parts of the value chain. Reducing finished-goods inventory can contribute substantial savings.
Need to depart from the Lean, JIT and VMI (Vendor Managed Inventories) apporoaches. Best strategy at this time is to have 'Available In Stock' (AIS) even before a customer order has arrived. There's an urgency for corporations to buildup in-house solutions which build up desired level of inventory.
Blockchain & IoT have the potential to dramatically improve visibility across the end-to-end supply chain. With real time visibility of B2B transactions in your supply chain, silos between organizations in the supply chain are broken down and orgs become connected to their complete supply network.
THEME #3
Future Strategies and Approaches
THEME SUMMARY
Supply Chains are a complex, interdependent ecosystem that cannot always be controlled by individual corporations. The actions of the general public and government entities can greatly influence who "wins" and who "loses"
- Companies are actively pivoting their businesses and supply chain model; but defining "winners" and "losers" is premature; we will know better in the post-covid era
- The general public played a huge role in the supply chain; impulse buying drives shortages and puts undue stress on the supply chain
- If the general public wants more resilient, domestic production, they are going to have to pay for it. The challenge is the temptation of low-cost goods. Most people are not up to that task.
- The government has become a major influence on the global supply chain. Trade policies and restrictions in the name of protecting domestic supply are causing unintended positive and negative effects.
RECOMMENDED NEXT STEPS
Earlier and more decisive government action, rather than political grandstanding, can have a positive effect on consumer actions and industry. Bringing together all of the major stakeholders before the next big event in a tabletop simulation will go a long way in terms of building alignment.
Best practices vary by industry and it's a bit premature to declare the winners and losers
Even Apple! Most of the hardware of Apple products is supplied by China and Taiwan based suppliers. Consequently, the new 5G iPhone 12 is under threat of delaying its market launch by several months towards the end of the year!
Companies like Twitter have accepted that more than 70% of the jobs can be executed remotely are one step ahead. In Colombia, a local bank sends new ergonomic chairs to their remote employees and is redesigning the customer journey around the fact that their employees will remain remotely forever.
BMW does not see any impact of supply chain disruption on its India operations. They are focusing on localisation of its product range in the country. Already, 95 per cent of their volumes come from locally manufactured products which directly resolves supply chain disruption.
The government has become a major influence on the global supply chain. Trade policies and restrictions in the name of protecting domestic supply are causing unintended positive and negative effects.
Govt. restrictions and trade policies, which have become unpredictable in the Covid era, have led to many avoidable supply chain disruptions. We've seen that with bans on PPE and med equipment exports.
The Government should define which products are necessary to ensure basic public life / healthcare. These items should be protected and actively managed rather than waiting for a crisis.
Across the World we are seeing daily new regulation and policy interventions at Federal, State and Local Govt. levels in the matter of Supply Chain, Import/Export, Procurement
The general public played a huge role in the supply chain; impulse buying drives shortages and puts undue stress on the supply chain. But consumers will have a chance to vote with their pocketbooks in the future.
The general public can play huge roll by modifying their behavior. The panic buying and hoarding was not necessary. If everyone had kept to their normal buying patterns we would not have seen the shortages and supply chain disruptions
Customers must be willing to pay for local production, sustainability and human-rights. The challenge is that many consumers have a reduced budget and factoring in higher costs, and subsequent price, will drive customers into the arms of low cost providers.
We can influence public behaviour through educating programs helping the to understand how abnormal buying affects others and can ;lead to global supply chain problems that are often difficult to overcome.
THEME #4
Parting Thoughts and Wisdom