How is COVID-19 affecting supply chain planning?
COVID-19 has created unprecedented disruption in supply chain planning. Both the operational and financial consequences are severe: planners are experiencing demand drops and surges by segment, supply shortages, inventory placement challenges and reduced productivity. Moreover, to manage the crisis, planners cannot rely on the steady-state models on which most existing planning systems are based. They need to make decisions using real-time information, acting as the “nerve center” of the flow of supply chain data.
Planners should look to further collaborate across the partner ecosystem and work with their supply chain function counterparts (manufacturing/supply and fulfillment) and other company functions (finance, sales and marketing) to ensure execution plans are aligned and meeting the most critical needs. They also need to more closely manage the data to achieve thoughtfully prioritized micro-segments, priority customers and demographics, products and geographies. This action step is essential to strategically moving inventory and repurposing supply capacity to manufacture high-demand products. Data-driven supply chain decisions help businesses and communities to better manage the disruption amid the crisis, resulting in a stronger foundation for future growth.
Five key areas for immediate action
The planning function is central to a company’s ability to address disruptive events like a pandemic. It is the conduit for efficient information sharing between supply chain ecosystem partners, including suppliers and internal and external customers. But to maintain effective operations, the planning workforce needs their leadership’s support to stay healthy and productive during this challenging time. That means addressing their mental and emotional needs as well as protecting their physical safety. The planning organization also needs to implement new ways of working to effectively provide end-to-end collaboration capabilities.
In the face of this challenge, planning leaders need to:
- Be diligent about looking after the well-being of their resources and look for signs of fatigue. Ensuring planners are equipped with analytics support is critical.
- Transition to new ways of working – allow planning teams to operate as a virtual organization during the pandemic, providing them with the tools they need to continue working efficiently.
- Reskill and coach people to enable productivity in remote work environments.
- Mobilize supporting structures to enable new operating models and allow virtual sales and operations planning.
- Connect regularly with suppliers and vendors while leveraging periods of downtime to plan future strategies, orders, and technology integrations.
“Black swan” disruption events result in severe supply and demand imbalances. The first response should be to ensure products and services are available to those most in need. Data-driven decisions can support an effective response, but require visibility into demand, inventory, capacity, supply and finances across the ecosystem. To do this, planning leaders should consider the following:
- Capture demand insights using internal and external sources such as Centers for Disease Control and Prevention, World-O-Meter or Point of Sale data.
- Create supply maps of available inventory, supply options and capacity availability across the network.
- Collaborate with ecosystem partners and customers to capture demand shifts and related supply shortages in near real-time.
Companies can help societies manage the COVID-19 impacts by prioritizing the products and services that are most urgently needed. To do this, planners need to carefully analyze demand and define priority micro-segments. This process should consider combinations of customer demographics, geographies, market sales channels and products:
- Use analytics to identify which micro-segments should be high-touch, medium-touch and low-touch.
- Use this segmentation to define where the planning SWAT team should focus (i.e. the high-touch portfolio) and where exception-based planning should be used (i.e. the medium-touch and low-touch portfolios).
- Define segment-specific strategies, such as inventory norms, capacity allocations, planning frequency, and identify which parts of the portfolio are candidates for automated planning.
In this time of crisis, planners need to shift their focus to high-priority segments. Aligning the cadence of both planning and execution. To do this, companies need to mobilize dedicated planning and execution teams that are able to undertake multiple interventions and orchestrate responses effectively. Planners need to:
- Form a cross-functional SWAT team with a mandate to exercise faster and better decision making in regard to planning the high-touch product portfolio.
- Continue to plan the medium-touch and low-touch portfolios on a “plan by exception” basis, looking to automate sales and operations execution processes for these segments over the near term.
- Revisit input parameters to ensure plans are achievable in the present circumstances. That includes reviewing supplier lead times, inventory levels, warehouse turnaround times, human resource constraints, plant downtimes, etc.
- Closely monitor execution. Be prepared to reshape plans to ensure they continue to meet the needs of the high-touch segments.
Planners need insights to confidently respond to the challenges of this pandemic. To prepare, they should run simulations to predict when and where excesses and shortages are likely to occur. Additionally, they should run end-to-end scenarios to get actionable insights that will optimize their operational metrics and help society navigate the pandemic as effectively as possible.
- Leverage real-time insights to predict demand shifts by geography and channel (such as sudden surges in demand for specific products).
- Strengthen the supply base by analyzing potential supply scenarios to assess the capacity of existing and alternative sources. Use supply chain digital twins to model this accurately.
- Simulate strategic positioning and movement of on-hand, in-transit, and on-order inventory to meet predicted demand.
- Simulate production capacities to prioritize the existing high-touch portfolio or to repurpose capabilities for new and critical in-demand products (such as hand sanitizes, masks, other personal protective equipment and basic necessities).
What’s next for supply chain planning
The COVID-19 pandemic is overwhelming the supply chains that are vital lifelines for communities around the world. Supply chain leaders must make timely decisions and take immediate actions to sustain these critical business operations. There is an urgent need for leaders to address the crisis in the short-term while using responsible strategies to build greater supply chain resilience for the future.
We recommend the following key actions:
Companies have an opportunity to use this challenging period to discover where investments are needed, evolve the supply chain planning function, and reposition the organization to better support business growth once economies rebound.