How to minimise disruption to Planning, Manufacturing and Distribution
Where this economic shock differs from 08’s, is that during the ‘Financial crisis’, there was a clear negative hit on the demand side of the economy, due to credit being withdrawn. The shock we are experiencing currently, due to Covid-19, is from both the supply and demand side, the perfect storm of negative economic impact.
Yesterday, the OBR warned of a possible 35% retraction in the UK economy, post Covid-19, with up to 2m jobs lost. This will likely further compound the supply and demand shock in the short term, as consumers with low confidence in their own financial stability will be reluctant to part with their income, and suppliers, with their own financial challenges or personnel restrictions will only be slowly ramping up their supply chains.
Therefore, when Supply chains restart there is likely to be unusual and unexpected demand and supply behaviours, however this does not mean you cannot mitigate them.
There are a number of leadership challenges posed by restarting your Supply Chain and we have outlined three of them below, however by organizing these effectively you will be in the best position to ride out the short term uncertainty and kick your Supply Chain back into action as effectively as possible – just remember there is no accountability without action!
Planning and Scheduling
I have some bad news for you, all the time and effort you have previously put into predicting your demand variance, i.e. forecasting is out of the window (in the short term), and research carried out by The Supply Chain movement, into current Supply Chain bottlenecks, places “lack of insight into customer demand (60%)” as second on its list, however you will still need to plan… so how:
If you can’t beat variance by forecasting it then your system will have to be capable of dealing with it in real time – you will be likely to experience longer or uncertain lead times for your own raw material supplies, and you will have to mitigate this. In more normal times you will probably have defined a make to order (MTO) or make to stock (MTS) strategy, but in these uncertain times your ability to define SKU’s and Customers in this way will be diminished and you may need to operate a by exception service (i.e. individual orders will need to be prioritised on a case by case basis). This could become time consuming, however if your systems are connected and your operating rules are defined, this becomes as simple as pushing a button.
In the longer term a move away from traditional, one dimensional (future demand expectation) demand models could be replaced with real time predictive models (historical data + future demand + meta-data), however digital transformation would be required to build the data and analytics ecosystem for this to work effectively.
You will also need to be clear to your customers that service may be disrupted for a while, so rather than relying on previous, average lead times “Our average lead time for this is 5 working days” tell them exactly how long their order will take “Your order will be delivered to you in 7 days’ time”. This is also a good habit to get into, working to actuals, not averages…
With uncertainty in demand identified in the previous section, there will also likely be uncertainty within your own labour availability, as people unexpectedly take leave to battle an illness, care for family or self-isolate. How to deal with this additional uncertainty is down to the strength of your Operating System – the system by which you layout your plan and measure deviation from it – ask yourself, are you clear on your key operating processes to drive productivity? Is there Process clarity? Are reviews conducted on time and in full? Are metrics reflective of how your customer measures success and are targets set and achieved? How is work efficiency evaluated, are decisions taken and actions planned? If the answer is a resounding YES, then well done, you should be able to deal with a level on uncertainty and continue to meet your labour productivity targets. If the answer is NO, then you should be using this time to assess what improvements need to be made to re start your supply chain effectively.
Storage and Distribution
As delivery lead times will likely be under pressure due to the uncertainty of the front end of your process, the last thing you should be doing is taking your eye of the ball at the back end. Companies that ride this out will be those that offered the very best service in uncertain times, research conducted by The Supply Chain movement, into current Supply Chain bottlenecks places “outbound shipments to customers (50%)” as third on its list.
To my mind, there are two way to offer first rate service with unclear inputs – you either build a huge amount of stock, which is not ideal due to the negative working capital implications – or, you could use your real time predictive demand capabilities, coupled with your world class operating system and supplement this with a variance based view of On Time Delivery, ensuring your customers get what they want, when they wanted it.
Stability in Service Delivery performance is only achieved by stability in the front end of your process, however if service is your immediate challenge (and it should be) then by implementing a simple variance based view of delivery performance will give an indicator of performance today, but guess what, you’ll need a data architecture and infrastructure to calculate it.
There are lots of leadership challenges facing you at the moment, but I would wager a guess that if you are a Supply Chain leader, then one of, if not all of the above are on your list, however if you’re still not convinced – Forrester muse that “Insight-driven businesses are growing at an average of 30% yoy” and are “on track to earn $1.8tn by 2021” and what all of the above leadership challenges have in common is the need for available and connected data, to give you the insights you need to effectively deal with the additional variance caused by uncertainty.
Ask yourself this “Could I be using this time to think about how I can design and build resilient, digital processes” if the answer is yes: please, get in touch.
Sam Clarke is Senior Business Process Excellence Consultant in The Netherlands