Critical Supply Chain Planning Capabilities Needed to Survive the COVID-19 Pandemic and Future Supply Chain Disruptions
Like millions of people around the globe, I watch with growing concern as the number of people infected with COVID-19 continues to grow at a logarithmic rate and approaches 1,000,000. The global economy has been disrupted by a virus that is too small to see and too small to be filtered by most available face masks. Public gatherings have been cancelled including public schools, sporting events, and social gatherings, conferences and most musical performances and other entertainment. Many businesses, big and small, are fighting for survival as business has disappeared due to ‘Social Distancing’. Cities are on lockdown; travel bans are in place and global markets have quickly entered a recession.
A global pandemic of this size has not happened in modern times and most people have reverted to stock piling non-perishable products mostly out of fear of the unknown. For the first time in history, shelves of stores across the globe that sell food, beverage and other fast-moving consumer goods (including toilet paper, hand sanitizer and cleaning products) are nearly empty. Looking back a few months, no one could have predicted the current state of the global supply chain. Although maybe we should have been better prepared, after-all this is not the first major supply chain disruption faced by most companies.
Yes, every disruption tends to challenge the supply chain in different ways. A major fire in China has a different impact than a major earthquake and tsunami in Japan, a volcanic eruption in northern Europe or a category 5 hurricane in the southern United States. A major ocean carrier or supplier going bankrupt can affect your supply chain differently than a global pandemic. A sustained economic recession can impact a supply chain differently than a trade war or withdrawal from a trade agreement, i.e. Brexit. As supply chain professionals we are constantly tested by disruptions. All of these disruptions affect the supply chain in different ways.
Dan Gilmore of SC Digest recently posted in his Supply Chain Video News for the week of March 16 a surprising stat released by ISM. According to the survey, 44 percent of manufacturers do not have a plan for supply chain disruptions from China. Once the dust has settled from the Coronavirus I hope these, and the many others out there in a similar situation, take the time to think about the people, processes, data and technology they need to weather a future challenge more resiliently. To help get started, I have highlighted a few strategies to improve your company’s ability to sense, analyze and respond to supply chain disruptions.
Strategy One: Get a Better Handle on Supply Chain Data
The digital supply chain thrives on data. Unfortunately, determining what the right data is has become extremely complicated. The volume of data is growing exponentially. In fact, it is projected that 463 Exabyte’s of data will be created each day in 2020. That’s over 200 million DVDs of data per day. To develop insights that lead to value, supply chain data needs to be clean, consistent, comprehensive and current. However, more than 40 percent of supply chain leaders say that their available data is difficult to analyze because it is split between multiple reporting tools and systems, or simply because it is bad data. Achieving robust supply chain data management capabilities requires:
- The establishment of organizational roles and business processes that continuously drive towards supply chain data management excellence.
- Technology that supports the acquisition, cleansing, management and near real-time update of end-to-end supply chain data.
- Ownership of the process, data and technology by the supply chain organization.
Strategy Two: Digitize for Visibility and Decision Making
The supply chain is no longer linear. Supply chain information does not travel in a linear fashion; it travels as needed to get the right products to the right place at the right time. Visibility to near real-time, end-to-end supply chain data is necessary to feed the decision making process. Digitization of supply chain data is essential to achieving this visibility.
Digital data can be used to visualize your supply chain both numerically and graphically, representing both volumentric and financial measures. The use of a supply chain digital twin is growing in popularity as a way to view and interact with a geographic visualization of your supply chain operations. A supply chain digital twin is built from granular supply chain data that’s updated in near real-time to create plans, analyze tradeoffs, conduct ‘what-if’ scenarios and make informed decisions quickly.
Strategy Three: Strengthen Your Ability to Predict the Future
A major disruption in the supply chain will either alter demand and/or supply of your products. When dealing with a disruption the speed at which you can sense a change and predict its impact will determine your success in mitigating the effects of the disruption. With a demand-side disruption like a recession or a pandemic, customers will drastically change their purchases and adjust their inventory positions. Demand variability will increase as order patterns change. POS data will diverge from statistical forecasts as customers struggle with timing and product mix issues. Noise in the demand stream data will increase making the true demand signal harder to determine.
Advanced capabilities exist to strengthen your ability to predict demand. Statistical forecasting can be enhanced by implementing an advanced demand planning solution that enables hierarchical planning, multi-variate segmentation, life-cycle planning and the automatic selection and machine-learning based tuning of the most accurate algorithm for each forecasted item. Causal forecasting can be enhanced through incorporating a board range of causal factors, using visual analytics and what-if scenarios and enabling AI capabilities to learn and refine causal relationships. Demand sensing can be enhanced by incorporating a broad range of structured and unstructured signals and automating real-time data updates to enable continuous planning and accelerate your response to unexpected changes.
Even a one percent improvement in demand forecast accuracy if appropriately applied can enable a significant improvement in fill-rates and significant cost reduction. Demand forecasting isn’t everything, but it is a critical indicator of how well a company can serve its customer, exploit opportunities, mitigate risks, and sense market changes.
Strategy Four: Automate through Artificial Intelligence (AI)
Very few companies have implemented AI capabilities in the supply chain planning operations. In fact, Gartner found that only 47% of companies even have a strategy for introducing AI capabilities into supply chain operations. Most early forays into AI for the supply chain have been through home-grown efforts which take years of trial and error to find the right combination of algorithms, decision-grade data that solve a problem and creates value, and the analytics to visualize and communicate effectively across your enterprise. While many of these early home-grown attempts to use AI have failed to scale, Logility provides native AI-based capabilities to the market that have shown significant benefits.
To invest in artificial intelligence, C-level executives want quantifiable results showing how AI can improve their business in a reasonable time-frame. A better way of adopting AI capabilities is through purpose-built solutions that are proven to solve a problem and add value. Advanced supply chain planning solutions, like that available from Logility, have embedded these pre-tuned AI capabilities into their platforms. (Read: Logility Unveils Pulse Wise)
Supply chain disruptions like the COVID-19 Pandemic will continue to happen. We may not be able to predict what disruption or when it will take place, but we can prepare to more effectively and efficiently respond through the adoption of advanced supply chain planning capabilities. Below are a couple questions you should consider:
- Does your company have the ability to run multiple ‘what-if’ scenarios to help predict how your supply chain will be affected by different types of disruptions and to develop mitigation plans for the more likely disruptions?
- Can your company quickly sense a disruption in your extended supply chain, analyze options to mitigate the disruption and quickly take the best actions?
If you answered ‘NO’ to these questions, then it might be time to invest in transforming your supply chain planning capabilities.
As always I look forward to your comments and suggestions. Stay Safe