The Changes & Challenges In Supply Chains Post COVID-19

The Changes & Challenges In Supply Chains Post COVID-19

The rapid spread of the coronavirus has severely impacted communities and businesses globally. It has necessitated strict lockdown measures and restricted the movement of both people and goods. According to Dun & Bradstreet, as many as 938 of the Fortune 1000 companies have tier 1 or tier 2 suppliers who’ve been affected by the pandemic situation, impacting both their top lines and bottom lines. Under these circumstances, supply chain organizations have to carefully reexamine processes for better efficiency, right from integrated business planning in terms of demand and supply, to related areas like procurement, distribution, and production.

The Pandemic Impact on Supply Chains

The global overdependence on China, the massive shift in consumer demand, the absence of end-to-end visibility across supply chains, and lack of digital processes are just a few of the many challenges that have surfaced due to this unprecedented global event. Let’s take a deeper look into the impact across the supply chain lifecycle:

Disruptions caused by limited movement: In regions affected by COVID-19, public health regulations have restricted the large-scale movement of goods and people. As a result, factories and offices had to shut down and maintain social distancing, which severely limited the workforce, leading to several job losses and furloughs. This, along with factory closures, limited warehouse capacities, and inadequate logistics, brought supply chains across multiple industries to a standstill.

Shifting consumer behavior: Due to the lockdown imposition and panic buying in some areas, product availability trumped consumers’ brand loyalty, especially for everyday commodities such as packaged foods and personal hygiene products. For non-essential product categories, people are prepared to wait out the pandemic, instead of purchasing alternatives. The demand planning in such situations will evolve further over the next few months as countries start taking further steps.

Lack of end-to-end visibility: This problem is not necessarily a direct effect of the pandemic; however, it will affect the speed of recovery and response of supply chains. Given the complexity of supply chains, the sheer lack of end-to-end visibility makes it difficult to control and tweak the right levers for risk mitigation and efficiency improvement. The need of the hour for enterprises is, therefore, the ability to orchestrate end-to-end supply chains.

Rigid supply chains and limited inventory: Supply chains today seem to have traded resilience for efficiency. Most are proponents of just-in-time inventory management, which leaves them vulnerable to sudden supply shocks. Despite digital interventions, supply chains are unable to reroute orders fast enough to alternative suppliers. This has had a considerable impact because supplies dependent on China are grossly disrupted.

Lack of digital processes: The supply chains among many businesses are not digitally connected despite considerable investments in Enterprise Resource Planning systems. A digital ecosystem is essential to mitigate threats to production capacity and to manage last-minute changes to orders.

COVID-19 Survey
Image 1: Institute for Supply Chain Management. “COVID-19 Survey: Impact on Global Supply Chains.” ISM. 11 Mar 2020

The Crisis Mitigation Approach in Supply Chains

Let’s take the example of a large Fortune 50 company with a revenue mix of about 40% from hardware-related products, 30% from their sales and support, and the remaining 30% from digital services. In times like these, the company would have to take a balanced approach towards measures that can handle short term complexities, while keeping in mind long term business goals.

In the wake of this situation, companies that have protocols related to risk management and agility in management decisions are primed for success. These organizations also need to look at using systems that can process and analyze huge volumes and varieties of data faster, and acquire the ability to simulate various scenarios to aid in better decision making. Leaders may also want to reconsider their cost-based analysis for deviation from usual KPI standards, thus allowing maximum usage of stock available in holding, to fulfill demand even at a higher cost.

Resilient companies that come out of the crisis relatively unsinged and who are looking to pave their way to a robust future need to focus on the following areas:

1. Risk Management Procedures

Businesses with a sizable digital portfolio that are equipped with robust risk management protocols will be able to stay ahead of the pack. They will be at an advantage if they have instituted a committee of senior leaders who can continuously monitor the situation, in the ground, and take decisions quickly. This will give them the ability to handle customer demand, which is highly fluid now, even if there’s an increase in the cost of delivery, and that signals a deviation from standard KPIs.

2. War Room for Running Integrated Business Planning

Businesses should look at setting up a permanent war room where decisions on integrated business planning can be taken. This should include senior planners and a set of protocols for taking fast decisions, especially in times of such crises, and to look out, in the future. Imagine combining advanced analytics with AI accelerators that power real-time insights for optimal scenario planning, and enable end-to-end supply chain visibility across the lifecycle. That’s the kind of control organizations need to bring resilience and agility to the supply chain.

An AI-powered supply chain provides real-time visibility of metrics across the entire process, enabling data-driven decision making across teams and processes.

3. Scenario Analysis Capabilities

With newer constraints in terms of availability, production, and supply chain, planners will need to analyze constraint-based scenarios and re-prioritize SKUs based on demand.

Companies will need to invest in accelerators powered by machine learning that will help gain insights into complex supply chain processes through KPI measurements. These may also ensure faster optimization for scenario problem-solving at each sub-process level.

4. Increased Visibility In Supply Chains

A pandemic of this magnitude puts massive pressure on inventory systems in the supply chain nodes. Post COVID-19, businesses will aggressively look for digital ML-based platforms that will provide visibility and recommendations in real-time. These will allow them to see nodes where the inventory of specific goods is sub-optimal, thus allowing planners to make more informed decisions.

5. Being Digitally Enabled

Last but not the least, at each sub-process level, planners would be winning if they have enough computing power to solve complex what-if problems at a fast pace. In the post-COVID world, companies that can make these initiatives real will lead the market.

The days of this crisis may be far from over, but these learnings will go a long way in bringing systemic changes that will power the future of supply chain systems. We’re at the advent of an AI-fueled revolution. The time is ripe for re-imagining business processes and overhauling the existing supply chain systems to ensure future supply chain processes are smart and agile, and capable of weathering future pandemics, as much as we hope there are none.

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Author: Nitin Bhatt & Prabuddha J