From empty shelves to delayed online orders, the impact of Covid-19 on supply chains is plain to see. Fluctuating workforce capacity, logistics, and access to materials is causing global disruption, and repeatedly sending retailers and consumer packaged goods (CPG) companies back to the tactical drawing board.
Even as lockdown eases, ongoing shortages show many are still struggling to manage supply chain challenges, which are limiting their long-term success. The availability of flour, for example, was at just 29% in UK supermarkets in May, and other various products continue to face difficulties keeping up with demand in markets around the world. The more inefficiencies allowed to slip through the net now, the lower future growth prospects will fall.
This makes increasing resilience an urgent priority. Retailers and CPG companies must harness the uncertainty as an opportunity for adaptation, pinpointing how current difficulties are derailing their supply chain and what actions they need to take to run as efficiently as possible.
Recent months have brought two key problems when it comes to supply chain coordination: unprecedented flux in demand and increasingly convoluted planning.
COVID-19 wreaked havoc on consumer demand patterns, and existing buying forecasts became redundant. Fashion retailers expecting high spring purchase rates saw clothing sales plummet, dropping by 50% in April. Meanwhile, customers stripped supermarkets of essentials as demand peaked for low-stocked items — most infamously toilet rolls — and homeware stores such as B&M experienced a rise in gardening and do-it-yourself buys. No matter which direction sales have taken, demand analysts face the need to hastily recalculate production, with almost no insight to reference on how to predict near and medium-term consumer behaviour.
At the same time, the tendency towards fragmented production has fuelled wide-ranging issues. With integration among verticals limited, manufacturers often make and assemble parts for sector-specific goods in separate locations overseen by various suppliers, each with their own cascading supply networks. Amid the crisis, outbreaks have caused a kaleidoscope of different challenges and dramatically impacted effective planning, particularly for those reliant on just-in-time deliveries to keep inventory levels – and thereby storage costs – low.
How can retailers build unbreakable chains?
Finding a path through the pandemic and beyond requires a multi-pronged approach. Retailers must not only improve their ability to survive the operational and economic impact of coronavirus, but also ensure they are ready to tackle future turbulence. This will involve increasing versatility in four key areas:
Enhancing demand-sensing capacity
With consumer behaviour no longer fitting historical trends, retailers need to up their demand-sensing game. The ability to accurately assess data and identify upcoming spikes in demand is essential to keep up with consumer needs and stay ahead of competitors, especially as the diverse impact of Covid-19 makes for more hyper-local buying patterns. As a result, retailers must ensure their demand-forecasting set-up has the necessary analytical power. To be specific, forecasting programs should be capable of running fast, precise, reliable, holistic, and relevant evaluation of unique consumer trends. Businesses need to convert that insight into granular demand forecasts that allow for tailored supply adjustment in different locations.
Testing stress management ability
Predicting demand surges is one thing, but meeting them is another. Retailers must ensure they can cope with sudden changes by stress-testing their technology. Running sophisticated scenario analyses with modelling technology will identify where the greatest fulfilment risks lie, allowing businesses to pre-emptively mitigate issues so that product allocation and delivery can continue uninterrupted. For example, analysis revealing strain for particular production plants will signal a need to provide extra support with greater overflow capacity.
Evaluating overall risk tolerance
A heavy focus on cost-effectiveness has increasingly meant retailers often sacrifice supply chain design risk tolerance to minimise expenses. Covid-19, however, has highlighted the flaws in this balance of priorities. Enhancing long-term survival depends on the resilience to withstand shocks; achieving that calls for complete visibility of all suppliers. Blending control-tower solutions with delivery, capacity, and performance data will allow retailers to evaluate their overall risk and create product-specific, integrated risk profiles that enable fast corrective responses.
Again, this is an area where smart modelling plays an integral role. Technology tools can help retailers combine the key characteristics of supply chain nodes into a holistic map of their wider network. With a simulation model, they can assess multiple risk levels in different circumstances — from loss of supply capacity to increased transportation time — and gain valuable insights into which action they should take to maintain supply and order fulfilment.
Setting up a robust control room
Finally, being prepared for an unpredictable future requires emergency planning. Businesses should establish a designated team that persistently works to prevent problems and can rapidly take charge in times of crisis. Just like some companies set up war rooms to determine the initial immediate responses needed to address the pandemic, ongoing monitoring to determine priorities and adapt and respond quickly is critical to success in these volatile times.
For instance, day-to-day attention will centre on monitoring processes. Teams must regularly engage with suppliers to track production levels and delivery output, spotting any issues that they need to resolve, such as departures from set production plans, erratic customer fulfilment rates, and order cancellations. But when turbulence hits, the team will step up to assume control of supply management, making fast decisions about where to reallocate constrained supply and which orders to prioritise. This requires continual analysis to keep demand forecasts and supply plans up to date.
Some companies see stock-keeping units (SKUs) on allocation or more than a year, yet products such as disinfectants and sanitisers cannot get enough capacity to meet the larger demand. Fulfilling orders in this pandemic with a prolonged period of limited supply dictates different strategies, rules, and processes for evaluating SKUs, and how to manage tracking to fulfilment. A control room can analyse different trends and prioritise customers, rather than orders, with fair share allocation that delivers better results. If a company’s supply has challenges keeping up with high demand of certain products with spiked needs during the pandemic, it maybe be better to have half of its customers (and the more important ones) happy, than none at all. A control tower can have the agility to enable and drive a new strategy as needed, and coordinate with other teams such as customer communications, to implement the most effective delivery plan.
The ultimate strength of any supply chain is determined by its weakest link. In the face of Covid-19, this is a lesson many retailers and CPG companies have learnt the hard way — but taking swift action will ensure they do not repeat the same mistakes. Those who use today’s crisis as a chance to improve resilience will not only survive the current turmoil, but also be better equipped for enduring success. With a clearer idea of coming demand, shock-proof technology, and crisis specialists on stand-by, smart retailers will be ready to thrive in the new economy, no matter what shape it takes.
Mike Landry is global service line leader, supply chain management at digital transformation professional services firm Genpact