“Supply chain disruption” is likely a term you’ve been hearing a lot recently as COVID-19 continues to drastically affect life as we know it. The supply chain disruption that this coronavirus has caused is different than most other disruptions because it is affecting both supply and demand. Companies across the world have had to make drastic changes to the way they have been doing business and adapt to constantly changing consumer behavior while managing supply chain disruptions.
Many businesses were not adequately prepared for a disruption of this size and scope and have fallen behind while trying to react to the crisis. In order to future-proof your businesses, you must prioritize supply chain disruption management for the future when something like this happens again.
We interviewed Kasia Wenker, director of distribution sales at ITS Logistics, who offered advice and recommendations on how to safeguard your supply chain for future disruptions.
Q: What can we learn from COVID-19 when supply chain planning for the future?
Kasia: The coronavirus disruption has magnified weaknesses in supply chains for many businesses, including how unprepared most companies were for this. Many businesses responded too late: even though they knew disruption was coming, they didn’t see how it would directly affect their supply chains and therefore didn’t react quickly enough.
Most of the businesses that have fared well throughout the crisis knew where bottlenecks in their supply chains existed and already had a good enough understanding to affect the change at each node. Because they were aware of the available capacities, constraint and resources, they were able to plan ahead as they saw the disruption coming and either ramp up or ramp down production, right-size inventories and appropriately manage staffing. A lot of businesses overreact to the changes in increased or decreased demand, which can cause more unnecessary disruption throughout the entire supply chain.
The bullwhip effect is real. This is the number one lesson in any supply chain 101 course: don’t overreact to demand signals, but make sure you understand what each of your nodes can output. There is a lot of talk about supply chain resilience and capacity and digitization of your information, but much of that is not applicable to mid-cap brands. Mid-cap brands with one manufacturing point and only a few distribution centers across the world simply cannot double their capacity and digitize. We know one thing for certain: supply chain disruptions will continue to happen—whether it’s fires in California, global trade wars, port closures or strikes—so it’s important to have a plan to keep your business afloat when the next one hits.
“The bullwhip effect is real. This is the number one lesson in any supply chain 101 course: don’t overreact to demand signals, but make sure you understand what each of your nodes can output.”
Q: What should businesses implement in their supply chains now to reduce future blows from similar situations?
Kasia: It’s important to recognize that supply chain safety comes from redundancy, but it’s not realistic for every company be able to build in extra capacity and build out additional inventory. More inventory is not the answer and making more will not fly with your procurement managers. Companies that have good mapping and understanding of their supply chains are coming out stronger from this crisis. They have a lot of information on hand, which is the key. They know their suppliers’ capacities, their sites’ capacities, products’ capacities and the constraints of their SKUs. This knowledge allows them to be first in line to secure alternative resources when necessary. It is also worth mentioning that this information cannot be anecdotal and cannot reside within the personal relationships of your procurement and logistics managers. This is because it takes time to get to know your suppliers, and their suppliers.
“Building a supply chain map is one of the best things you can do for your organization and your customers. It is an intensive, difficult and costly process, but it’s completely necessary.”
Building a supply chain map is one of the best things you can do for your organization and your customers. It is an intensive, difficult and costly process, but it’s completely necessary. Make it a supplier KPI to have and maintain their own map. Once this is done, test the availability of alternative sources. I recommend starting with the top 20% of your products that generate the most sales, then go down as many tiers on these products as possible. Determine who else can perform your production or fulfillment, and how long would it take to make that switch. For mid-cap brands, I recommend aligning your logistics and procurement teams so they understand what it would take to respond in an emergency. Often, procurement teams and logistics teams are siloed and focus only on their piece of the puzzle, instead of the entire supply chain. By aligning these teams, you can avoid this and help with preparedness during supply chain disruptions.
“Often, procurement teams and logistics teams are siloed and focus only on their piece of the puzzle, instead of the entire supply chain. By aligning these teams, you can avoid this and help with preparedness during supply chain disruptions.”
Q: Should businesses reprioritize risk management moving forward?
Kasia: A reevaluation of how companies measure the success of their supply chain employees is necessary. Align your cost targets with purchasing and procurement, instead of having individual and competitive cost targets. It’s interesting to point out that that safeguards exist in last leg of the supply chain—the final customer. We know and track which serial numbers or individual products went to which customers. We know the customers’ names and addresses, as well as the product’s production date and production shift. We practice monthly how to recall this product and test our capability to recover it from that individual. The answer is to have this same control of each check point throughout the entire supply chain.
Q: Do you think companies should rethink their lean manufacturing and supply chain strategies?
Kasia: Yes. It needs to be coupled with logistics capability and cost. When it comes to lean manufacturing, I think we need to trade a little cost and a little performance to have a comprehensive and successful roadmap. It’s very important to test the roadmap and test the reaction to future supply chain disruptions.