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The New “Normal” Two Year Plan: The Pulsing Supply Chain
April 13, 2020
By Hannah Kain, ALOM President and CEO
Food, toilet tissue, PPE’s, and ventilators. I imagine most supply chain professionals have answered more questions about the supply chain over the last weeks than they ever anticipated, yet mainly focused on these four product categories, maybe with hand sanitizer and condoms mixed in.
As the Covid-19 crisis unfolds around us, individuals, families and businesses are all thinking about when things are getting back to “normal” and what the new “normal” will entail. Supply chain pros are contemplating the new supply chain.
Over the next two years, I predict what I will call a “pulsing supply chain”. Governments are looking at selectively shutting down areas or regions to combat specific outbreaks, and different waves of virus attacks are predicted. This is not just going to affect food, medical supplies and personal care products. It will impact all supply chain activities, including the industrial, the electronics and consumer goods areas.
Let’s see what we can learn from these last months: Much of the current delivery issues have been due to changes in demand. The toilet tissue destined for hotels and restaurants sat unused, while the usage shifted to homes. Inventory and sales channels as well as SKU configuration (roll size) were predicated on a demand pattern that no longer applied. That – strongly helped by hoarding – caused demand to increase 800% some days. To top it off, toilet tissue is manufactured using heavy equipment with long lead time, and a switch-over to different sizing is neither cheap nor easy. Add to the equation a freight industry in major upheaval, and the consumer was faced with notoriously empty shelves.
We see a similar switch in food supply chains, exacerbated by much lower workforce mobility, especially in Europe. Produce is rotting in the fields, and potatoes – once destined for French fry factories for use by restaurant chains – are simply spoiling. 50 pound flour sacks are unused while consumers scourge for 2 pound bags of flour.
For many industries, demand went down dramatically, leaving them with a heavy cost structure with unused equipment, and minimal or no revenue.
So, it is safe to say that Covid-19 brought unprecedented havoc to demand patterns. Consumers used different channels, different SKU’s and spikes in demand for medical supplies.
At the same time, Covid-19 brought havoc on the supply side. When China shut down factories, the impact was felt worldwide. Today, as I write this, factories are shut down or functioning at low levels in many parts of the world. While the main cause is government shut-downs, the lower mobility and a more absent work force will impact productivity for quite a while. My model shows that each worker will be out between 10 days and 20 days average during the crisis. Especially for skilled workers and machine operators, this may become a significant issue for keeping factories running.
Our supply chains have become global and complex over the last decades. If different regions are shutting down at different times, raw materials and components will become a major issue for factories. Add increasing problems and delays at border crossings, irregular and less reliable freight, and the inbound supply chain becomes tenuous.
What is a supply chain pro to do, apart from hoarding antacids?
Rethink the supply chain for resiliency. Near-sourcing may be a preferred option. We have chased cheap manufacturing cost for decades; now maybe reliability and a simpler supply chain may be something to consider. The cost of empty shelves and overseas management may outweigh the cost-savings of cheaper overseas labor.
Work with agile supply chain partners. ALOM managed suppliers and rerouted product to ensure uninterrupted delivery out of our 19 global locations for all our customers.
Value competency in staff and suppliers. We have seen how companies that engage with the cheapest providers got burned. Their product did not ship in spite of consumer demand. It may not be cheap to hire supply chain expertise and retool for agility and resiliency. Yet, it may be exactly what pulls companies out of the slump.
Rethink what agility means in terms of demand side: channels, packaging, inbound and outbound logistics, payments, and supply side: supplier management.
As the crisis moves to the next stages, success criteria may change, and supply chain pros will do well to give deep thought to the new path to success.
For a full list of supply chain considerations during a crisis or recession, please see my March 2020 blog titled “Pandemic Meets Supply Chain: Tools, Threats and Thoughts”