9 August 2021 08:48 am Views - 237
The pandemic has changed the business environment for many organisations around the globe. As the acute restrictions and lockdowns created many urgent situations that required immediate attention in the early days of the pandemic, many companies now have begun to move to a ‘recovery mode’ having started not only short and medium term, even long-term planning strategies. It is clear that companies have been faced with substantial business and operational disruptions, which include mitigating the effects of reduced supply and stocks in hand, managing disruptions to logistical providers, reviewing contractual obligation and many more.
As a result of the closure of export customer facilities due to disruptions and lockdown situations in the target markets overseas, revenues of our exporters/manufacturers reduced during the pandemic affecting cash flows and overhead absorption. However, industries adopted fairly well by minimising overhead costs and diversifying products and delivery channels to mitigate the adverse effects on the revenue, profitability and cash flows. Further, assistance by means of new working capital loans and extensions for existing loans were provided by banking sector as per the guidelines given by the regulator.
It is seen that the importance of supply chain resilience and risk management has become more apparent than ever before.
Nevertheless, badly affected companies need a vibrant revival strategy with a positive approach.
Supply chain and its current strained state
The movement of goods and services from the point of origin (POO) (raw material/product supplier) to the point of consumption (POC) (consumer) involving various stages or phases is known as a supply chain. Further, it includes the flow of products, information and funds.
The objective of the supply chain is to fulfil the requirements of the customer by a smooth flow without disruptions and bottlenecks. As we are aware, during the pandemic most of the global supply chains have been disintegrated and disrupted. It can be a problem mainly related to product, information and most crucially funds.
Let me highlight some of the key areas with bottlenecks observed in the supply chain.
Demand planning - it is hard to establish forecasts of demand as the future is unknown and unpredictable. Forecasts can generally deviate from the original projections as per its characteristics but during this pandemic, it will be further inaccurate. Historical data will not help establish demand forecasts during crisis such as a global pandemic.
Sourcing - Numerous tier 1 and 2 suppliers have gone out of business and supplier selection process has become a difficult operation. Availability of raw materials/products is lower than before.
Procurement - Decisions on what to buy, when to buy and how much to buy is somewhat questionable and risky as the organisations do not properly foresee the market future. We may use material requirement planning (MRP) software programmes to establish ebuying decisions but inputs such as future demands, safety/buffer stock and the lead time will vary greatly and more rapidly due to the unfurling COVID-19 pandemic situation, hence the output from such systems too will not give the required authentic results.
Lead time - This has exploded due to overwhelming demands on one hand and the demand fluctuations on the other. It is observed that disruptions and delays in production, internal transport (haulage), booking of vessels, stevedoring, sailing times and also congestion in ports add to severe delays in lead times. As we all know currently there is a huge delay in shipping due to disruptions and restrictions in logistics all over the world.
Distribution to the final user/consumer – during the pandemic the objective of the distribution is not fulfilled. That is to deliver to the right place at the right time has somewhat not achieved during the pandemic.
Rebuilding strained supply chain
We have identified some of the key areas of bottlenecks observed in a strained supply chain. Now let us see how the debottlenecking should progress in order to have a resilient supply chain.
Planning and procurement - In a restricted supply chain operation, the organisation should identify, carefully analyse and ascertain the ‘real’ need of the raw material/products, etc. Short and medium-term planning is advisable as long-term strategic planning should only be done if the supply chain managers properly foresee the future of markets. What to order, when to order and how much to order should be determined by MRP using the basic principles of procurement such as future demand, stock in hand with safety stock, on way stocks, lead times prevailing during pandemic, production delays if any, port congestions and possible delays, transport availability, etc.
Hence, identifying the correct order quantity is vital since it will reflect on the future stocks, production and distribution. During a pandemic, a robust plan may not be activated or fully implemented. It is desirous to evaluate real time data as far as possible. However, no ad hoc or haphasard planning should be encouraged. Further, it is important to formulate a contingency plan for emergency situations.
Sourcing - Supplier network to be updated to consider new sources if Tier 1 and 2 suppliers are not performing or if the prices have gone up tremendously due to the pandemic. Availability of the required quantities with supplier must be known prior to ordering.
Lead time - This is key as it has a lot of concerns from the raw material stage, production, transport to final destination. Estimated time of delivery/estimated time of arrival (ETD/ETA) to be known and properly followed up with the supplier/shipping agents.
Distribution - delivering to end user should also be planned as per the identified priorities. Distribution resource planning/distribution requirement planning (DRP) through the system network will provide what to deliver. When to deliver and how much to deliver to the correct locations. Most importantly the inputs to the system must be accurate, specific and timely.
In addition to above identified areas for debottlenecking, as Steve Jobs said the way to debottleneck a problem is to simplify, simplify and simplify the process. Reducing non-moving inventory as it releases more warehouse space and release locked up capitals, is one such area. Simplifying the supply chain and having a separate supply chain for different types of demand profiles can significantly reduce the clutter. It is noted that many top companies simplified their planning, ordering and distributing (delivery) using modern technology and further, outsourcing of certain activities are encouraged specially during the pandemic and beyond. In general simplifying means reducing the phases in the supply chain to fewer steps from supplier to customer.
Let me briefly touch upon the current most important and much talked, distribution of vaccines in Sri Lanka.
As I mentioned under the above demand planning, the ‘real’ need should be identified, analysed and ascertained considering most vulnerable groups, high risk groups/areas, age groups - district wise, as per MOH areas, GN divisions, etc. It is needed to carefully follow the above procedure till the consignment is cleared for product release and distribution to pre-identified locations. It is also important to formulate a contingency (alternate) plan if the existing plans fail.
The top management of organisations should take control of the supply chain during the pandemic and needs to manage and control the supply chain at every stage or phase ensuring the smooth flow towards the end customer. Supply chain management is key to the success and increased performance of a supply chain. Companies those looking to change their supply chains should consider how to integrate elements and practices around environmental protection, product sustainability and ethical business practices.
Radically changing an existing supply chain is not as easy as it may sound, as creating a robust and secure supply chain will need to balance the demands for cost efficiency. At the same time, new logistics considerations may also have an impact on supply chains and the changes thereto. In the short and medium term, it is expected that companies will begin to search for more diversified supplier base while looking to develop a flexible and a resilient but cost efficient supply chain.
In conclusion, may I suggest companies to appoint a facilitator/a senior manager, preferably a position in the board room that has the responsibility and authority to rebuild the supply chain and coordinate with planning, procurement, quality, production, marketing, sales and distribution or hire an external supply chain advisor to inject best-in-class competencies into your supply chain team.
Companies that are faster in rebuilding their supply chains will have a competitive edge and will conquer a major market share.
(Denver Brian Coorey, a Consultant /Lecturer in Supply Chain Management, can be contacted at suveentrading@yahoo.com)