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How the supply chain is handling Covid-19
Cost-cutting habits have left supply chains chasing their tails in the wake of the pandemic. We take a look at how they’re coping
Earlier this year, Deloitte questioned whether coronavirus would become a “black swan” event that finally forces many companies, and entire industries, to rethink and transform their global supply chain model.
As Deloitte points out in its analysis of the risks, businesses have, for many years, focused on supply chain optimisation to slash costs, lower inventory levels and drive up asset utilisation. The effect of these measures, according to Deloitte, is that they have removed buffers and flexibility to absorb disruptions.
“Covid-19 illustrates that many companies are not fully aware of the vulnerability of their supply chain relationships to global shocks,” the company writes.
Supply chain inefficiencies and disruptions
Looking at the effects of the coronavirus, in the second quarter of 2020, McKinsey surveyed 60 senior supply chain executives from across industries and geographies, asking them about the impact of the pandemic on their operations and their future plans to make supply chains far more flexible and agile.
The study found that 73% of the businesses surveyed encountered problems in their supplier base, and 75% faced problems with production and distribution. In the food and consumer goods industries, 100% of respondents said they had experienced production and distribution problems, and 91% had problems with suppliers, according to McKinsey.
The research found that 85% of the people surveyed had struggled with inefficient digital technologies in their supply chains. While half of the executives surveyed felt they had been able to manage supply chain planning following the abrupt introduction of remote working, McKinsey notes that 48% said the changes had slowed down decision–making in planning.
Lessons from the pandemic
Many firms have already shown their ability to adjust their supply chains significantly during the pandemic.
For instance, a number of distilleries switched production to make alcohol-based hand sanitisers, which saw a huge peak in demand when the public was advised to wash their hands regularly. The VentilatorChallengeUK Consortium is another example. Here, UK industrial, technology and engineering businesses spanning aerospace, automotive and medical sectors collaborated to meet the national requirement for more ventilators.
Accenture acted as the technology integrator for the VentilatorChallengeUK project. “We put in place a planning system and supplier relationship management system, ERP [enterprise resource planning] and new production,” says Stéphane Crosnier, supply chain and operations practice lead at Accenture.
The new systems were built from scratch. Working with Microsoft through the Avanade joint venture, it took just 10 days for the integrator team to design the supply chain processes and establish protocols for the flow of information, as well as product and payments across more than 100 organisations globally.
The team deployed Microsoft Dynamics 365 as the ERP system. This was integrated with the supply operations and purchasing functions. It also implemented a procure-to-pay accounts cycle.
According to Accenture, the automation enabled greater efficiency. Using a supply chain control tower, enabled by Microsoft Power BI and E2Open software, VentilatorChallengeUK was able to manage direct sourcing and procurement for all supply tiers.
Rolls-Royce identified more than 100 suppliers which could fulfil the engineering design requirement and provide 292 unique parts. Accenture was tasked with coordinating around 3.4 million total parts from the source of supply to the final assembly build. After five weeks, the team had secured 100% of the parts needed to build the first batch of ventilators.
It took just 47 days from the start of the project to the day the first ventilators were manufactured. “If you focus on essentials you can do things quickly,” says Crosnier.
Redundancy in the supply chain
Looking at the supply chain impact of the coronavirus, Crosnier notes that lessons can be drawn from previous crises such as the 2011 earthquake and tsunami in Japan, which instigated a major nuclear accident at the Fukushima power station. “Car manufacturers that did well, like Nissan, were not impacted because they had regional platforms and could leverage regional suppliers,” he says.
But those manufacturers that sourced key components from China were impacted, unless they had alternative suppliers. Those unable to source elsewhere had to close plants.
Crosnier says that if a company has a global supply chain, but is able to manufacture in different parts of the world, it is able to withstand supply chain disruption, which makes the business more resilient to a global crisis. Such supply chain resilience is used in the aerospace sector.
“It can add extra cost, but you get insurance in the supply chain,” Crosnier adds. He says that the ability to run alternative manufacturing sites and supply chains is a lot less costly when the business has a simpler product portfolio.
His advice on supply chain resilience to businesses is: “Look at your product portfolio and work out how you can build affordable redundancy. It doesn’t cost much to have a bit of extra capacity in other parts of the world.”
Overall, responding to a crisis that severs supply chains involves preparing for unexpected catastrophes. Crosnier recommends that businesses aim to have a plan that enables an alternative supply of materials to be activated in weeks.
Developing a more agile supply chain
From a technology perspective, Crosier says businesses need to connect their tier one, tier two and tier three suppliers, and potentially customers, to improve forecasting. “When you swap suppliers, this is tied into an advanced planning system,” he says.
Resiliency can also be improved by sharing data down the supply chain. With critical tier two and tier three suppliers, sharing visibility of plans allows them to scale production more smoothly than if the data was only shared with the tier one supplier.
Along with increased visibility down the supply chain, an advanced connected platform is the second area of supply chain resiliency Crosnier recommends businesses implement. He describes this as analogous to a control tower at an airport.
The concept was used during the VentilatorChallengeUK initiative, to provide coordination, oversight and governance across the process from start to finish. Based on big data, taking different sources of supply, the control tower looks for exceptions and key performance indicators to take decisions to orchestrate the supply chain.
The benefits of having a supply chain control tower, according to Crosnier, is that it enables the business to bring in data from different sources. “Having this level of visibility was immediate during Covid-19 and supported decision-making,” he says.
Before the pandemic, in Crosnier’s experience, businesses ran monthly decision-making cycles. But the coronavirus accelerated this. In some instances, according to Crosnier, some businesses are now running reviews of supply demand three times a week.
Addressing forecasting accuracy
Looking at how to keep a retail store fully stocked, George Lawrie, a principal analyst at Forrester, says that most supply chain forecasting is very simple. It is usually based on using time series, weighted moving averages of sales of each item.
“For most retailers, sales for next Tuesday will be the same as last year, with a little bit extra added on. This doesn’t work well when something disturbs it,” says Lawrie.
For instance, the lockdown saw shelves empty of certain products, such as hand sanitiser, due to demand from customers, and people began baking, which led to shortages of flour.
One high-tech approach to building resilience in the food supply chain is run by Agrimetrics, a UK government-backed initiative which uses a data marketplace to house information from across the global food system.
For instance, Airbus is working with Agrimetrics to provide satellite imagery that can be used to monitor crop health. Recent Agrimetrics projects include using predictive models to improve fresh food supply chains.
Such an approach can sometimes ensure supermarkets are fully stocked and can help retailers and fresh food producers match supply and customer demand. But, says Lawrie: “This doesn’t make sense when you are selling tins of beans.”
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Some supermarkets operate a static supply chain, so compensating for a shortfall on certain products is relatively easy. “Just whack up safety stock levels,” he adds.
One of the classic business intelligence use cases is for a supermarket to correlate weather data with demand for ice cream. But, Lawrie says: “Fast-moving items are in and out of the store before you can do anything with the data.”
This is because the lead time to supply a product that is in demand may be longer than the rate with which it is being sold. In the case of ice cream, rather than relying on a supplier, he says: “Maybe consider making the ice cream yourself.”
Collaborate and network
Describing the fragility of existing supply chains, Lawrie describes having one supply chain as “brittle”.
Typically, a company would look to procure what it needs to make its products from the cheapest source and use electronic data interchange (EDI) for point-to-point communications between businesses, which makes the supply chain prone to disruption.
He says that a number of Forrester’s clients have been implementing an event pipeline across their supply chain, with key risk indicators to strengthen their supply chain.
What is common among the experts Computer Weekly contacted about supply chain resiliency is that the old way of doing things has proved inadequate during the coronavirus pandemic.
Collaboration and sharing data down the supply chain is key. Companies such as One Network Enterprises, E2Open, SAP Ariba and GT Nexus have developed networks of suppliers hosted on a common platform. Such platforms offer collaboration and data sharing to help businesses build more resilient supply chains.