Top 7 Post-Covid challenges for Planning and Supply Chain
So as we are approaching half way through 2020 mid-year performance reviews are probably in full swing. How has it been for you? I would safely say it turned out significantly different to how you imagined in December/January.
I know it certainly was for me. In January I had heard of a virus in China but beyond a concern as to how that would impact on supply of IT equipment it did not seem to be a significant risk. We have just experienced what Nassim Nicholas Taleb would call a “Black Swan Event”. These are extremely rare events that cannot be predicted but after the event many people will claim they did predict it. In hindsight we should all have predicted the impact of Covid-19. Isn’t it obvious that nature can throw us a curveball? Well for many companies it was not. And in a year when we have drifted back towards a post-covid-19 normal their complacency levels will have risen again.
So now is an opportune moment to sit down and think what other risks are there that could hit us. How would we prepare for them if they did hit? Even if it is just a document setting out how to react in the event of something happening then it is a worthwhile exercise because it starts the process in your mind and therefore increases your agility to react when the unexpected does arise. Think of it as a disaster recovery plan for your business strategy. You most likely have one that covers common events like electrical outage or fire or flood (if you do not then stop reading this and go do one please). This is just extending that logic into your business.
So what are the key challenges to start to think about?
- Trade disruption: This one is almost becoming a given. The era of open trade seems to be breaking down. Lost in all the news of Covid-19 is the news that the Brexit negotiations have not been going well. Trade disputes are continuing, such as between China and the US. You need to sit down and understand how your supply chain will be impacted by these trade disputes. If Britain crashed out of Europe in the morning and immediately supply chains ground to a halt how would you cope? Well the good news is you have 6 months to plan for that. The bad news is 6 months is not exceptionally long so get started.
- Shortage of supply: What would happen if you had a shortage of a key Ingredients? For example, in 2019 the meat industry was suffering from an extreme shortage of Pork due to an outbreak of African swine fever in China. In 2018 Carbon Dioxide was in short supply impacting on food and drink suppliers. Shortages happen all the time but we are starting to see larger scale shortages of what we would previously considered commodities as our supply chains become more stretched and globalised. You should examine your entire process and understand what ingredients are essential and have a plan around protecting the supply of those.
- The Environment. Just like trade wars and shortages this one was on our radar before Covid-19 and will be on it long after. The environmental impact of your business is going to be the big challenge of the next decade. You will have to show that you are reducing waste, increasingly recyclable, using bio-degradable packaging and, of course, reducing your carbon footprint. Sustainability should be a key item on every review you have with suppliers, customers, and staff. It is going to become a key part of your supply chain so start planning for it now.
- Moving supply closer to home. A lot of companies saw their supply chains really tested during the slow march of Covid-19 across the globe. It started in China which has become the world’s factory. So as parts of China shut down the customers who relied on them were still open. There was a public outcry in western countries when it was discovered that the likes of PPE, Ventilators etc were sourced from thousands of miles away and were no longer available. There will be a demand to move production closer to the end user. I predict that will die off when complacency starts to set in, but it could well be the catalyst to make many companies look at over stretched supply chains anyway.
- Working in a digital environment. Working from home has become the norm for millions of us thanks to Covid-19. As the lockdown now starts to lift some people will welcome the return to the office while others will not want to face long commutes and a potentially unsafe environment. You need to facilitate those people. Facilitate them or prepare to lose them to someone who will. So, hold a review of what worked well and not so well during the past few months. Put a plan in place that means your company works in a digital office rather than a physical office.
- On Demand Delivery Expectations: Customers are getting used to having next day deliveries. Of course, that means companies must hold high levels of Inventory close to the customer. Amazon do it very well and have set an exceedingly difficult benchmark for us all to follow. So you need to have ways to work around that. Be flexible and agile. There is nothing new about that. Concepts like lean and agile have been around for a long time now. Likewise minimising the number of different components in your products. But as we have moved to more “bespoke” offerings to customers sometimes those core principles we all learn in college are not practiced as devoutly as they should be. It is likely that you have had short leadtime orders from key customers in the past. And you met those by scrambling and expediting and breathed a sigh of relief when it was done. Well perhaps that expedited process should be examined and become an established element of your business (perhaps for a higher fee just like Amazon do with their Prime service)
- Industry 4.0. This is the last one and it is probably the biggest challenge. We live in a time of remarkable technological advancement. There are too many technologies to try and list them all. Back in January I attended a couple of talks by Henrik Von Scheel. The key take away I took from those is the rate of technological advancement is exponential. What we consider to be science fiction and decades away may be just around the corner. A good example of this is 3-D printing. If you are in the business of making small “widgets” 3-D printing is going to destroy your business model. Worst case scenario every house will have a 3-D printer and will be able to produce on demand. Need a new phone cover. Print it. Broken cup means you now do not have a full matching set. Just print a replacement. This is science fiction Star Trek Replicator type stuff that we think will never happen. But remember when we used to watch Star Trek and think how wonderful it would be to have one of those little computer screens you could just hold in your hand. Chances are the device you are now reading this on far surpasses the capabilities of that device. Industry 4.0 is coming. Get on board.
This is often referred to as Scenario Planning and we will address that in a later post. This post is just to get you thinking about the challenges. Come back later and we will address some techniques for Scenario Planning.