Supply Chains on the Other Side of Crisis

Stephen DeAngelis

May 11, 2020

In every crisis, there is a turning point. Reporters from Bloomberg believe 24 March 2020 marks one such turning point. They write, “When the timeline of the pandemic of 2020 is complete, March 24 will stand out as a day to remember for everyone from sports fans to anthropologists to cola drinkers. Japan postponed the Summer Olympics that day. India put 1.3 billion people under lockdown. Inhabitants of the U.K. awoke to their first day in home confinement from the coronavirus. The World Health Organization warned the U.S. could become the new hub of the outbreak. President Donald Trump said he’d love to see the country reopen by Easter, just three weeks later. In the midst of that remarkable Tuesday, the CEO of Coca-Cola Co. described what he saw from the helm of the iconic American beverage company. ‘The supply chain is creaking around the world,’ James Quincey said in an interview on CNBC.”[1] A month later, John Tyson, Chairman of the Board at Tyson Foods, published a full-page ad in several newspapers asserting the U.S. food supply chain was breaking.[2] For years, however, supply chain professionals have worked hard to make their supply chains resilient. Resilient supply chains will emerge in better position to take advantage of post-crisis recovery. Currently, however, Bloomberg reporters insist, “Battered and bruised, supply chains [are shifting] to recover-and-survive mode.”

What can you do now?

Chris Cashin, CEO at Parcel Consulting, writes, “The simple truth is that U.S. supply chains are running, but they’re sluggish because they’ve lost staff while seeing quick and substantial increases in demand and need.”[3] He offers five tips to help supply chain professionals right now. They are:

1. Rethink Your Supply Chain. “As of mid-March, more than 94% of supply chains had experienced some disruption. So, there’s a good chance yours has been affected as well — but only to a certain extent. By exploring options with other new carriers, delivery services and fulfillment centers, you should be able to find a speedy remedy or backup capacity, even if it’s just a short-term Band-Aid.”

2. Expand Supplier and Vendor Options. “By rethinking the methods you’re using for supplies, your vendors and their geo-proximity to your warehouses and fulfillment centers, you can stay on top of the curve. As overseas suppliers ramp up inbound shipments, there are likely several alternatives you can explore that are cost-effective and feasible.”

3. Consider Using New Technology. “There’s a chance that your technology is limiting your ability to manage key elements of your shipping, supply chain and infrastructure. … Rethink the technology you’re using, and integrate an approach that helps you deliver to more people on time.”

4. Audit Your Shipping Rates. “You should audit your shipping rates a few times per year. This is especially true when budgets are constrained, a supply chain is finicky and on-time fulfillment ratios are harder to attain.”

5. Be Honest with Your Customers. “If you want to retain the loyal customer base you’ve spent years earning, honesty is the best first step. Ensure that delivery times are accurate and that you post out-of-stocks right away, especially on essential items.”

Bain & Company analysts note, “As companies plan their return to business, leaders face two immediate high-stakes challenges: How do we unfreeze an operation that’s been slowed or stopped for months? And how do we know how quickly to ramp up activity amid the threat of recession and a bewildering variety of plausible demand scenarios?”[4]

Preparing supply chains for the other side of crisis

For years supply chain experts have argued for more flexible and agile supply chains. They knew that, under strain, brittle supply chains would snap. For many manufacturers, the coronavirus pandemic proved to be an excessive stress test. For others, the pandemic proved to be a time for innovation and pivoting. Ted Stank, professor of supply chain and logistics at the University of Tennessee, notes, “There are a lot of issues that play into [whether a manufacturer can easily pivot]. The first is the nature of the product line/service the company offers. Some companies are engaged in making products that simply don’t align very well with the kinds of products emerging as critical shortages during this crisis.”[5] In most cases, manufacturers that have pivoted to crisis production will pivot back to normal operations. For manufacturers that didn’t or couldn’t pivot, restarting operations will be the next big challenge they face. As the Bain analysts note, “Starting up a complex organization is significantly harder than shutting one down. That is especially true in a period of deep uncertainty across the scientific, policy and economic fronts.” McKinsey & Company analysts suggest companies assemble a “plan-ahead team tasked with planning across multiple time horizons.”[6] According to the analysts, the team should do the following:

1. Gain a realistic view of your starting position. “The plan-ahead team should review the company’s financial assumptions, ongoing initiatives, and strategic choices, and sort them into three buckets: ‘still about right,’ ‘wrong,’ and ‘unsure.’ … Companies should reevaluate their 2020 growth expectations and key drivers, including the markets, categories, and customers that will deliver growth; the role of planned product launches and campaigns in light of store closures and recessionary pressure; and the allocation of resources, including talent. This exercise will clarify your starting point and provide a clear picture of the challenges you need to address.”

2. Develop scenarios for multiple versions of your future. “Scenario planning for the next normal is a daunting task, with many macroeconomic possibilities, vast differences in markets (and even regions or cities), and only an early view of the consumption implications. ‘Bound the uncertainty’ by considering at least four discrete scenarios — each covering country, category, and channel outcomes — underpinned by clearly stated assumptions about containment measures and financial aid.” David Simchi-Levi (@davidsimchilevi), Professor of Engineering Systems at MIT, suggests companies should plan for three post-pandemic scenarios. He explains, “Given the level of uncertainty, many scenarios are possible, yet it is instructive to focus on three key ones in order to develop some practical insights into the range of outcomes. These scenarios represent three different realizations of the recovery length and magnitude: the pessimistic, worst-case scenario; the more optimistic, best-case scenario; and the most likely scenario. … Given that a shock of exceptional magnitude is already happening to the worldwide supply chains, both on the supply and on the demand side, it is crucial for companies to prepare for each recovery scenario.”[7]

3. Establish your posture and broad direction of travel. “After a detailed scenario-planning exercise, it may seem odd to make macro choices — but they help to align companies on the direction of travel. … Companies might consider their stances on the following: Global business; portfolio; value proposition; discretionary categories; essential categories; and challenger brands. Think about how to align your operating model with these stances and about which new ‘muscles’ you might have to build. Establishing your posture and broad direction of travel will help you decide on strategic moves.”

4. Determine actions and strategic moves that are robust across scenarios. “The plan-ahead team can then draft and pressure-test action plans for each scenario.”

Bain analysts assert, “What’s also becoming clear is that we may not be returning to normal any time soon. … The opportunity to create value in this chaotic time lies in finding ways to add balance to your supply chain, focusing efforts on three essential characteristics: resiliency (inventory in the right place at the right time), visibility (a clear, technology-aided view of dependencies from one end of the chain to the other), and simplicity (focused product lines and a culture of ongoing waste reduction).” When looking ahead, decision-makers need to be both clear-eyed and level-headed. There are no silver bullet solutions for restarting the economy quickly. Great planning and execution will ensure companies start on the right track and gain momentum as the economy improves.

Footnotes
[1] Bloomberg, “Battered and Bruised, Supply Chains Shift to Recover-and-Survive Mode,” Yahoo Finance, 27 April 2020.
[2] John Tyson, “Feeding the Nation and Keeping Our Team Members Healthy,” Tyson, 26 April 2020.
[3] Chris Cashin, “The U.S. Supply Chain Will Survive This Crisis And Thrive,” Forbes, 28 April 2020.
[4] Miles Cook, Peter Guarraia, and Jörg Gnamm, “Generating Value While Restarting Your Supply Chain,” Bain & Company, 24 April 2020.
[5] Ted Stank, “What’s the Secret of Companies Able to Pivot Supply Chains During Pandemic?IndustryWeek, 22 April 2020.
[6] Raphael Buck, Tracy Francis, Eldon Little, Jessica Moulton, and Samantha Phillips, “How consumer-goods companies can prepare for the next normal,” McKinsey & Company, April 2020.
[7] David Simchi-Levi, “Three Scenarios to Guide Your Global Supply Chain Recovery,” MIT Sloan Management Review, 13 April 2020.