Will Supply Chains Ever Return to Normal?

Stephen DeAngelis

August 04, 2020

As countries struggle with the coronavirus pandemic, one hears and reads a lot about the “new normal.” Normalcy is defined as the state of being usual, typical, or expected. Look back a year ago and few, if any, supply chain professionals had a pandemic high on their list of potential disruptive threats. They can be excused for this oversight. After all, the last global pandemic was the so-called Spanish Flu which swept around the globe following World War One. A pandemic wasn’t usual, typical, or widely expected. That has changed. I doubt pandemics will left off any list of potential supply chain threats in the foreseeable future. Nezih Altay, a professor of supply chain management at the Driehaus College of Business of DePaul University, notes, “Pandemics are a different sort of disaster.”[1] He explains, “The difference between disasters such as earthquakes, tornadoes, wildfires or floods and pandemics is that natural disasters are local. … However, pandemics and epidemics are not local events. They do not know borders. Therefore, the fight against pandemics requires teamwork and collaboration of every individual. There is no better time than a pandemic to come together and act as one nation. Because the alternative is catastrophic.” Questions now being raised include: Will behaviors that changed during the pandemic endure after the pandemic ends? Will there be a new normal?

Looking ahead

Lora Cecere (@lcecere), founder and CEO of Supply Chain Insights, isn’t sure there will be a new normal for some time. She explains, “We now know that COVID-19 impacts are far-reaching and long-lasting. The market is adjusting to not only the shifts of the shutdowns, but also the economic uncertainty. Unlike the prior supply disruptions, there will not be a new normal. Instead, supply chain leaders face wave after wave of disruption until there is a vaccine. The market shifts will be many and local. As a result, much of what we have learned as a supply chain best practice is no longer applicable. Changing mental models is tough.”[2] Until things settle into a new normal, Cecere insists companies shouldn’t try to conduct business as usual. She suggests seven things companies shouldn’t do during the pandemic. They are:

1. Stop traditional demand planning. Cecere notes traditional planning relies heavily on historical order patterns and you can throw those patterns out the window. She writes, “The sales order pattern is no longer a predictor of future demand. Instead, invest in market sensing and the use of market consumption data. Attempt to read market shifts as they happen, reduce latency to read the signal and hone processes to drive a response. Demand latency reductions are critical to synchronize the response.”

2. Stop collaborative sales forecasting. “During the pandemic,” Cecere insists, “collaborative sales forecasting is just a waste of time. We need to align the supply chain to market data.”

3. Stop using syndicated data in consumer products for revenue management. She explains, “While syndicated data will still be useful in evaluating market share, the use of syndicated data for revenue management and trade promotion management is not relevant. The issue? The lack of granularity and the latency of the data due to processing. The answer? Invest in a data lake to evaluate revenue management strategies and assortment planning based on the market.”

4. Stop Request for Proposal (RFP) processes. When the future is uncertain, expecting vendors to respond realistically to RFPs is unreasonable. Cecere writes, “Transportation RFPs are particularly problematic. The reason? Logistics is a constraint and is unpredictable. A transportation RFP is a waste of time — instead, partner with logistics service providers. … Get good at modeling and build agility into your network.”

5. Stop the execution of supplier management processes. As Altay noted, teamwork and collaboration are the keys to survival during a pandemic. Cecere writes, “Get close to your suppliers through supplier development programs and shorten payment terms to improve business continuity.”

6. Stop current Advanced Planning and Enterprise Resource Planning projects. Although long-term planning remains an essential capability, short-term survival is currently more important. In the short-term, Cecere recommends investing “in new forms of analytics to improve visibility and prescriptive analytics.”

7. Stop planning in isolation. Companies failing to plan holistically are likely to be battered. For that reason, Cecere recommends emphasizing S&OP planning and execution. She writes, “Few companies are good at S&OP execution. Stop and align for effective operational execution.”

Cecere concludes, “When it comes to supply chain practices, we [currently] have more that is unknown than known. What we stop doing will give us resources to focus on managing the supply chain in these uncertain times.”

The new normal

Business journalist Kenneth Rapoza (@BRICBreaker) predicts consumers, who powered the U.S. economy before the pandemic, are going to save more and spend less following the pandemic. He writes, “If there ever was an example of why people needed a rainy day fund, this pandemic and the resulting ‘stop the world’ moment demonstrated that in spades.”[3] Analysts from Google have noted an increase of searches relating to do-it-yourself (DIY) projects. They note, “The increase in DIY projects now may cause a shift to consumption and expenditure habits in the future. As people learn more skills, they could feel more empowered to purchase equipment, ingredients, and parts versus products.”[4] These changes in consumer purchasing behavior will have significant impacts on supply chains. Graham Deane, co-founder and COO of UrbanVolt, notes, “Much of the focus so far has been on grocery shoppers panic-buying, fearing that supply is at risk. These fears have proved largely to be unfounded due to the phenomenal work of supply chain workers, but the fact remains that business as we know it has changed forever.”[5] Other supply chain conditions will also change.

Rapoza notes, “The pandemic taught everyone that we are too reliant on China. … There may be serious considerations given to diversifying supply chains and bolstering online service capabilities.” Journalist Nick Eason agrees. He writes, “In the wake of COVID-19, supply chain managers are now trying to minimize risks and reassess whether supplies from single-source factories in the far recesses of Asia, particularly China, are a good thing. Certainly, there’s never been a time when being agile is more valuable.”[6] Like Cecere, Eason believes the future belongs to companies that collect and analyze data to the fullest extent. He explains, “Data has never been so vital. Yet companies don’t always share huge volumes of it along global supply chains, with each company collecting information in silos. Real-time data and joined-up thinking are a luxury and full digitalization a long way off. The crisis highlights where change is needed. … There’s now a consensus that more resilience in supply chains will be needed in the wake of extreme uncertainty.” Another characteristic of the new normal will be fewer small businesses. Deane notes, “Many businesses have closed, and more are barely surviving.” Rapoza adds, “The new normal post-pandemic means small business life looks scarier.”

“On the positive side,” Eason writes, “within a business. Human agility and judgment have come to the fore in this process. It’s become a golden opportunity to ask for resources so procurement leads can get to know their supply chains better. … It is also a time to rethink the underlying processes that govern procurement and resilience in supply chains. The traditional approach has long been to plan each functional area of the chain independent of each other with a focus on optimizing demand forecasts, before worrying about supply capacity.” Both Altay and Cecere emphasize the importance of collaboration during and after the pandemic. John Sicard (@KinaxisCEO), chief executive of Kinaxis, told Eason, “The first step to building resilience in supply chains is to connect everyone and everything to a singular version of truth and to lift the fog between functions.”

Footnotes
[1] Nezih Altay, “How Supply Chain Can Mitigate COVID-19 Disruptions,” Material Handling & Logistics, 21 May 2020.
[2] Lora Cecere, “Seven Supply Chain Processes To Stop Doing In The Pandemic,” Supply Chain Shaman, 15 May 2020.
[3] Kenneth Rapoza, “Three Things To Expect In The ‘New Normal’ Post-Pandemic,” Forbes, 4 May 2020.
[4] Staff, “Are recent trends here to stay?” Think with Google, June 2020.
[5] Graham Deane, “What a Post-COVID-19 Landscape Looks Like,” Food Logistics, 29 May 2020.
[6] Nick Eason, “Why COVID-19 presents a supply chain opportunity,” Raconteur, 29 April 2020.