Major Supply Chain Disruptions Require Responsive Technology: COVID and Beyond

Dave Kravitt, CPIM

Effective, resilient supply chain management has always required the capability to respond to a changing marketplace. Disruptions force businesses to adapt. And doing so successfully requires getting some very complex decisions right. “Moving to this supplier to Asia will decrease components costs, but how will shipping, tariffs, and lead time be affected?”

While manufacturing is a historically slow-moving and conservative industry, COVID-19 has created new challenges that are requiring manufacturers to innovate at speeds they never have before. Supply chain disruptions, social distancing on high-touch assembly lines, limited ability to travel and the need for oversight add significant complexity to today’s processes.

– Forbes

Major Supply Chain Disruptions Have Often Included:

  • Political upheaval rendering a geography too unstable for reliable supply.
  • Tariffs creating an inefficient cost structure for an existing supply chain.
  • New regulations forcing supply chain adaptation.
  • Climate events from hurricanes to droughts (some supply chains, like agricultural products, can be hyper-sensitive to weather patterns, for instance).

Now, we can all add a global pandemic to the listAs Forbes notes, the virus is a novel disruption that could be forcing companies to play supply chain whack-a-mole for years to come. The virus (like all of the potential disruptions above) has complex, dynamic implications for global supply chains. And the faster companies can understand and plan for these implications, the better positioned they will be. The right technology tools are instrumental to responding as quickly and effectively as possible.

We’ve been impressed by how our clients have adapted to the post-COVID economy. All of them have used the information at their disposal to quickly pivot in response to current realities. The intensity of this disruption is a great reminder of how important it is to keep supply chain technology capable and up to date. And now is a great time to think outside the box about how to build a responsive, data-driven supply chain.

Technology is the Foundation of an Agile Supply Chain

Technology is the key to staying agile in response to serious supply chain disruptions. No technology can predict every disaster ahead of time. But once the parameters of a disaster are known, successfully adapting becomes a matter of response time.

Companies are faced with making complex decisions in a very short period of time. Each company will need to respond differently. For instance, one of our B2B manufacturing clients has seen a marked uptick in demand during the COVID crisis. Making supplies used by medical responders, their challenge has been dealing with a sudden surge in demand (while repurposing related production lines to produce crisis-related materials).

Another client, involved in the supply chain for restaurants and other foodservice establishments, has been dealing with a dramatic collapse in demand. They’re adapting too, but their challenges look very different: rapidly pivoting to new markets like home food delivery and developing a web-based ordering process.

Meanwhile, consumer-facing firms are facing challenges of their own. There’s one supply chain issue almost every American is aware of: toilet paper.

While some of the initial shortage of toilet paper was driven by hoarding, this issue has deeper roots. This shortage wasn’t just about demand outpacing supply, but producers being faced with a market that shifted at an unprecedented pace.

  1. Toilet paper, large product size and low cost, is not cost-effective to store in warehouses. Just-in-time manufacturing and shipping methods are preferred to be employed wherever possible: paper gets shipped straight from the factory. But, as the crisis unfolded, “just-in-time” was not on time.
  2. A rapid shift from the types of toilet paper purchased by institutions (workplaces, schools, etc.) to the types usually purchased by households left producers unable to match the demand for households. One could still buy institutional variety online.
  3. The rolling institution of social distancing orders in different states meant demand surges were rapidly moving from one geography to another. Just as stocks were replenished in one market, shelves would be emptying elsewhere.

Meanwhile, toilet paper, along with most other consumer goods, has seen one final dramatic shift: a marked increase in online shopping (as much as 30% more e-commerce spending compared to the same time last year, with product categories shifting markedly).

The key takeaway from these changes? Effectively responding to a supply chain disruption requires nuanced, timely information on the state of your entire supply chain (ideally including not just your own stocks, but those of key customers and suppliers). Toilet paper is a great example of how a disruption doesn’t always mean moving or scaling up production. It can simply require an updated understanding of what products customers want.

ERP Management to Help Navigate Major Supply Chain Disruptions

As we’ve seen with the examples above, every company will need to respond differently. But every company will need as much real-time supply chain intelligence as possible to coordinate this response

On the ERP side, this supply chain intelligence needs to be matched with robust capabilities for SCM. Each shift in the supply chain potentially drives shifts across the entire production and distribution process, and technology is essential to recording and responding to all of these changes.

Foundational ERP Capabilities for Optimal Supply Chain Management

  • Sales Forecasting
  • Material Requirements Planning
  • Manufacturing Scheduling
  • Warehousing/Inventory Management.
  • Third Party Logistics Integration

More extensive communication between all members of the supply chain is an important frontier to make them more responsive and future-facing. Knowledge of product whereabouts and timing as well as disruptions is critical. Today, many manufacturers have at least some form of (typically EDI-based) integration with key distributors and suppliers. But there’s immense potential for more systematic integration to promote better information sharing maybe in the form of blockchain. While the pinnacle of integration may look something like a control tower model,  less ambitious efforts can also bear fruit.

In many cases, building a more responsive supply chain is simply a matter of prioritizing the relevant tools. In some industries, supply chains haven’t been meaningfully disrupted in decades. Companies simply haven’t needed to invest in robust supply chain management capabilities, often relying on traditional practices like a set, rotating manufacturing schedule.

In these cases, basic infrastructure for a more effective supply chain management approach is often already in place. But key parameters like lead times, safety stocks, and sales forecasting techniques are often far out of date. Existing ERP’s often include the capability to conduct simulation-driven models of different supply chain options: taking advantage of this capability is a matter of studying operations to provide up-to-date, accurate data. This practice should be completed every few years to maintain an optimal supply chain.

Most of all, this sudden disruption we are experiencing is an opportunity to think outside of the box when it comes to your supply chain. Where are the shortfalls? Where are the opportunities? Companies are being forced to pivot like never before. But in the process, many are building a more data-rich, agile supply chain than ever before.

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