How your supply chain reacts to this crisis will make or break your business.
Medical experts have been warning about the possibility of a global pandemic like we are currently facing for the past 20 years at least. You may wonder how they knew? They knew because pandemics of this scale, in other words larger than SARS, H1N1 (swine flu) and Ebola, happen randomly but at least 3 or 4 times each century.
The news has been full of talking head discussing various governments’ reactions, what we should ad should not do, and the heartwarming stories about people helping each other out. There has also been much discussion, here in South Africa and abroad, about the impact on the economy. One thing many have not though about though, and what I want to ask you is:
Was your supply chain prepared?
If, like most companies’, your business continuity plan only addresses IT issues, then your supply chain definitely was not prepared. Here are 15 questions you will need to address to minimize the negative impact this pandemic will have on your business. Unfortunately, if you were unprepared for the lock-down, as most businesses were, then there will be a negative impact. The following 15 questions should help you minimize the negative impact the lock-down has had, and set you up for a quicker recovery.
Inbound Supply Chain
Your inbound supply chain, in other words the process, including procurement, logistics, storage, by which you acquire raw materials, parts and components (referred to as inputs for the rest of this article) in order to carry out your primary activity, can set the entire tone for your supply chain and thus, your business for the rest of the year. It would have been particularly hard hit if you or your suppliers’ source from China and Europe.
1. How long will your current input inventory last?
You may have planned for ‘normal’ operations, i.e. your Material Resource Plans can carry you for a while, but most businesses are faced with a demand surge due to panic buying prior to lock down. This means finished goods stocks are depleted, so can you make what you need as fast as you need it? What about the shelf life of your inputs? Will these last as long as you need?
2. What will you do when vital inputs run low or are depleted?
You may have open orders awaiting fulfillment, but what if your supplier cannot supply? Is your procurement team able to source alternatives? Have you considered options should European and/or American ports close? Are your critical local suppliers on schedule?
3. How are you positioned against competitors who use the same supply chains for the same inputs?
Competition has always been viewed in terms of sales of your finished goods, but in the coming days you need to address the competition for the limited resources across the supply chain. As an example, China will always ship to bigger markets first, specifically North America and Europe. Do you have a realistic view of when your orders will be manufactured and shipped by your suppliers? And will your freight forwarder prioritize your shipments?
4. What about transporting your inputs?
Even if you are well positioned, with enough of the right inputs coming in at the right times, what if your containers get stuck at port, due to the influx? And if your suppliers are local, will they have access to transport to get the inputs you need to you, in time? How will late receipts affect your manufacturing plan now and for the rest of the year?
Production
You know your numbers (you do, don’t you?); What your production capacity is, what your yields are, your batch quantities and change-over times. You also have your usual protocols for a start-up but…
5. Are you prepared for this start-up?
Unless all your products where classified as essential goods, your business is facing a start-up or a ramp up after the lock-down ends. This start-up will most likely not be like the annual start-up/ramp-up after the festive season. There is also no Janu-worry market slump to ease you into normal production. All this even as you most likely need to contend with normal beginning of the year issues, such as staff absences. You may also be affected by not being able to have done a proper shut-down.
6. Can you manufacture to demand, even as the demand is unknown and uncertain?
Your manufacturing needs to be more agile now than ever before, as demand for products are uncertain, not only the quantities, but also which products. Are you in close contact with your customers, even as they may not know what consumers are willing to spend on?
7. Is your current product range still relevant?
This pandemic has irreversible changed the world, and your business needs to change with it. We have all heard the stories of perfume companies and craft breweries pivoting to making hand sanitizer to meet the increased demand and to help in their communities. Your business may not need to make such a drastic change, but now is a good time to refocus on your product range. See where you must cull products that are no longer in demand, and where you may need to diversify.
8. What about reworking items?
Can you reword any of your finished goods to meet changes in demand? What about reworking the products are no longer in a saleable condition?
Outbound Supply Chain
Chances are you still have open orders that need to be fulfilled from before the lock-down. Your outbound supply chain means how you warehouse, pick, dispatch and transport your finished goods, but you knew that already.
9. Are your finished goods still in saleable condition?
Those orders that you had dispatched, or picked already, but could not deliver, are the goods still in a saleable condition? What about the stock in your warehouse?
10. What about transporting to your customers?
Every business will need to move stock once the lock down comes to end. It will be like the transport shortages before the festive season, but with no clear end date. Have you got iron-clad agreements with your logistics company? How will the once empty streets now be affected, once all and sundry can move about freely again?
Reverse Logistics
What customers and consumers want and how much they want is going to change. This means a lot of cancelled orders and the bane of any business – RETURNS.
11. Are you prepared for the influx of returns?
Some orders that where ready to dispatch, or even already in the truck will be cancelled by your customers. As will future orders, which if not outright cancelled, will be changed or reduced. Customers will also take this opportunity to return stock that they no longer want. Do you have a process in place to capture returns requests? What about scheduling these? What about the costing, as this likely going to last much longer than the returns after promotions.
12. Is your staff and material handling equipment ready for the extra work?
While we cannot foretell the amount of returns, it is going to be higher than normal, for much longer than normal. Do you have the staff and material handling equipment to handle this? Do you have the ability to create and process the GRN (Goods Return Note). How will this affect your cash flow?
Planning
Your sales and operations plan should be driving your business, it is the drumbeat to which your company moves (you know that, right?). Good planning is the only thing that stands between you and the crack of the inevitable bull-whip effect.
13. How has your plan taken the changes in demand into account?
You may know, based on your plan what you would be making, and maybe you have even been in close contact with your customers, but how agile is your plan truly? Most production plans have a freeze period, is it time to review this?
14. How quickly are you reviewing your plan?
Manufacturing/assembly is where the highest risk for the value chain sits. This menas you should be reviewing your plan and having your S&OP meetings considerably more often than normal. If you do not, this is where your business will crack and break.
MRO stores
The final set of questions are for one of the oft neglected, but vital support functions: Maintenance. All of the above questions have, hopefully, led to some very big changes, and these changes need to be actively managed in the realm of Maintenance, repair and operations (MRO), otherwise more unplanned shutdowns lie in your business’ future.
15. How has your maintenance plan changed?
Your maintenance plan needs to take all the changes made above into account. These changes will of course impact your MRO stores, whether or not you managed to perform any maintenance during the lock-down. This should then trigger many more questions, specially around the supply chain for your MRO spares.
Yes, COVID-19 has changed the world, do not let your business fall behind and whither and die. Asking these questions will push your supply chain and your business to adapt, and hopefully not just survive but thrive.