Supply Chain: Preparing for your black swan event
Now that the government has declared the latest wave of COVID-19 over, we can look back and see the effects the pandemic has had on the global supply chain. They were threefold:First, there was an increased demand for e-commerce. Consumers wanted items without leaving the safety of their homes and could order, not just from their local grocer, but from anywhere in the world. It was the first time consumers embraced being a global village on a massive scale.The second impact of COVID was to severely limit supply. All around the world, governments implemented various restrictions, from limiting movement to implementing curfews. Businesses across the globe had to implement new stringent safety precautions to keep their workforce safe. The overall effect was to constrain the ability for business to provide goods and services.
The third, and most severe, impact was the congestions at ports across the world. China closed their ports to prevent the spread of the virus, which meant that, once the ports opened, there was a massive backlog. As more goods where shipped out of China, the congestion moved to other global ports. Congestion was further intensified as the clearing of containers by ports was hampered by safety protocols. As vehicles waited to receive or offload containers, congestion spread along the supply chain. This meant that the turnaround time for containers exponentially increased, meaning containers became a scarce commodity, driving up the shipping prices. In other words: a perfect storm.And then two black swan events occurred, months apart. A black swan event is an incident that no-one predicts. It has a devastating impact. It comes from the idea that black swans do not exist, because they simply did not, up until they were discovered in Australia (because, of course, they would live in Australia).Yet, COVID-19 was not a black swan event. Epidemiologists have been predicting a pandemic of massive proportions, and those that heeded them were somewhat prepared. Supply chains, on the other hand, were not prepared. Thus, COVID set the scene for supply chains to be particularly hard hit, and any additional events could and would be devastating.The two black swan events that occurred last year were the Suez Canal blockage in March and the cyberattack on Transnet in July. The Suez Canal was blocked for six days; the cyberattack impacted Transnet slightly longer, with normalcy only beginning to return after eight days. The impact of these two events on the global, and specifically, the South African supply chains was overwhelming. It caused such congestion that, many argue, we are still feeling the effects.While you and your organisation cannot and could not control external elements such as the Suez Canal blockage, Transnet’s cyberattack, or the impacts of COVID-19 on the global supply chain, there are certain things that are firmly within your control. By taking control over the following four areas, you can minimise the impact on your business, should another major global or local event take place.1. Warehousing
The most important area – and where you have the most influence – is your warehousing. As we’ve learnt from the events above, congestion can occur easily and happen quickly, and it has many knock-on effects. Prevention is better than the cure, so your warehouse processes are the best bet in preventing congestion.Efficient processing of in- and outbound stock means that congestion outside of your warehouse will be prevented. This is achieved, on the one hand, by having clear receiving and put-away processes, and, on the other, robust picking and dispatch processes. These processes will lead to you having the proper job descriptions and, thus, the right people in place. To learn more about process mapping and why it is important, read this article.
2. Transport
Having a warehouse that efficiently moves stock means that vehicles can be turned around faster. Preventing congestion requires working with those running the vehicles. The first step is to ensure there are contracts in place for outsourced transporters, supported by strong service level agreements (SLA). For employed drivers, it means having have the right kind of key performance indicators (KPI) to drive the right behaviour. For more on establishing really solid and appropriate KPIs, these two articles are of interest.Once the above is in place, you can implement vehicle scheduling, both of outgoing and incoming vehicles. This could be as simple as having fixed times where suppliers deliver goods, and a pre-determined rotation for outgoing vehicles. It could also mean a more complex system, such as having a vehicle booking system – much like booking an appointment at your hairdresser.3. Demand
The last two areas you have less control over. So these are the areas requiring, perhaps, the most work.The first of these two is demand management. This starts with good demand analysis, which means:· knowing who your target customer is, how they behave, and their sensitivity to pricing
· understanding how the above has changed and how it will continue to change
Having a forecast in place is the best way to influence your impact on congestion. Having a plan, even a bad one, is better than having no plan. A bad plan can be improved upon. This means tracking your forecast accuracy at various levels of granularity – i.e. as low as per product per customer, as well as aggregated to total sales per month across your entire range. By knowing where you are over- and under-forecasting, you can make improvements. Forecasts can be further improved by working closely with your customers, which will also improve your demand analysis.The final part is to allow cool heads to prevail during demand management, to ensure fluctuations in demand do not cause the bullwhip effect.