Fit for supply chain resilience
Supply chain disruption, is the other big risk that enterprises are facing. This is interconnected with cash flow implications and can lead to severe issues. Below we bring the main risks and actions related to supply chains:
Illuminate the supply network and assess risks
The supply chain may be as unpredictable due to daily evolution of the crisis and measures. Risks may not be confined only to the emergency phase, but most probably will extend and evolve during recovery. Thus, enterprises should analyze risks stemming from the supply chain:
- Tier 1 suppliers –direct suppliers and producers of goods. These suppliers can suffer from their own disruptions of operations thus limiting or even suspending their production or distribution abilities. Enterprises should work to illuminate tier 1 suppliers and get visibility on their operations and risks that may affect them. Also in case of reduced production, enterprises should evaluate how they would be treated in terms of product allocation and preferential treatment.
- Tier 2 suppliers – companies supplying Tier 1. Failure to understand tier 2 suppliers, can lead to failure to analyze tier 1 supply risks, thus being more susceptible to supply chain disruption. However, using traditional tools and methods, getting visibility to tier 2 and beyond can be difficult. Enterprises should employ technology to illuminate quickly and analyze supply chain risks. In both ways, communication with suppliers is highly important to minimize impacts on company.
Enhance integrated scenario based planning
Based on two tier supply chain visibility and risk analysis, adequate plans should be made to mitigate them. Enterprises should design plans for different scenarios and incorporate them with cash management plans. Immediate plans should be made for:
- Alternative supply channels – Enterprises should quickly assess secondary supply options. Especially affected are companies that work with international suppliers, since the risks of failure to fulfill due to disrupted international trade are high. These companies should explore internal possibilities of sourcing products and possibly work with local producers to fulfill necessities, thus helping overall the internal economy recovery potential.
- Inventory planning & visibility – The situation will influence supplier’s performance affecting inventory availability, logistics and replenishment time. Visibility and monitoring of inventory at supplier and at shipment is highly important to prepare and plan for any shortcomings. Based on that and on demand variation due to the crisis, companies should plan accordingly taking into account supply risks, demand variability, cash flow implications, and future forecast scenarios.
- Production agility planning – Based on possible shortages of product and raw materials, companies in production should assess the use of raw materials in their products. Materials that are used on different products should be re-planned to ensure primary use to most profitable product lines.
Synchronize emergency demand – supply
Both enterprises operating for internal consumption or exports, are suffering from demand disruption. Only select industries and products are experiencing good demand levels, the rest either is at low demand or completely blocked. These enterprises should analyze demand – supply scenarios and determine best strategy to overcome the emergency and prepare for recovery and possible rebound of demand after the measures are lifted. Some strategies may be:
- Keep running and build inventory, especially inventory that has long cycle and is expected to have a demand rebound after the crisis;
- Reduce production or inventory, especially for FMCG and short shelf life products;
- Employ pricing and discounts strategies where short-term demand can be stimulated and future risks are high in order to decrease stocks;
- Change product portfolio or create new uses for current products;
- Reach demand through using new customer channels, mainly digital and delivery logistics.
These strategies need to be decided from thorough risk analysis and supply chain insights.
Foresee and adapt to channel changes
The pandemic has radically changed the environment customers and enterprises operate. Digital channels are being widely used, even though most are quickly developed with limited functionalities and operability. Enterprises should quickly adapt operations to digital communications with suppliers, electronic invoices, virtual meetings and on the other hand, should benefit from exploiting digital channels to reach their customers. However, this should not be done in the expense of security of communications.
Prepare for the post Covid-19 future
Covid-19 crisis will change the way supply chains work globally. Shift of suppliers and trade routes either driven by cost and efficiency, or driven by geopolitics, will change the way they operate. Companies that will be quicker to predict and adapt to the changing ways of doing business, better manage visibility of their supply chains, manage risks, employ digital tools to analyze demand and fulfill their customer needs will benefit from the opportunities that will arise after the crisis.
Traditional supply chain management is often linear and not conceptualized as a whole. It may be based on enterprise strategy and objectives, however it seldom is an integral part of the strategy formulation. Each step of the process is managed separately and visibility on the overall supply chain is low.
The Covid-19 crisis should serve as a key milestone on transforming supply chain management. This is due not only to respond to emergencies and risks that may arise from them, but also to enhance the future operability of enterprises. Better supply chain management can translate directly to better efficiency, negotiating power with suppliers, better planning and improved profits. Resilient supply chains are integrated and digitally enabled, able to quickly adapt to disruptions.
For any issues or advice you can contact our Deloitte team.