Richard Howells of SAP explores the current status of global supply chains

The world we live in, while often turbulent, has been turned on its head recently. Highly variable demand for goods and services, uncertain supply of critical materials, and constrained labour and resource capacity in manufacturing and logistics are resulting in critical shortages for medical equipment and consumer necessities. These unparalleled supply chain disruptions are major contributors to the current global economic environment. Thankfully, many companies are stepping up to handle the most urgent situations.

Medical shortages

As the virus has spread from country to country and hot spots have risen, the medical profession has been overrun. It is in desperate need for:

• Hand sanitiser to prevent the spread of the virus

• Masks and robes for the safety of medical professionals testing for and treating infected patients

• Ventilators to fight the most severe cases and save lives

We have seen many examples of companies collaborating to find a solution and re-purposing facilities to change their business processes:

• Automotive manufacturers are collaborating with medical-device companies to become contract manufacturers in producing ventilators. This requires R&D departments and manufacturing departments from different companies to collaborate to ensure a smooth handover to the third-party manufacturers of designs and processes.

• Clothing manufacturers have started to produce medical masks and protective clothing.

• 3D printing companies are collaborating on designs to print protective visors.

• Liquor and perfume producers have turned their production processes into hand sanitiser lines.

Consumer shortages

As we realised that millions would be staying at home for several weeks, human instinct kicked in. The demand for vital commodities, such as milk, eggs, bread, hand sanitiser, and toilet paper increased, and the demand for discretionary and luxury items dropped drastically.

This put a huge strain on the manufacturers, distributors, and retail outlets that provide these commodities.

Manufacturers are looking at ways to map inflated demand with volatile supply. More specifically, they are:

• Looking for alternate sources of material

• Running planning scenarios and simulations to determine where and what to produce, where to position inventory, and how to satisfy demand

• Ensuring that key assets are operational, as this has become more important than ever

• Searching their network of carriers to obtain logistics capacity to deliver goods

• And always ensuring the safety of their workforce; e.g., modifying technical work practices to accommodate social distancing while keeping production lines operational

Supermarkets are working around the clock to:

• Open special hours for those most at risk

• Clean stores to protect both customers and employees (I experienced my first plexiglass separation at checkout today)

• Keep the shelves stocked

Impact on supply chains

Supply chain managers are used to managing fluctuations of demand and supply and coping with unexpected situations to minimise risk. But with the arrival of coronavirus, the reality is an unprecedented situation not only impacting supply chain KPIs but also people’s lives and the foundations of our modern economies. All companies, regardless of industry or region, are seeing extreme fluctuations in demand at the product, SKU and channel levels, and this, combined with instability in the supply of input materials, has led to disrupted supply chains.

Supplier risk

In recent times, companies have tried to strip cost out of the supply chain through lean manufacturing to minimise inventory carrying costs, outsourcing of production to contract manufacturers, and offshoring to cheaper parts of the globe. All of these have indeed decreased costs but also increased the risk of disruptions in the supply chain, and unfortunately, many companies do not have a clear picture of their risk exposure or adequate strategies in place to manage this risk.

Geographic and operational lockdowns due to regulatory pressure and employee safety have caused further delays, and businesses struggle to switch and onboard alternate suppliers.

Constrained capacity in manufacturing and logistics

In situations where facilities, regions, and even countries are in lockdown, businesses are dealing with severely constrained capacity in manufacturing and logistics processes. Obviously, this has a huge impact on satisfying demand and ensuring customer satisfaction and safety. This can result in trade-offs and prioritisation of what to produce and which locations, stores, and customers to serve.

Human capital at risk

In many countries around the world, employees are unable to go to work, due to either illness or enforced “shelter in place” orders. Businesses have an ongoing challenge of balancing labor shortages with ensuring essential workers are able to work in a safe, secure environment when business as usual is not an option. We now need to:

• Have plans to support employees’ well-being, health, and safety, consistent with the most conservative guidelines

• Communicate with employees with the right level of specificity and frequency

• Support an agile shift in workforce structure

Will business as unusual become the norm?

As we come out of the other side of the pandemic, businesses will almost certainly be less risk-tolerant. The days of “supply chain is all about cost reduction” are over.

Supply chains will become, if they are not already, a strategic topic. Today, in every news report, building resilient supply chains, from design through manufacturing to delivering to hospitals and grocery stores, is top of mind.

The concept of “parallel supply chains” could now include:

• Alternate sourcing strategies

• Inventory optimisation to have strategic buffers of key products, components, and raw materials

• Ability to conduct scenario planning and simulations to plan out risk-mitigation strategies

In the short term, we are also seeing that reduced omissions from pandemic-driven stay-at-home orders are having a positive environmental impact around the globe. As companies look to near-shore and onshore production of key products, any reduction in distribution distances will have a long-term impact on the environment.

How to leverage supply chains to drive the recovery in the short term and become more resilient and sustainable in the long term will now be an ongoing discussion in all boardrooms.

To learn how supply chain leaders minimise risk and maximise opportunities, attend this upcoming Webinar with Ben Wright, associate editor from Oxford Economics, and me to review a recent research study of 1,000 COOs and chief supply chain officers.

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