Traditionally, supply chains have been tuned for cost and speed. This approach works when there are few interruptions in the system. However, COVID-19 and the accompanying global lockdowns have seriously disrupted supply chains across the globe. Companies must elevate supply chain resilience to survive.
One of the key challenges for supply chain leaders during this crisis has been the erratic demand for goods. For example, demand for clothing has slipped, while demand for cleaning supplies has surged.
With traditional modeling less useful to predict such unusual spikes and slumps, businesses must quickly learn how to discern new demand signals and forecast accordingly to avoid overstocks and stockouts. Visibility across the supply chain is critical to making decisions around how to restart lines, prioritize products and manage relationships with suppliers. Companies tend to focus on their own operations, and potentially risks with tier one suppliers. This is no longer enough.
The ongoing volatility of supply, demand and financial markets also makes it even more important to optimize the cost performance of supply chains, which typically represent about 70% of a company’s costs. The challenge will be embedding new capabilities that enable flexibility while keeping an eye on cost efficiency. Three actions can help:
1. Improve your supply chain planning function to better forecast supply and demand
Erratic demand signals are likely to persist for some time. Adapting forecasts will require companies to develop a newly integrated digital planning capability that includes strategic, tactical and operational planning horizons. Forecasting should also consider input from a wide range of internal sources, including the C-suite, as well as those in sourcing, planning and fulfillment, and external sources such as suppliers and customers.
Companies will also need to carefully monitor market and economic indicators as well as other external data sources, such as financial and commodity indexes and government databases. Social media feeds can offer rich “ahead-of-the-curve” insights into the demand picture.
Of course, companies will need to have trust in the data they use for this planning. Ensuring internal data is always accurate and up-to-date may require extra attention to data management and investment in new technology, such as digital twins, sensors and control towers.