Pandemic Supply Chain Lesson 1: POST-CORONAVIRUS PANDEMIC SUPPLY CHAIN MANAGEMENT
--Restart/Rebuild and More--
Content.
·
Reality and More Than Bullwhip
·
Forced Change and a Plan
·
Restart/Reset/Rebuild
·
Reshoring/Nearshoring/Onshoring
·
Industries/Market Sectors
·
E-commerce
·
Lessons Learned/Takeaways
·
Upstream Supply Chain
·
Inventory
·
Risk
·
Cost Pressure
·
Segmentation
·
Conclusion
---------------------------------------------------------------------------------------------------
To start, supply chain management
is leading retailers and manufacturers through this crisis. Businesses and supply chains are changing and
may be permanently changed. Many of
these changes will remain after the pandemic ends. There will be no discussion of specific
companies. This is about bigger issues.
Use your domain expertise and
experience to lead. This is not a time
for 40,000-feet terms and comments. It
is about practical supply chain management issues. It is about adapting to the adjustments that
CoViD19 makes on companies. And, for
supply chain management executives, it is about leading. The dual challenge is dealing with the daily
crush of what is happening and developing a supply chain strategy for after
coronavirus with attention to end-to-end design and operations.
The pandemic has placed incredible
stress on supply chains—end-to-end-- and their underlying, transportation/logistics
service providers. It has established the importance of supply chain management
(SCM) as it carries the operational responsibilities of company after company. And more, stepping up above and beyond the
call.
Reality and More Than Bullwhip.
Much of the pressure is on the
upstream supply chain. There was supply shock as Asia suppliers and
manufacturers shut down. Then there was
demand shock as companies in North America, Europe, and around the world closed
to deal with and limit CoViD19 spread. And
caught in the middle were all these supply chains and transport/logistics
providers. Warehouses. Truckers. Ocean carriers. And more. All this goes beyond the bullwhip effect both
at the global magnitude of supply shocks and demand shocks and at the company
level.
Transportation/logistics firms are
struggling. Ocean carriers are dealing with reduced volumes, export shipments
from Asia and importers not knowing what to do with containers with their businesses
at a reduced activity or closed. Ships have been laid up. Sailings have been blanked. Ports and warehouses are congested. There is even a suspension of transit in ocean
transportation because of port congestion.
Along the end-to-end supply chain
and its end-to-end logistics/transport are companies dealing with coronavirus
in their own companies and with significantly reduced volumes and revenues to
maintain operations. This situation goes
beyond challenging, as it does for much of global business.
Post-coronavirus discussions will
include who had deep pockets to weather this and Darwinism—survival of the
fittest. And this will include Supply
Chain Darwinism.
As the battle continues, supply
chain management executives must also be thinking of what their supply chains
will look at when it is all over. The
strategy, design, and changes—post coronavirus.
And the lessons learned. A
question is how
much of the lessons will be retained and implemented? And how much ignored and
forgotten? This is also a chance for
businesses that have been laggards in revising their supply chain management to
upgrade.
The supply chain management that
emerges should be developed by SCM people.
This is their domain, their expertise, and their efforts that are
carrying retailers and manufacturers through CoViD-19.
There is the idea of supply chain resilience
(and supply chain resilience may become the new buzz term). The question is at
what scale considering another global crisis. This concept/buzzword can also
distract from the work required with restarting, even rebuilding, manufacturing
and retailing. Again, this is about the
end-to-end/total supply chain and not parts, such as fulfillment. The bigger
issues. Bigger picture.
Forced Change and a Plan.
What companies are looking at is
change—more exactly, forced change. Make
your plan for coming back post-coronavirus.
Do not wait to be asked for one.
Be out front.
Change is difficult for most
companies. It must be done well with
thought, planning, and solid execution.
And the change includes people adapting to new ways—a new reality. And the adjustment challenge is compounded
because it is mandatory for many.
Build from the elevated position
that supply chain management achieved during the pandemic. There are two factors to the plan for the
post-coronavirus supply chain—events outside the company and supply chain
management and those within SCM. Not
surprisingly, there is an overlap between the two and the points to consider
within each.
First, topics outside
of supply chain management that can influence the post-coronavirus strategy, operation
and the company:
Restart/Reset/Rebuild.
Few
manufacturers and retailers that operated during CoViD will come through
relatively unscathed for their end-to-end supply chains and their transportation/logistics
firms. That means how do we get things going?
Post-coronavirus business and supply chains may likely deal with a
three-prong economic hit of recession and altered and contracted spending by
consumers and businesses. The question is how long these will last?
One thing seems to be certain.
Reset/restart supply chains for most firms will not be like flicking on a light
switch. It will be more than turning on
machines and opening store doors. For
many, there will be changes. It will not be just picking up where everything
was before the worldwide pandemic.
For
starters, who will still be in business and how strong will they be? The
pandemic is causing financial risk. This
includes manufacturers, retailers, suppliers, and transportation
carriers/logistics providers. Plus, there is also the matter of when and how
consumers and businesses will revise their isolation practices.
Importers
who were closed will have to find where their containers are located while they
were shut done—and if the carriers or forwarders who handled them are still operating.
Ports must be cleared of container
congestion. Warehouses at ports and
elsewhere are filled with products that are sitting. These must be removed as inventories are
restocked. And, hopefully, there is the
needed paperwork to clear customs.
Staying with
transportation/logistics, these firms must be reactivated to get goods
moving. Ocean containers must be
repositioned. There is suspension of transit/storage
in transit with containers sitting at transshipment ports. Ships are laid up and how they are recrewed
and the rotation for which vessel starts where and when. Plus there are
possible demurrage and other costs and insurance liabilities. How it may affect
all this is the litigious mess ahead among carriers, forwarders, and importers.
Restart/reset gets more complex.
There is
also discussion that social distancing, either formally or informally, will
continue in 2021 and maybe 2022. What will that do to retail, grocery, CPG/FMCG
manufacturers and their supply chains as to restart/reset/rebuild?
Once the
various total supply chain statuses are validated or revised/updated, then
restock/replenishment can start. Depending
upon what is still operating and how well, this may be more of a rebuild than a
restart. Retailers and others in
countries hard hit by the coronavirus may face more of a rebuild.
Manufacturers
and retailers may need to develop new suppliers and existing suppliers may need
to find new suppliers too. Add in
transport and logistics providers, all modes and methods, new providers may
need to be established.
That
will add delays for products to be made and shipped, including the suppliers of
your suppliers and their suppliers. The
production and transit times will add to the delay. Not every company will be able to expedite
the movements by flying in inventories.
Against
these are companies that are still working.
Their supply chains, while limited, are still functioning. They could have an advantage when business
resumes.
Reshoring/Nearshoring/Onshoring.
This topic sets a foundation for
other issues presented below. Reshoring/nearshoring/onshoring,
pulling back from globalization, is getting attention at this time. Offshoring took decades and was based on the
demand and push for lower product costs.
There are two points here. First, the role of the upstream supply chain
and top importers and products imported provide context. The information below is for the United
States. Research can be done for other
countries to provide a basis for discussion.
Data is presented for importers and
for products imported into the US to set the scope of the endeavor. These numbers provide an order of
magnitude--an idea of the size of moving productions back to the US. Research for other countries would set the
basis for them.
The US imports over 20 million
containers (measured at TEUs—20-foot size container or equivalent) a year. Here are the top 10 importers in 2018
and the number of containers they brought in.
The number is TEUs. The data is
from PIERS, a sister company of JOC.com:
IMPORTERS of Containerized Goods
1)
Walmart.
940,410
2)
Target.
631,621
3)
Home Depot.
417,100
4)
Lowe's. 307,625
5)
Dole Food.
235.571
6)
Ashley Furniture. 200,000
7)
Samsung America.
190,144
8)
Family Dollar Stores/Dollar Tree. 180,985
9)
LG Group.
173,720
10)
Philips
Electronics NA. 152,903
Drawing on a February 8, 2020,
article by Daniel Workman, "United States Top 10 Imports", the US
imported $2.568 trillion worth of goods in 2019. The top 10 products imported for 2019 are:
PRODUCTS IMPORTED
1)
Machinery including computers. 14.8% of the total.
2)
Electrical machinery, equipment. 13.7%
3)
Vehicles.
12.1%
4)
Mineral fuels including oil: 8,2%
5)
Pharmaceuticals.
5%
6)
Optical, technical, medical apparatus. 3.8%
7)
Furniture, bedding, lighting, signs, prefab
buildings. 2.6%
8)
Plastics, plastic articles. 2.4%
9)
Gems, precious metals: 2.3%
10)
Organic chemicals. 2.1%
Note, some of the products above do
not move in containers and are not in the TEU data. Also, there is the issue of supply chains
within supply chains upstream. This is
often not a simple one-step manufacturing activity.
The different data show the
diversity of industries, products, and supply chains. These also mean many
versions of post-coronavirus supply chain management.
Note, a recent article said Bank of America estimates the price of $1 trillion to move export manufacturing for reshoring. And that price does not recognize and include the upstream supply chain complexity of suppliers' suppliers.
Note, a recent article said Bank of America estimates the price of $1 trillion to move export manufacturing for reshoring. And that price does not recognize and include the upstream supply chain complexity of suppliers' suppliers.
Industries/Market Sectors.
Not every market sector and
industry has been affected in the same way by the pandemic. Some have been highly effected, others
moderately, and some little. So, post-coronavirus
supply chain management will differ.
Retail
is a very affected industry. Their operations are their supply chain
management—end to end. Stores closed or are limiting how many
customers can go in. E-commerce, whether delivery or customer pickup, are sales
lifelines.
Merchants who are closed have inbound
supply chains that have stopped. Others with essential items, such as grocery
and pharmaceuticals, are doing "well". These two sectors are doing more online sales
because of social distancing. And both
depend on supply chain management as their operations.
Recognition of other sectors
include:
·
Complex products and their bills of material
with the sourcing of parts, components, and assemblies from multiple countries
bring a special footprint. Multiple countries mean multiple supply chains and
coordinating the movements across products.
·
Low-price retailers and other businesses may
find an advantage after CoViD as countries deal with their recessions.
·
Apparel may be challenged for a Zara type model
with production closer to the sales market. This means different SCM, including
different materials and styles.
·
Sectors such as luggage, swimwear, formal wear,
and bridal clothing have been hard hit. Their needs may range from potential rebuilds
to unsold inventories—and how all these ripple up their supply chains.
·
Retailers, e-tailers, and CPG/FMCG may have
sales drops with products that consumers stocked up on during the coronavirus
and as they draw down on their home inventories.
E-commerce.
E-commerce is a bright spot during
this time. It is a market that is
experiencing growth as a result of the coronavirus. Social distancing, stay at
home, store closings, and personal safety concerns are factors in its surge.
The sales surge has tested the
design and operations of supply chains.
For e-commerce, like retail, supply chain management is the
operation. Depending on the length of
self-quarantine, online activities and their supply chains may be put to more
pressure. Also, as with retail,
self-quarantine has impacted some products more as to missing out on online
sales.
supply chain is something only a
few had before COVID. Also, laggards in
e-commerce have had problems during a pandemic to upgrade their supply chains
as needed for robust online sales.
There was the retail apocalypse and
now what may be a retail Armageddon.
Will this cause CPG/FMCG/non-durable consumer goods manufacturers to
rethink of being less dependent on retailers and selling their products online/direct
to customer? This will require them to revise
their supply chains to do online order delivery and its last mile.
Pre-crisis order delivery velocity
has been tempered during this time with the crush of orders and the supplies of
products. If post-coronavirus, the
volumes for online hold, then a question is whether order-delivery expectations
will return. If so, what will this mean
among the firms selling online? What
product assortments sold well? Will they
still? How and what products may also
start selling strongly? These questions range
from what are called essentials items during this and nonessentials. The growth may be two-fold—holding on to what
products sold well and having the "nonessentials" sell again.
Having products to sell during a
crisis versus selling with renewed customer expectation is unknown. If there is
a return to the prior ways, then what supply chain management will drive
business, as before? While it stands as
"to be determined", the supply chain implications are significant. Will it mean more warehouse capacity, added
technology and robotics, and more delivery capability?
Second, now topics within
supply chain management to draw on for the post-coronavirus supply chain
management. They reflect lessons learned
about supply chain management and what to do about them:
Lessons Learned/Takeaways.
Supply chain management is more than
strategic. SCM is the hidden strength of
many manufacturers and retailers that kept them in business. Those that still view it in terms of back-office
and cost center are either in unique businesses or face futures filled with
struggles.
The end-to-end complexity of supply
chain management has been validated. Map
and understand your supply chain, its complexity, non-linearity, and supply
chains within supply chains. Do upstream and downstream. Assess and understand it, including
risks. Identify these from what is
happening and if and how to mitigate them.
Companies that ignored e-commerce
and struggled to pivot and change their supply chains for direct to consumer (DTC)
during the crisis. Many of these had
essentials and were used to selling to businesses. A question is whether they add online to
their capabilities and upgrade their supply chains for e-commerce.
Where the greatest pressures were
should be important in developing a new structure of process, technology, and
organization. For example, instead of organizing
as to logistics activities, do it by upstream and downstream. Then for things like corporate
transportation, supplier, logistics negotiations, put them into a type of
matrix management.
The use of track and trace
technology for visibility depends on the operating viability of the carrier or
forwarder. This is a lesson about survival.
Blockchain is another option—a digital ledger track and trace—with a
similar limitation as to supplier, transportation, logistics survival. A supply
chain execution technology that takes the higher visibility view, should be substituted. Such platforms focus on purchase orders the
fundamental document of supply chain management, logistics, and business. That also implies greater control of the
upstream and downstream supply chains with increased visibility.
Upstream Supply Chain.
Much of what has happened is with
the upstream supply chain. Its importance has been recognized, which is interesting
since the supply of supply chains begins upstream. This contrasts with the downstream supply
chain that traditionally has gotten more attention. It is larger and more complex that
downstream.
The inbound supply chain performance
has often been defined by costs. The
upstream is bifurcated as to finished goods/parts/etc. and
transportation/logistics. This can contribute to a gap in managing the total
activity and a degree of confusion with the cost pressure.
At the minimum, post-CoViD, the
upstream should be elevated. Its
complexity and supply chains within supply should be mapped and assessed. The bifurcation should stop.
These, and other steps, are lessons
learned that should be corrected. This
is not just for supply chain resilience, it is about operational viability and
risk mitigation going forward.
Inventory.
Restocking inventory will be one of
the first actions after COVID-19 is resolved.
There will be questions about existing suppliers, new suppliers and
where to supply from?
But there are other questions too. A look in distribution centers and warehouses
shows products that do not sell/move. These range from parts/assemblies/components
to finished goods. These non-moving/very
slow-moving represent wasted working capital that could have been invested in
the company and could have generated a better return.
Slow/non-movers can be seen by the
dust on the cartons in the warehouse, by sales reports, and by inventory turns,
and by the needed space they take up in distribution centers. And that use of space then ripples into needs
for additional warehousing. Removing
these items and SKU rationalization are starters.
The speed of inventory movement
through the supply chain should be analyzed.
That is a step to improving inventory turns—a very important metric—and
having more money. Stop thinking of
inventory, especially excess inventory, as an asset and whether to use LIFO or
FIFO. Treat too much inventory as a waste—a waste of working capital and
investment opportunities lost.
Sometimes inventory is referred to
as A, B, C to designate as to its importance—such as sales or profit margins. And with seasonality, perhaps use sales by
quarter. Maybe a weighted sales-profit
margin index may be good. The point here
is to differentiate and manage inventory by such a designation. That permits a better focus on inventories.
Managing inventory reflects the
total time to plan, receive, and sell.
So time is a factor. The point is
to manage the movement as to A, B, C.
Compress time. Do it for As. Then
Bs. And then Cs. That will get faster turns which frees up
capital for investment and changes a firm from being inventory rich and cash
poor.
Align transportation/logistics with
inventory designations. Prioritize. Review levels of inventory where there is
multi-level warehousing. Inventor is
meant to move through the end-to-end supply chain. Stopping products does not add value from a
customer perspective.
Risk.
With the pandemic, supply chain
risk is getting attention. For this
paper, the risk is not about assets. That
application is left to insurance companies.
This is about risk identification, assessment,
and mitigation along the total supply chain.
It is about the continuity of operations. Coronavirus, with its global scope, has made
this effort both broader and more difficult.
Weaknesses/areas of risk can mean every player and participant in the
total supply chain. Every supplier. Every transportation carrier. Every logistics provider. And every operation—including every one of
yours. Every link. Every node.
Start with the understanding and
mapping mentioned in Lessons Learned/Takeaways.
That will take you into your supply chains nonlinearity and your supply
chains within supply chains. Much of
that is in the upstream supply chain.
The effort includes both analytics
and expertise, real-world validation, and assessment. Draw on what happened
during COVID. That experience adds a
degree of certainty—not just as to the particular companies it applies to but
as to the locations on the supply chain. Did the risk stop the supply chain and
require rebooting or did it cause a bottleneck that restricted product flows?
A key is knowing there are no
absolutes as to risk avoidance in a worldwide crisis. Avoid those who say or
infer there is.
Cost Pressure.
There will likely be pressure to control and
reduce costs as businesses start back up.
And even more so, with the anticipated recession.
Lastly, this is a work in
progress. How and how long the
coronavirus plays out around the world may affect what is presented here. This paper will be updated as time and events
unfold. This is my sharing ideas about
coronavirus and its impact on post-coronavirus supply chain management. Good luck.
Tom Craig Consulting tomc@ltdmgmt.com
Supply Chain Management/Logistics Consultant and Advisor
