Increased focus on more robust supply chain planning and resilience
Mannheim, April 30, 2020 In the current “COVID-19 Pulse Check” study, the consulting specialist CAMELOT Management Consultants has examined the response of more than 100 companies during the corona crisis and derived three central recommendations for short-term action. The recommendations are intended to help organizations find a suitable way out of the crisis and regain their strength. Special emphasis is placed on the further protection of the supply chain against future disruptions.
The survey of experts and managers from more than 100 companies in a wide range of industries, which was conducted in April with a focus on Central Europe, revealed a clear picture: In addition to the most important issue of health protection, all companies surveyed have taken short-term measures to maintain business operations, such as increased communication, a task force for production and a risk assessment of suppliers.
However, important medium- and long-term measures to safeguard business operations during and after the COVID-19 pandemic have not yet been addressed. “Operative firefighting in visible problem areas and ‘driving by sight’ appear to be the dominant mode at the moment. However, that is no longer enough,” states Dr. Josef Packowski, Supply Chain Expert and Managing Partner at CAMELOT. On the one hand, it is already apparent today that the effects of the corona pandemic will restrict supply chains longer than hoped for, from an operative perspective. On the other hand, it is also already apparent that the demand and supply structures will change significantly. “This makes it all the more urgent for companies to look into the strategic realignment of supply chains now, so they can prepare for the new normal,” says Josef Packowski.
The supply chain challenge
Supply chains are particularly important when it comes to the business preservation measures initiated by companies. Around 70% of those surveyed expect a significant increase of the previous demand peaks, for which buffers and risk surcharges were never planned to such an extent. For the majority of the study participants, the subsequent supply chain, including their own production, is the area along the value chain that will be affected even more by the corona pandemic over the next six months. For example, almost all companies expect delivery problems with their own suppliers, and more than half are worried about limited and non-synchronized availability of raw materials and semi-finished products, due to globally or regionally different lockdown and recovery phases.
“Securing liquidity in different scenarios and maintaining productivity with virtual working environments were the right initial measures,” says Jens Steuer, author of the study and partner at CAMELOT. “Companies should maintain the current crisis management activities to secure business operations, but urgently expand the war room with dedicated task force teams, who should work on ramping up supply chains in relation to the new normality and shaping the post-COVID-19 future.”
Supply chain guidelines for the crisis and beyond
The authors of the study have summarized the primary recommendations for action in supply chain management, which can be derived from the survey results, in three key points.
- Stabilization of sales and supply chains – immediately
Companies need to understand the impact of the corona pandemic on the demand and supply side, in order to be able to provide more accurate forecasts while balancing fluctuations. The well-known past-centered forecasts can no longer help here. License-free AI-based tools, such as the COVID-19 Impact Analyzer from Camelot Innovative Technologies Lab, are now available to calculate the effects of the corona pandemic on supply chains using causal relationships, which can help with supply chain planning.
- Strengthen transparency and resilience – as quickly as possible
The supply chain risk management used in the past has proven to be inadequate, especially during the corona crisis. For decades, uncertainty factors were only included in supply chain planning when forecasting demand. Risk management that is appropriate for today’s world goes far beyond this, and includes the quantification of mutual dependencies using new technologies. This helps us to directly understand how vulnerable the supply chain is in its current state, and what level of uncertainty it can withstand in the future. For example, if a particular supplier is insolvent, it may be possible to determine how long the company will be able to maintain sales at current levels or a minimum operating cash flow threshold. The design or improvement of proactive risk management is needed here, which can help to ensure that shocks and crises will have less impact on supply chains in the future.
- Make supply chains more agile and thus save costs – in 3 to 6 months
Although most study participants confirm that their sales forecasts resemble a “mission impossible”, they still use retrospective forecasts to coordinate their entire supply chain. Given the current uncertainty and the resulting more volatile sales expectations, the logic of the companies’ internal information systems has led to much greater uncertainty in procurement planning. Innovative planning processes can help here by significantly improving customer service, increasing supply chain agility and reducing costs significantly. A well-known, but often not yet implemented, example relates to so-called DDMRP-capable planning systems, which deliberately set “decoupling buffers” in the information systems. Within a few weeks, they can be implemented within existing corporate architectures using cloud-based solutions.
For companies affected by the corona crisis – especially in relation to supply chain management – CAMELOT Management Consultants has compiled free information, real-life examples and pragmatic assistance offers on its website www.camelot-mc.com.