According to World Bank forecasts, the global economy will shrink by 5.2% this year. That would represent the deepest recession since the Second World War, with the largest fraction of economies experiencing declines in per capita output since 1870. Economic activity among advanced economies is anticipated to shrink 7% in 2020 as domestic demand and supply, trade, and finance have been severely disrupted. Emerging market and developing economies (EMDEs) are expected to shrink by 2.5% this year, their first contraction as a group in at least 60 years. While some results of the pandemic on individual companies are hard to totally avoid, some were self-imposed and avoidable. This was the result of several factors:
- A ‘low cost at all cost’ mentality – The push to reduce operating and material costs without proper planning for contingencies
- The lack of a risk mitigation plan – Companies have executed high-risk, low-cost strategies without a plan should that strategy begin to collapse
- Lack of visibility – Many companies lack visibility into suppliers’ operations and the fundamental knowledge to adjust demand or switch suppliers before it’s too late, and visibility into their own operations to adjust the output
- … and finally, they lack planning tools to deal with disruption – When faced with such difficulties, most companies, while having large complex ERP systems, lack the capability for scenario-planning to mitigate the problem
Companies need to address the following shortfalls to get past the next disruption, which is sure to hit.
- Evaluate and Identify Current Risks. Take a critical look at your business and identify areas with risk exposure. Identify and evaluate potential supply-chain disruption scenarios.
- Prioritize by Probability and Impact. Covering every scenario is impossible, so prioritize potential risks by the likelihood they could actually take place. Then estimate the financial and brand impact of each event. Develop mitigation contingency plans, starting with the most likely and highest-impact risk scenarios.
- Diversify Suppliers. Don’t rely on one source for materials or products. It’s desirable to source from low-cost locations around the world, but if goods can’t be delivered in a timely manner, your supply chain becomes vulnerable. Establish reliable secondary suppliers in different regions to minimize this risk.
- Be Aware of Suppliers’ Risks. Be aware of risks your suppliers may face, including regulations compliance, country risk, economic and political conditions, or anything that may impact their ability to serve you.
- Be Transparent with Partners. Share information, such as increased sales projections, and include partners in product design changes. This helps suppliers have the right product available when needed. Similarly, if sales forecasts drop, let partners know that, too. They’ll appreciate the heads up, and it’ll strengthen your relationship.
- .Review Risks Periodically. Review risk scenarios regularly and identify changes in your supply chain. Preparation is the best way to protect your company from a supply-chain disruption.
- Have the Tools Required to Deal with the 1 – 6 above. Developing the plan is not enough. The plan needs to be enabled with planning tools that allow for actionable and fast reaction to disruption. Tools that allow for scenario planning, reaction to supplier shortfalls, or manufacturing capacities, must be installed and used. Oftentimes, the large ERP system neither has the flexibility nor the functionality to respond to such severe disruption.
There has been a renaissance of sorts in SaaS planning platforms in the last several years. It addresses ERP shortfalls and is capable of addressing the problems discussed above. These transformative changes provide the visibility of supplier operations and inventory. Essentially, they provide a digital twin of a company’s manufacturing operations, allowing for a fast and efficient concurrent planning scenario to solve complex problems. One such platform is Kinaxis.
It’s a single integrated tool, allowing for visibility across your supply chain that performs with a concurrent approach to planning, eliminating silos, and facilitating fast decision-making in times of disruption.
As companies learn the lessons from this most recent pandemic, we expect to see planning tools similar to the one above that help to mitigate even the most serious supply chain disruption in the future.
