Covid crisis shifts supply chain management from efficiency to resilience

Navigating uncharted business territory

Margaret Heffernan is a business author and former chief executive who places more emphasis on resilience than efficiency. Her most recent book is Uncharted: How to map the future together.

Heffernan was one of the speakers at this year’s CogX conference, in a panel entitled, Recovery: What’s coming next/Economics in the age of Covid-19.

Her short answer to the question of how the economy will be different post-pandemic is: “Nobody knows – there are a lot of people spinning their favourite theories, but none of us have been here before.”

She believes, however, that the efficiency mindset that has dominated business thinking for decades is too brittle for a world necessarily stalked by uncertainty – and that the pandemic has thrown that into relief.

“There are events that no one sees coming, so-called black swans, but there other things which fall into the category of uncertainty, in that we know they are going to happen, in general, but are specifically ambiguous,” says Heffernan. “Epidemics are a perfect example of this. We know they happen, but because there is no profile of an epidemic, we can’t say when they are going to break out, or when they will stop, or what the disease will be. In those cases, you need ‘just in case’ not ‘just in time’ thinking. In other words, if it happens, what would we wish we had ready and prepared?

“Now, preparedness does not feel efficient. But, to be prepared [in the UK] we would not want the NHS to be running at full capacity. We would want there to be PPE [personal protective equipment], and more beds than we need right now. We would want there to be more healthcare professionals than we need right now. In the absence of knowledge, that is all you can do.

“The efficiency mindset, which has dominated business since the industrial revolution, is about getting rid of all waste. But it puts you in danger when you know there is uncertainty in the system,” she says.

“In IT, because the technology changes so fast, you want to recruit people who are fantastic learners. You also need people who can translate between customer needs and technical understanding and who are cross-pollinators, who understand all the bits of the business, and transfer what’s been learnt from one part to another”

“The reason ‘just in time’ [manufacturing] was so phenomenal is that it leaves decision-making to the very last minute when uncertainty is minimal. In most contexts that makes perfect sense. But the truth about ‘lean’ and ‘just in time’ – when, say, you’re in car-making and sourcing parts from many countries all over the world, when you are trying to optimise for factors like labour costs, currencies, and so on, to be as lean as possible – is that there is a downside. And that is, you have exposed yourself to all sorts of things you can’t control – political strife, religious strife, trade wars, weather events, and so on. You don’t want to be so punctiliously efficient – you have to build in redundancy.”

She argues, and shows persuasively in her book, that when businesses go through a crisis, people keep supporting the organisation because of the friendships they have made at work – they fight alongside and for each other. She contends that the gig economy – which is a good homology for a ‘just in time’ supply chain – by contrast, is “tremendously wasteful of human capital” and that workers won’t share innovative ideas when working in that mode.

Nor does she see the pandemic model of working from home all the time – which supply chain managers, along with other managers, have had to adopt in pandemic circumstances – as sustainable. She mentors CEOs and other business leaders who, she says, have found it “hard to get a sense of how the business is feeling” during the crisis. She gives an example of the CEO of an investment bank who admits to missing even the people she dislikes. “We all get our sense of identity from others. A job isn’t just a series of tasks. It is meaningless if it is so,” adds Heffernan.

Supply chain management, like all aspects of business management, are done and led by human beings. What should, in her view, resilient managers look like?

Heffernan identifies an answer, which might read across to supply chain and other managers, in how the military recruits and develops “adaptive leaders”.

For her book, Uncharted, she interviewed General Sir Nick Carter, chief of defence staff. “In the army, you face uncertainty all the time, and so he told me they try to identify and develop adaptive leaders. They don’t want people who know one type of warfare when another comes along. And so they are trying to hire more diverse people – for which they have been pilloried in the tabloid press,” she says. “Now, it is very hard to find those people. The educational system does not produce them. It trains people to assume there is a right answer, and to know what it is.”

What role can IT professionals in user organisations play in getting the economy out of the post-pandemic recession to come by helping their companies and organisations be ready for anything?

“In IT, because the technology changes so fast, you want to recruit people who are fantastic learners. We tend to hire people for the skills, but in IT those will change, so you want people for whom lifelong learning is their idea of fun. You also need people who can translate between customer needs and technical understanding and who are cross-pollinators, who understand all the bits of the business, and transfer what’s been learnt from one part to another,” advises Heffernan.

Connecting complex systems

How IT professionals and those operating within the supply chain can use data-driven insights to connect an increasingly complex ecosystem and optimise business processes is a subject of specialist interest to Mark Morley, cloud integration evangelist at OpenText.

The vendor sells a platform called TradingGrid, which combines network services, integration services, managed services and software-as-a-service (SaaS) applications that, in part, are geared towards optimising supply chain efficiencies. It is similar to SAP Ariba.

In an interview with Computer Weekly in the early stages of the pandemic, in April 2020, he talked about the impact the virus was having on business operations globally, from his perspective at OpenText.

He confirmed that TradingGrid has in the region of 65,000 customers and said it had been in a good position to “help companies identify alternative suppliers really quickly”.

“Having a cloud-based integration platform is a key requirement for companies to manage a disruptive period. I’ve never seen anything like this. It is interesting to see supply chains front and centre – without them, there is no way companies could manufacture what they are in such a short time period”

When Covid-19 first emerged in China, that posed a big problem since roughly half the world’s manufacturing parts come from there, he commented. China was coming back around that time, so there was some recovery there, but much of the western world was going into lockdown. But another aspect of having to switch quickly was the demand for diversification of manufacturing capacity towards healthcare – specifically, at that time, the manufacture of ventilators.

He took the view that companies which had not made the shift to the cloud would struggle to make those business process changes which necessarily have implications for their supply chains.

“We certainly believe having a cloud-based integration platform is a key requirement for companies to manage a disruptive period. I’ve never seen anything like this – even with tsunamis and earthquakes in the Far East. It is interesting to see supply chains front and centre because, without them, there is no way companies could manufacture what they are in such a short time period,” said Morley.

At that time, he was characterising the world’s supply chains as “somewhat frozen”. He also said he saw companies rethinking their pre-existing supply chain, with a view to building in more resilience.

“One thing is having more flexibility in terms of being able to choose new suppliers, or switch manufacturing to other locations. Another is collaboration, with good day-to-day communication with suppliers. Yet another is visibility, where IoT comes into play. And finally insights that supply chain leaders can get from the data that is moving across our network, so they can make alternative plans. And that is where machine learning comes in, to go through ‘what if’ scenarios. I know of companies that have set up ‘war rooms’, disruption management facilities to look at supply chains, not just now, but when they restart,” he said. 

War rooms

Slimane Allab, general manager for Europe, the Middle East and Africa (EMEA) at supply chain software company Llamasoft, confirms that he, too, has been seeing customers improvising “war rooms” to rebuild their broken supply chains during the pandemic.

Llamasoft derives its name from the mountain-trekking, supply-bearing beast of burden native to South America. The company, says Allab, has always been focused on the “value network” of its customers. “For us, it is all about network optimisation. We apply AI [artificial intelligence] to company network management to address business optimisation problems.” (By “network” he does not mean telecommunications networks, but rather the value chain of a company from source suppliers to end customers).

“Typical problems would be: What is the right product flow to optimise the reduction of CO₂ emissions? What is the inventory target associated with that? And so on,” he says.

Its customers include large automotive companies, fast-moving consumer goods companies such as Coca-Cola, and retailers.

What, then, has been the impact of Covid-19 on the supply chains of Llamasoft’s customers this year?

“Some have seen it as an opportunity, like grocery retailers. Pharmaceutical and petro-chemical companies were affected on the supply chain in the early days, with an impact of around 20% to 30%,” says Allab.

“We’ve seen companies use ‘war rooms’ to address how they are being affected both on the supply side and on the demand side. These war rooms have led them to think differently about resilience and agility”

“And this is why we’ve seen companies use ‘war rooms’, to address how they are being affected both on the supply side and on the demand side. And these war rooms have led them to think differently about resilience and agility; about how to best leverage the network they own in normal times for the new times, and to minimise the impact on their bottom line.

“They are typically thinking more local, less global. But there are areas that will need to remain more global, if you think about parts for engines or vehicles. If you have 30% of your parts coming from China, you are looking to reduce that, have dual sourcing, and so on, to de-risk sourcing. So, global [sourcing] will remain, but to a lesser extent than before.

“Companies are also looking at demand from the end customer. What does fresh and healthy mean? We’ll see a less broad assortment, more local sourcing, plus, most importantly, an emphasis on sustainability – for example, fashion made with sustainable fibres. The pandemic has focused attention on sustainability.

“It’s about a movement from optimisation and efficiency to consideration of other factors in sourcing. Some 30% of our customers have sustainability as a criterion, and that proportion is increasing. They are looking at cost, risk, resilience and sustainability [when sourcing suppliers],” says Allab.

One client Llamasoft has worked with is China’s largest retailer, JD.com, “to bring Chinese supply chains back online after their Covid-19 disruption in the earlier part of this year”, says Allab. “We partnered with JD’s logistics [arm] to provide services to other companies and organisations in China.”

Llamasoft has had a strategic partnership with JD Logistics since August 2019, whereby the former exclusively delivers and integrates Llamasoft’s supply chain design and analytics software as part of its own service and technology systems to select manufacturers, retailers and logistics providers in China using the JD Logistics network.

Robots to the rescue

Siemens Healthineers is another company that turned to advanced automation technology to quickly solve a supply problem posed by the pandemic. In this case, Infosys Consulting provided the medical equipment manufacturer with a robotic process automation (RPA) system to help it meet demand for parts as the crisis raged.

The Infosys team implemented an RPA solution in four days that would usually take four weeks.

This Covid bot they put in – one of two – now runs global stockchecks 24/7 to ensure parts can be shipped to where they are needed most, updating as supplies arrive – doing what humans were doing before, but six times faster, according to Infosys and Siemens Healthineers.

Michael Buchmann, head of RPA, Europe, at Infosys Consulting, leads their engagement with an automation centre of excellence at the Siemens business unit. “It’s my favourite project,” he says.

“When everyone works together in a crisis situation a lot can be done quickly. If we can work more efficiently, why not go to a four-day work week and make our economy more resilient because there is less pressure on people? These bots we have built shine a spotlight on that concept”

The particular problem they looked to solve was the delivery of parts and medical equipment. “Worldwide demand increased very much with Covid, for example for ventilators and parts for those. The people dealing with the delivery of those were just overwhelmed so there were delays,” he says.

Such was the urgency of the crisis that Infosys got access to all the systems it needed much more quickly than would normally be the case with a client. “We got the access in a day or two – normally that takes months, or indeed never,” says Buchmann.

His multinational team – two from Europe, one from Brazil, and one from India – worked on the problem from a Tuesday in April to the Sunday night, going live on the Monday. “It was a beautiful and incredible effort,” he says.

The manual process they have robotised used to take nine minutes – it now takes 30 seconds. Also, the robot replaces the work of 10 human users and the system does not crash. In the first 40 days of running, the robot had processed 4,000 items, saving 350 hours of labour, says Buchmann.

This process is one of distributing stock from warehouses to plants to build medical equipment. The different country plants order parts from a central SAP system and availability of stock globally needs to be checked. This is now done by the robot, which also then makes any adjustment in stock worldwide automatically. If it is not possible, the robot rejects it with an explanation why. If there are different plants ordering the same stock as the same time, it helps coordinate between them so the stock doesn’t get double booked.

The team went on to code – using BluePrism RPA software, as with the first robot – a second bot that scans lists of materials, sees lower priority sources of demand and reallocates items to higher priority sources of demand. “It creates a queue, assigning [by] priority. It does automatically what it would take 10 people much time to do, freeing up those highly qualified people to do more complex things,” says Buchmann.

“What fascinates me is that when everyone works together in a crisis situation a lot can be done quickly. If we can work more efficiently, why not go to a four-day work week, and make our economy more resilient, because there is less pressure put on people? These bots we have built shine a spotlight on that general concept,” he says.

Weathering the storm, but winter is coming

Cloud-based business network systems, such as those offered by SAP, OpenText and Llamasoft, among others – we could mention Infor Nexus, too – will help companies that operate globally to continue to weather the pandemic storm. Automation, too, fuelled by machine learning of the stripe built for Siemens by Infosys, has a role to play in balancing efficiency and resilience – but, most probably, in a new economic paradigm that favours the latter over the former.

However, he or she who says “supply chain” also says “world economy”. Nobody really knows at present what the precise economic impact of the global Covid-19 coronavirus will be. This prognostication from the London-based international journal of ideas New Left Review, published during the peak of the first wave of the virus in the spring, still seems realistic as autumn unfolds and winter is coming. It is also void of the careful, anodyne and euphemistic language of the mainstream business press, so it is blunt, shorn of the niceties of conventional economic commentary.

“The demand shock from the west hammers a world economy still struggling to recover from the end of the commodities super-cycle and burdened by debt, much of it denominated in strengthening dollars,” it reads. “Oil has sunk below $35 a barrel; remittances and tourism revenues have been slashed. Welfare is minimal across most of Sub-Saharan Africa, the Indian Subcontinent and Southeast Asia, where lockdowns are enforced with lathis and sjamboks. With further waves of the virus expected over the next six to 18 months, global supply shocks have yet to kick in.”