Coronavirus shows inadequacy of rear-view mirror planning

The coronavirus has illustrated how fragile global supplies are, and how easily disruptions in other parts of the world can halt production lines and prevent supermarkets from keeping shelves stocked.

Speaking at the recent Reuters Supply Chain Europe 2020 event, Oscar de Bok, CEO at DHL Supply Chain, said: “Nobody could have foreseen where we are today.” The pandemic and subsequent lockdowns resulted in shifts in customer behaviour, instant site and factory closures.

But the effect of coronavirus on business continuity is that it has made supply chain resiliency a top priority. In his presentation at the event, Knut Alicke, a partner at McKinsey, said that major disruptions occur every three years. Relying on a supplier in China or India for a key component is fine until that country starts to see coronavirus cases rise. “If companies do not move to regional production, the next disruption will have a major impact on business,” he said.

According to George Lawrie, a principal analyst at Forrester, most supply chain forecasting is actually performed using quite simple calculations, based on time series, weighted moving averages of sales of each item. In effect, next year’s forecast is based on sales this year with a small correction for growth.

But such calculations are unable to anticipate the effects of major disruptions. Businesses hardening their supply chains for business continuity are looking at ramping up digital transformation, artificial intelligence (AI) and data sharing. 

During his presentation at the conference, Knuth described why companies need to understand their exposure and overall footprint. In general, companies tend to have a tight relationship with their first tier supplier, but generally, they do not know their second tier or third tier suppliers, which provide essential materials that the tier one supplier needs to fulfil orders. He urged delegates to adapt their planning strategy and assess the risks end-to-end across their supply chain.

One of the key areas in a supply chain is packaging. Without the correct packaging, products cannot be sent out to retail stores, which leads to supply issues. This makes contract packaging (co-packers) key to supply chain resiliency.

Speaking about inefficiencies in legacy systems, Josephine Coombe, UK managing director at Nulogy, described how the pandemic has accelerated trends in ecommerce. Those co-packers who have used digital technologies to streamline business by building a digital backbone are able to maintain good collaboration with their fast-moving consumer goods customers (FMCG).

“The changes we have seen are the sudden demands for products such as sanitisers, while with others products demand may have plummeted.”

According to Coombe, some FMCG businesses have turned to co-packers that are able to offer late stage customisation to help them to adapt quickly to changing demands for their products. 

In Coombe's experience, those co-packers that are digitally enabled have been able to accommodate the disruption caused by the coronavirus more effectively than those who are hampered by manual processes, or use spreadsheet or legacy systems for demand planning.

Car manufacturer, Groupe PSA has a strategic partnership with a company in the Wuhan district of China. Prior to the pandemic, the company could not have predicted the disruption the coronavirus would inflict on business operations. In her presentation, Francesca Gamboni, senior vice president, supply chain, Groupe PSA described how AI has a role to play in improving supply chain forecasting.

“We need new ways to forecast demands,” she said, adding that companies need to stop driving their business by only looking in the rear view mirror. Instead, AI-based tools can be used to capture elements from the environment, which, according to Gamboni, can be correlated with demand and then extrapolated to improve forecast accuracy.