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ASCM Insights

Five Lessons from a Crisis

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The global community has lived through some truly unbelievable events this year. It all began with a new strain of a deadly virus that most of us had never even heard of. This quickly expanded into hysteria purchasing, empty store shelves, and a bullwhip effect that caused disarray as suppliers and logistics partners contended with unforeseen demand. Meanwhile, we experienced prolonged periods of isolation, with many people having to figure out how to work remotely — if they were lucky enough to have a job that they could perform from the safety of their homes. Essential workers, on the other hand, put their health on the line to perform tasks that too often are taken for granted. Finally, astonishing levels of unemployment and the worst global economy since the Great Depression marked the COVID-19 pandemic as one of the most significant disasters of our time.

All of this disruption has been a critical wake-up call for global supply chain professionals: “The business world’s approach to sourcing and supply is not fit-for-purpose,” says Omera Kahn, a supply chain professor and risk expert. “Manufacturers, retailers and logistics service providers must all start doing things differently.”

It is unfortunate that a global disaster was required for us to get here, but we now have a precious opportunity to emerge better than we were before. The new approaches we discovered during the pandemic must be maximized in order to deliver outcomes efficiently, sustainably and with greater resilience. Following are some strategies for how to start rebuilding for the greater good.

1. RISK AWARENESS

A global pandemic is something that, thankfully, doesn’t happen often, but it’s still essential for supply chains to enact risk mitigation, avoidance and prevention plans to prepare for whatever the next crisis may be. This begins with frequently assessing and strengthening networks and building risk awareness into operations.

Tom Melina, senior vice president of supply chain at maintenance, repair and overhaul solution provider Synovos, discusses risk awareness with clients regularly. “The specific techniques used to mitigate risk might vary by industry and location,” he says, “but reviewing supplier financial assessments, building backup sources of supply and initiating strong supplier relationship management are essential.”

During the worst of the outbreak, it proved valuable to establish collaborative teams, including supply chain partners, to improve real-time communication. Additional positive measures included investing in business continuity planning and conducting a risk exposure, vulnerability and resilience exercise to analyze the potential for risk, as well as the means to recover. Finally, acquiring insurance to protect against business interruption or trade disruption was key.

John M. Donnelly, purchasing manager at Globe Food Equipment, believes the immensity of the current situation could not have been anticipated. However, through communication with suppliers in China, Donnelly’s team was able to better understand what was going on at the outset of the disaster and collaborate with sister companies to resolve issues.

As the pandemic evolved, Donnelly says he continually reached out to his suppliers in order to determine the financial and personnel impacts at their companies, as well as any other challenges they were facing. In addition, he was open with them about the fact that his business was affected and production would be lower. “When suppliers understand this, they can adjust their plans accordingly,” he says. “With communication, people are able to make decisions based on data and facts and not be second-guessing supplier situations.”

2. PEOPLE FIRST

In addition to upstream relationship management, COVID-19 has accentuated the importance of cultivating positive relationships with staff through leadership, open discussion, information sharing, and training and education. “Effective teams are made up of groups of people who know the value of collaboration and sharing responsibility, accountability and flexibility,” says Ann Gatewood, CPIM-F, CIRM, CSCP-F, CLTD-F, president of Gatewood Associates. “Promoting communication must be high on the list of the team lead in order to deal with issues as they occur, rather than waiting until a crisis demands it.”

She believes the “distancing economy” enabled supply chain organizations to identify strengths and weaknesses; find inventive ways to restructure processes going forward; and take advantage of new, more creative ways of doing business.

Importantly, the supply chain community also learned how critical it is to maintain regular contact with employees, put in place necessary safety protocols, and let workers know that company executives care about their well-being. After all, it is people who form the foundation of the business and who will ultimately get it back on track.

“The starting point needs to be what impact this is having on people, not on the bottom line,” Kahn advises. “Trust will naturally come when a leader says, ‘I am thinking about each and every one of you and the impact this is having on you.’ That then builds trust, which motivates people to do a good job, even if they’re working from home.”

As an example, Donnelly says Globe Food Equipment demonstrated the importance of employee well-being by making sure hand sanitizer was available to all employees, mandating that temperatures be taken upon entering the facility and twice daily, reducing travel between buildings, and maintaining personal space between workstations.

Finally, relationship-building with customers was also an important part of navigating the pandemic. “Customer service, in all of its manifestations, is a paramount goal,” says Ananth V. Iyer, department head and senior associate dean at Purdue University’s Krannert School of Management. “The goodwill it engenders pays significant dividends during recovery.”

3. TRANSPARENCY WITH DIGITAL TOOLS

Back in April — as food banks saw record demand and many grocery stores shelves were still empty — the world was shocked to see farmers sending millions of gallons of milk down the drain, cracking eggs rather than letting them grow into chickens and plowing fresh produce back into the fields. This wasted food, originally destined for restaurants, school cafeterias, hotels, stadiums and theme parks, made it painfully clear that far too many supply chains struggle with coordination and communication.

Digital tools help supply chains initiate and develop synchronization, proactive supplier management with a longer-term focus, better demand planning, and more effective management of critical inventory.

“The pandemic drove much greater adoption of a digital supply chain,” Melina says. “Companies already using the technology were still able to function as a result and will likely be among those bouncing back the quickest once things settle down again.” He points to functions such as catalogs and automated ordering as the types of the solutions that will likely gain the most traction.

One of the most advantageous digital solutions turned out to be supply chain control towers, which enable organizations to react to and correct issues as they arise. Visibility from dashboards; analytics from simulations, what-if scenarios and risk analysis; and ongoing monitoring make it possible to clearly see whether all parts in a network are moving in concert and performing as expected.

Furthermore, digital twins proved beneficial: “Given that the real-world environment has many versions of truth floating around at any time, there needs to be room for multiple versions of every parameter with associated probabilities,” Iyer says. “A simulated world where ideas can be tested enabled scenario planning and the ability to test for resilience.”

Digital tools that maximize data — such as machine learning and blockchain — were invaluable. According to GS1 global, a nonprofit information standards organization, blockchain is useful in supply chain for “food and drug traceability, product sourcing transparency and order-to-cash process automation in retail.” In particular, it shows chain of custody for physical, digital and health reasons. Machine learning, combined with human insight and modification, helped organizations develop algorithms that predict behaviors, plan scenarios for a range of outcomes, improve forecast accuracy, identify potential risk and offer solutions.

Finally, 3D printing enabled some companies to adjust to shocks by shifting to local production to provide supply. Plus, many manufacturers used the technology to quickly pivot production to make urgently needed items, such as face shields, lung simulators, ear guards and more.

4. AGILITY AND RESILIENCE

By providing better visibility into complex networks and enabling swift experimentation of risk mitigation and recovery plans, digital supply chains also helped professionals achieve agility and resilience. “Companies learned that they need to better understand their capabilities and develop better planning, monitoring and response strategies — with agility as the watchword,” Kahn says, adding that demand planning should place agility ahead of accuracy, while sourcing should place agility ahead of cost.

Notably, many supply chain organizations discovered innovative ways to create shared value with stakeholders and even collaborate with competitors. “During COVID-19, people came together as communities; they helped each other,” Kahn adds. “I think supply chains are very much like that, as well: Why not share our distribution space? Why not share our people? Forty years ago, it was very transaction-oriented, but it’s become a lot more like a community.”

As dynamics changed, pre-planning was repeatedly offset by decisions made by local, state and federal governments. As a result, being able to quickly adapt to conditions was once again vital. Melina says one tactic implemented by Synovos’s team was working with clients to produce much longer timelines than they were accustomed to. Although they did not recommend clients increase maximum inventory levels, they did work to determine where supply will come from and develop contingencies. He adds that the most successful organizations were those that had a flexible supply chain that could identify secondary sources of supply creatively.

Donnelly agrees. He cites imagination and ingenuity in finding resourceful ways to service customers, the ability to innovate methods for modifying current processes to make a totally different product, and approaches taken by workers to be productive outside the workplace as positive effects of the crisis. In addition, his company was able to continue production by having employees take on multiple new job functions; Globe Food Equipment executives even took over cutting the grass to save money on lawn services.

“Reducing costs has been very interesting,” Donnelly says. “We looked at things like dumpster pickups and lowered the frequency. We decreased freight by combining deliveries on one carrier instead of each shipment being handled separately. It isn't a lot of money, but several small savings can equal one large one.”

Meanwhile, one truly massive shift was the amount of demand moving to online channels. Those companies that were able to maintain an integrated view of inventory, and segment or separate it for online versus retail, were better positioned to succeed. The pandemic also taught us the importance of having the capacity to handle the volume coming into distribution centers, as well as the last mile — and the agility and resilience necessary to shift resources to online offerings quickly.

“This pandemic was a reminder that every business should put an emphasis on strengthening its supply chains so they can operate as seamlessly as possible through any situation,” says Ryan Hunter, vice president of global customers for DHL Express Americas. “As many retail brick-and-mortar stores remained closed, shoppers were dependent on e-commerce businesses with strong supply chains more than ever — especially in categories such as consumer product goods, grocery and staple items.”

Hunter also stresses the importance of looking beyond COVID-19 toward the future, now that more consumers are accustomed to relying on e-commerce for their shopping needs. “The comfort level with online shopping has increased, and expectations are higher than ever,” he says. “The digital supply chain side of the retail business must be stepped up to retain customer loyalty.”

5. ETHICAL AND SUSTAINABLE BUSINESS MODELS

Supply chain organizations have become more cognizant of the health and safety of their work environments. Additionally, concerns over cost containment have caused a greater focus on repair, reuse and refurbishment in order to extend product life cycles.

“It is not clear where we will go from here, but if customers demand more sustainable processes, businesses will respond,” Iyer says. “Customers never knew about the supply chain discipline and how vital it is, how many companies are involved, and how intensely the physical and digital world are linked.”

He adds that the pandemic was a unique opportunity to educate people on what it takes to get products to them and how much planning goes into making toilet paper and eggs readily available. 

Perhaps the most significant takeaway from COVID-19 is this: Supply chain — which not too long ago fought for a spot at the boardroom table — has become commonplace at the kitchen table. As the spotlight shines on our industry, the entire world is beginning to understand the impact of supply chains on their lives. Hopefully, businesses will take this opportunity to review their key focus areas and, ultimately, choose to prioritize people and the planet.

The pandemic disrupted every business model that was built on the concept of profit and clarified that it’s “time for a U-turn,” Kahn says, noting that today’s greatest design principles are those that are better for the entire world ecosystem. “We are rewiring our thinking to be a lot more proactive and resilient while taking another look at the definition of wealth,” she says. “Is it how much money we take in our pockets each day, or is it the wealth of collective efforts doing something for the benefit of all?”

About the Author

Elizabeth Rennie Editor-in-Chief, SCM Now magazine, ASCM

Elizabeth Rennie is Editor-in-Chief at ASCM. She may be contacted at editorial@ascm.org.

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