Most economic activities, except those considered critical, are stopped or work in slow motion—and even critical activities are facing massive disruptions with supply as suppliers stop production and pressure mounts on governments, consumers and employees.
If this crisis underlines some weaknesses, bottlenecks, and interconnections of supply chains, it also highlights a series of operational risks affecting the global economy at a scale that is hard to accurately forecast.
While millions of people have to stay home and many companies’ operations are totally or partly mothballed, the priority is to use the shutdown time to launch not only survival mode actions, but also to properly prepare the restart of operations and the return to “normal.”
With the crisis, companies’ financials have been stretched with, for many of them, revenue down to near zero while fixed costs remained. Oil and gas companies, for example, faced a decrease of sales by more than 60% in just a few days.
No need to be a financial expert to understand that, in this context, surviving companies will require dramatic and urgent actions to recover as fast and as much as possible and avoid wasting remaining available resources during the restart phase.
To prepare the operation restart, companies should review their priorities based on three dimensions:
Sales and marketing teams will have to re-assess commercial plans to take into account dramatic changes in market size. Because the restart will be progressive and staggered by country and industry, customers’ priorities will shift with pricing affected by market conditions.
Therefore, products contribution in term of cash and profits will change with future demand and sales prices leading to adaptation in the production plan versus pre-crisis time. Some companies will focus on high contributor products during the restart phase and will neglect or restart later parts of their traditional product portfolios.
Being at the end of the supply chain, logistics capabilities will have to be adapted to properly ensure the adequate servicing of customers and meeting of restart objectives.
The shutdown period should be used by logistics managers to build a complete and honest picture of the capacities and capabilities needed to restart versus what exists or could be available at the end of the lockdown.
Among the capacities and capabilities to assess:
While people are locked down working from home and stretched to deliver short-term cost reductions or cash management activities, it’s necessary to pay attention to the human factor by assessing the following.
All these questions may require temporary adaptations in workforce mobilization, organization and prioritization while all countries, plants and DCs won’t restart at the same time.
Many companies already initiated cost reduction plans in which logistics teams can play a role by:
On the organization side, adaptations are needed in the following four aspects.
Systems will have to fully support operations restart plan implementations and will require adaptability to adjust to the crisis development. The lockdown period should be used to remove traditional burden and complexities such as:
A significant amount of work is also going to be needed on system data update, especially carrier and inventory data, to ensure the right information is used to make decisions.
Cross-functional supply chain teams will need to accurately model the end-to-end supply chain inclusive of all modes to fully evaluate the risks and vulnerabilities of the network. This digital twin of the end-to-end supply chain will need to incorporate scenarios from S&OP, sourcing risk models, logistics constraints and production and maintenance.
Logistics teams have a key role to play in coordination with procurement and manufacturing on several aspects:
Distribution supplier financial risks should be considered. Together with sourcing and supplier managers, logistics teams must organize the update of logistics suppliers’ financial risk. Liquidity, solvency and profitability ratios must be updated considering the lockdown effects for at least all critical suppliers to make sure they’re able to operate and support transportation and distribution during the restart period. For suppliers that are too weak and may go bankrupt, alternatives should be identified or financial supporting plans—subsidies, loan, bank warranty, cash advance—put in place with the support of finance teams.
Supplier logistics risks will have to be reviewed for inbound and outbound logistics to make sure:
Inventory levels should be recalculated based on new S&OP plans to ensure runners and repeaters for priority products will not run low while slow movers and non-necessary parts are minimized. Logistics teams should coordinate with sourcing and procurement to assess Tier 2 and Tier 3 suppliers for these critical parts to secure that manufacturing will be properly fulfilled without any disruption.
Distribution centers should be tested in the restart conditions. Whenever needed, corrective actions should be taken so that they can properly operate. Digital twins can be built to define optimal organization and network to improve priority parts and product movement.
Distribution capacities need to be assessed by market to ensure that they are adequate to meet the targeted customers during restart phase.
All of these assessments will help to bullet-proof the distribution restart plan and proceed with necessary iterations to ensure that this plan is highly feasible.
The set-up and monitoring of the restart plan requires a dedicated multi-functional task force inclusive of control tower capabilities. This task force should gather C-level, finance and treasury, human resources, procurement and sourcing, distribution and planning, manufacturing, sales and marketing as well as IT.
This multi-functional team should have a logistics cluster with planning, warehousing, transportation and order management experts supported by strong analytics capabilities to contribute to the restart plan preparation, iteration and the scenario building. Moreover, as the crisis is still ongoing and with an uncertain conclusion, all analysis will have to be updated live based on the coronavirus crisis development, increasing the need for efficient, scalable and repeatable analytics.
To make the control tower more efficient, the analytics team should mobilize:
Beyond the short-term actions to ensure the survival and the recovery of companies, time will come to think about what’s next. The coronavirus crisis acted as a wake-up call to highlight that systemic shocks can and will happen.
Knowing this, it’s now the duty of each company to use the lessons learned from this crisis to promote a more resilient supply chain for the mid- and long-term.
The control towers and digital twins that each company will (or already has) set up will gather a lot of experience, information, and analysis capabilities. They could be the first building block to lead the transformation to:
The COVID-19 pandemic can become the potting soil for many innovations and positive transformations in the way we think and operate supply chains as long as we properly leverage what we learned while locked down.