Blog: Ready for the new normal?
Working from home, meeting your colleagues mostly in digimeetings and processing information to make right decisions from a private environment. For most of us it looks like this situation will take a little longer than a couple of weeks. However, if that is the ‘new normal’, most of us will have to get used to it soon.
The new normal in supply chains will take a little longer. Temporarily you will see the growing number of blank sailings, lower capacity of production due to reduced number of employees and sales. Larger question behind this, is if you and your company have the right inventories, in the right places and of course in the right quantities. In the past couple of weeks this has been an urgent question. You see this in return in the additional freight flights that have been done. Expensive, however necessary to survive the first weeks. And again, what is there to be done now the probability is that we will stay in a state of physical separation for multiple months?
In this blog we will give you your optimal way to solve the route to the new normal. Hopefully for the short and medium term, but if necessary for the long term. We’ve used insights from our own experience and from some of the better articles available on the internet*.
Getting from urgency into the new normal
In the Harvard Business Review article Haren and Simchi Levy made us aware that we “should brace for a major effect on manufacturing worldwide.” Reading the article, that remark mostly related (March 5th, 2020) to the delayed delivery of parts and materials from China. In the meantime, the situation grew exponentially. Not only in the spread of Covid-19, but also in the delay of production, as business had to diminish production, or even close, in Europe, UK, in the US, Africa and America. At the start of most supply chains, e.g. China, production starts up again, but the businesses at the other end are now closed or at least at a lower production speed, due to physical distancing rules or lock downs in many countries. Relocation of logistic assets, certainly in deep sea shipping, will take time. How do you get from all these urgent question into the new normal? Follow these 5 steps:
Step 1 - At ATIM Solutions we always take demand as our first source of information. Demand patterns have been shaken up in the past couple of weeks, so be aware of the influence on your analysis in the coming weeks and months. Certainly for your forecasts you really have to be aware that the influence of the current highs (mainly elementary products) or lows (for luxury goods) will be mitigated for future use.
Looking a bit further out of your companies scope, you can find signals of economic downturn, even recession for countries and continents is being mentioned already. True or not, these signals need to be taken very serious. Not knowing where the economy is heading to, is the right input to create scenario’s. They answer the question what your companies’ demand patterns can be in the coming months. And they are essential to make decisions.
Step 2 - Create a high, normal and low scenario in your forecasts to start with. This will get you into the right mode of thinking to dive into more details. Besides, it makes you independent of the industry you are in, as healthcare grows now, but the flower industry is down.
As demand is just our first source of information, we need to take a look into the other sources, also to get into the right level of detail. So knowing your basic demand scenario’s, you can further detail them by spreading them over your internal geographies, your predefined market area’s and/or product groups. Divide them in to you’re A-products (20% of products, 80% of turnover) B and C products. Take care that the limited production capacity is used for the most demand goods!
Step 3 – Share your scenario’s in- and outside, your organisation and cooperate. Create transparency. Sales and Operations should know about the forecast scenario’s. It enables them to relate to their own information again (which they should also share!) and work with customers and with manufacturing plants. However, do not fade out to your logistics network. At Forbes.com, Lora Cecere also states to “forecast at each tier using consumption data.” These tiers should be looked at in more detail, so not only external tiers, but knowing your internal tiers, e.g. your warehouses, distribution centers, cross dock locations and fulfilment centers is essential. If they are privately owned, you will have influence on their capacity and the information on levels of inventories. But does that also account for your pipeline inventoryour inventory that is on the move? And what about your economic inventory that is with external parties? Most of us rely on logistic service providers (LSP), forwarders, hauliers and ship owning companies and knowing that, the last step comes into play.
Step 4 – Know and manage your logistics network. Most of us are well aware of the main stakeholders in the logistics area, but do we really know what goes on in the world of LSPs? And do you know where your physical pipeline inventories are? Based on the scenario’s created at step 2, and with the added level of detail in step 3, we have to know what goes on in logistics. Click on this link to see an example. In the execution, we must be sure that we chose the right route to the right customer. Again it accounts:
- when your demand is high (you want the right goods to be transported asap to the right place) and
- when your demand is low (you certainly want to spend your scarce budget on the right movement of goods).
Knowing the many variables supply chains are generally possessed with, that is already a challenge in normal times. Under pressure of diminishing budget or higher speed needed, and the 1,5m distance economy, it is even more essential to work with the right assets and to inform the right stakeholders, internally and externally, in your supply chain. Support of web based IT systems in this essential part of the supply chain, combined with the right decision tree, can be very helpful. Firstly, to become fully aware of your logistics network design and, secondly, to mitigate the risk in it, certainly given volatile circumstances. Thirdly, to get hands on human support when necessary. Support on the short term by getting one of our supply chain execution interim managers, on the long term by using software that supports your supply chain execution decisions on daily basis.
Step 5 – Seek support. We are one of the sole suppliers that combine demand with logistics network design and execution. Many look for the optimised forecast combined with inventories. But this period makes it very clear that, of most goods, inventories are high enough, but not in the right place. ATIM Solutions combines the optimal solution by connecting Forecast, Inventories and Delivery of your goods, your information and with that of your cash flow.