PLANNING STRATEGY

It’s important diversify their supply chains not only across different manufacturers, but also across different countries, shipping lanes and entirely different regions of the world. Create partnerships with manufacturers in the U.S., Latin America, Europe or other parts of Asia to make the necessary investments in automation, technology or skills that would allow diversification of supply chains without major impacts to cost. By pursuing a multiple supplier approach, companies can cost-average their pricing while having alternate suppliers in the event of disruption.

Supply and demand require adjustments or alternate supply chains in any type of disruption or state of shock scenarios. Consider the effect of port strikes. Most supply chains are forced to adjust inbound lanes and route product through different ports and often temporary warehouses. This often lengthens supply chains, increasing inbound cycle times, and often leads to stock outs across the supply chain. Contrast this disruption with hurricanes which may shut down distribution centers and roads while creating significant demand spikes. Either scenario requires flexibility to adjust to the new spikes in supply and demand patterns, pressuring supply chain networks to adjust lanes, capacity, inventory positioning and ways to manage. World class supply chains build in flexibility in several ways:

1. Design contingency supply chains with game plans
2. Develop flexibility in capacity and lanes
3. Determine contingency management approach
4. Compress cycle times wherever possible

S&OP is a critical component to a company’s approach to contingency management, as it drives a balance between supply and demand and creates the framework to evaluate various scenarios to understand the impact of supply shortages, demand spikes or disruptions, or other shocks to the system. This “what-if” scenario development within the S&OP process can ensure all functions are aligned from a strategic perspective and can drive both longer term strategic initiatives (such as capacity additions or strategic sourcing projects) and short-term tactical actions.

Within the S&OP process, the sub-processes of demand and supply planning and capacity management must be robust. Over the last several years, the largest improvement in business software has been the broad introduction of artificial intelligence (AI) and machine learning (ML) to drive better forecasts and

optimization in production planning and inventory management. Most supply chain systems are designed for “steady state,” or average year-over-year performance, but averaging can be disastrous. Many companies struggle enough with normal seasonality or promotional peaks. Overlaying supply disruptions, demand spikes, viral product endorsements or other rapidly developing situations requires speed on the part of manufacturers to identify and respond. Therefore, utilizing demand sensing technology or social media scraping/ monitoring will give companies the edge to respond faster.

While a more flexible network and effective planning-forecasting improves that ability to respond to significant shocks, another key ingredient is a tailored inventory strategy to support these kinds of contingencies. Inventory strategies create shock absorbers in the network that deal with unforeseen disruptions in demand and/ or supply. An example would be hurricane inventory that many companies maintain in the event of severe weather. Another example would be segregating inventory by priority and creating additional safety stock levels during critical periods (when many significant disruptions occur seasonally). An effective inventory strategy starts with the defined role and intent of items in the inventory. Critical items require different safety stock calculations and need to be positioned differently in the network than non-critical items.

Consider reducing the potential for your supply chain to transmit dangerous vectors. Warehouse operations and truck drivers are key drivers of your supply chain that enable products to come from anywhere and be delivered anywhere. The risk of course is making sure that no harmful vectors are transmitted through these key personnel to your customers or suppliers’ locations. Reducing contact by keeping drivers from inside warehouses, providing PPE, staggering shifts to reduce shift change contact and cleaning equipment are all import factors to reduce transmission. In addition, it is important that drivers reduce contact in high-risk areas and customer locations.