Many businesses have been impacted simultaneously by a perfect storm of forces (Brexit, energy costs, shortages of Labour) and, as Gary Connors and Mike Gray, Partners at Oliver Wight EAME, point out here, this is going to affect many more goods than previously anticipated.
The manufacturing of chocolate, for example, relies on stable transport costs, migrant labour, a steady flow of investment in maintaining an ageing asset base and affordable energy costs to make the product. As demand increases in the lead up to Christmas, you might see an increase in the price of chocolate, but you are more likely to see empty shelves. In addition, we are foreseeing an issue with wine/beer over Christmas due to glass bottle shortages, which rely on low energy and transport costs.
It is too late for FMCGs to be planning for Christmas now, the disruptive forces are already playing out. It is not too late to be trying to influence those forces and carefully controlling the execution of your plans. We are advising clients to be monitoring the real-time demand for their products and make short term distribution decisions that will optimise what they have on the shelves rather than in their warehouse.
We recommend that clients anticipate abnormal demand and don’t automatically react to it. A buyer may be placing an unusually big order in anticipation of rationing of supply, this is not a good order to be promising your inventory too. While an unexpected big order might seem like a good thing, if you give away your inventory to that order you may not have any left to offer your normal customer that have forecast their demand and are ordering in accordance with their forecast.
Early warning of supply issues and visibility of demand changes is something that will help our clients balance supply with demand in the short-term. We recommend a formal weekly process to keep these sides of the organisation in constant touch with each other and to mitigate the inevitable issues that will arise.
This new normal is not going away. If there is one thing that we can learn from the history of supply chain disruption is that it keeps happening and that it is happening more often. Organisations need to accept that change will continue to happen and that that the notion of normal is outdated; or put another way, change is the new normal. The financial crisis of 2008 spurned a new breed of organisation that anticipated and reacted quickly to the change. You only need to look at ‘Air BnB’ or ‘Uber’ to see this. Permanent changes are not necessarily negative, they may provide new opportunities that allow your business to thrive, in this crisis and the next.
Oliver Wight tips for a robust supply chain in the ‘new normal’
1. Demand monitoring
In the current climate, forecast accuracy is much more difficult, but intelligence about customer behaviour is still a valuable asset. We are advising clients to ensure staff understand how valuable the unloved task of forecasting is and ask them to consider the wider picture.
Market assumptions about the future become more important as the rate of change increases. There should be agreement on what is most likely to happen in the short, medium and long-term, with the product, demand, supply and finance plans aligned to those assumptions.
A greater focus on inventory at this time is important, to reduce strain on capital and to reduce the risk of stock being left behind. We see many organisations rushing ahead with blanket policies using intelligence that is not integrated into their overarching business plans to drive stock levels. Taking the time to improve your inventory processes means generating better results in both the short and long-term.
3. Prioritising customers
As part of the demand monitoring process it is also key to ensure you are able to prioritise customers and clients that will protect your future portfolio.
As demand visibility is gained and assumptions are articulated for different segments of demand, it will be easier to allocate resources and budgets. This will also help to enable tailored customer service levels where it has the greatest impact. Most of our clients are able to do this by ensuring they prioritise customers who offer high margins, high volume sales, however, it’s also important to recognise when there is value in lower margin and volume sales that are strategically important to future clientele, market opportunities and product sales. A highly developed prioritisation routine will help determine delivery lead-times and stocking strategies that differentiate service offering in good times and provide guidance should demand ever exceed supply capability.
4. Visibility of the end-to-end supply chain (and not just your part)
End-to-end supply chain visibility needs to be transparent at all stages of supply chain management from procurement through delivery of finished goods to customers.
It is important to consider the capabilities and consequences for your vendors. Suppliers are also under pressure and some will inevitably fail. Will your suppliers survive the current crisis and will they have found new customers to fill holes left if you’ve experienced low volumes? Strong communication with your suppliers is key right now, make sure you understand their situation and that they are informed of your demand plan as it applies to them; including where you see opportunities and vulnerabilities. It is also important to have contingency in place to protect your end-to-end supply chain if suppliers should drop off. Where possible, start to prepare alternative vendors where vulnerability is perceived.
Communication that is honest and open amongst clients, suppliers and any company involved in the supply chain is essential. But it is also important to look internally at your own team. A good team ethos will encourage increased productivity and improved morale. Those businesses that will survive the supply chain crisis are those that have good communications channels and encourage open and honest debate amongst their own staff. When disruptive change hits, it is important to consider multiple perspectives.
6. Artificial Intelligence
The skills shortage within the supply chain can be both helped and hindered by automation using machine learning and AI. On the one hand, productivity can be increased by technology and analysis will become simpler and more comprehensive; on the other, traditional skill and understanding is still needed in our organisations if we are to avoid technology learning our worst habits and never realising there is an alternative way. Although many of the traditional skills of inventory, production and distribution planning can become digital, much is specific to the technology of our niche markets, specialist products and innovative technologies. The balance of People, Process and Tool remains important. Your planners will always be the creative spark that makes the most of the technology.