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Perspectives

COVID-19 Learnings for Consumer Goods: Supply Chain Efficiency vs. Resilience

2020-03-19


To cope with the coronavirus pandemic, consumer goods and retail organizations need a holistic supply chain strategy built on a flexible and robust digital foundation that anticipates disruptions and provides proactive recommendations to keep pace with the fluctuating demand and fulfillment cycle.

Entering the third week of March, fear and uncertainty abound as the COVID-19 disease spreads globally. This is causing major business disruption across industries.

When it comes to the impact on supply chains, organizations must consider operational continuity from two perspectives:

  • Demand side: Consumers are reacting emotionally. Grocery and other consumer good retailers are seeing increases in demand of upwards of 25% as many people self-isolate or stockpile goods to hunker down for the immediate to long term. Many retailers are experiencing a surge in demand unlike anything before experienced, even during the Christmas holiday season. Retailers typically begin demand planning three or more quarters in advance. With COVID-19, they have had minimal time to plan and execute.

  • Supply side: Fulfillment is an equally important issue. China was not only at the epicenter of the crisis, but it is also the largest supplier of components and goods to the global supply chain. This has created significant supply chain instability.

Achieving supply chain resilience

Given the increasing global interdependence, today’s supply chains are increasingly volatile, uncertain, complex and ambiguous (VUCA). In fact, our discussions with supply chain leaders reveal that roughly one-third of the goods sold by businesses to consumers cross at least one international border.

In our multiple supply chain engagements globally, we see that VUCA is increasingly becoming more relevant. For example, in a food and grocery supply chain, fresh produce is the most complex, with a long production cycle and short shelf life. However, supply chain visibility is rarely holistic and lacks systems thinking.

Effective systems thinking allows the supply chain to be viewed as a whole rather than as the different components that underlie it. Systems thinking considers challenges within the entirety of the system and not just the section of the system where the challenge resides. By zooming out on the supply chain, an increasingly holistic view emerges. In contrast to traditional approaches where separate parts of a supply chain are understood and individually managed, systems thinking delivers a view of supply chain behavior over time and as part of a wider set of networks.

This approach means organizations must gather data over a time series and use these inputs to predict supply chain movements — for example, looking at safety stock versus wastage figures as a time series over many months rather than for a particular period. This model can be used to rethink the enterprise-wide supply chain key performance indicators (KPIs) that measure performance over time and accept disruption as reality rather than a mere risk at the register. An inability to manage the supply chain results in siloed processes and a “command and control” culture.

Today’s digitally integrated supply chain allows organizations to create shared KPIs across different nodes (i.e., organizations) of the supply chain over a time series, which will help protect the supply chain from vulnerabilities caused by political, social and environmental factors. For example, “customer satisfaction” can be measured at every node of the supply chain over a time series to understand the value each node creates rather than merely measuring throughput at a given point in time.

Creating a Sustainable Supply Chain

1. Distributed network.

Most companies are trying to maximize efficiency by minimizing assortments, making small batch replenishments and embracing supplier rationalization. However, this can compromise resilience. A distributed and trusted network allows businesses to react to uncertain fulfillment of demand.

Digital provides an opportunity to automate key elements of the supply chain (e.g., warehouse and yard management). This can reduce the dependency on human labor and help sustain fulfillment in a time of crisis (i.e., when workers are not available, or processes change due to quarantines or social-distancing requirements). A robust distribution network (warehouses and logistics) with high-quality standards can help a brand to safeguard its supply chain. Does your business have the tools to manage the complex and distributed network? If not, it needs to find and implement them, quickly.

2. Centralized procurement.

Many organizations are applying technology to integrate data streams to minimize inventory holding at every node. However, having excess inventory may provide flexibility in a disruptive scenario such as the COVID-19 crisis, helping them to more effectively manage through prolonged uncertainty. At this moment, consumer stockpiling is resulting in empty shelves, which in turn is fueling panic buying and is adding to a demand spike. Centralizing procurement strategy rather than individual buying decisions provides better control and visibility of inventory for retailers to react faster and address the demand spike.

3. Collaboration.

Organizations are typically highly protective about supply chain data, believing it to be a competitive advantage. However, collaborative planning, forecasting and replenishment (CPFR) will help organizations to enhance supply chain resiliency in times of crisis. Blockchain technologies allows trust-based information sharing (e.g., excess capacity in the logistics network) to optimize resources and reduce waste in the supply chain. (See our white paper on how this works in the apparel and footwear business.)

Sharing of non-sensitive information within the supply chain through trusted means will benefit all organizations linked through the chain including manufacturers, distributers and retailers.

4. Learning.

Each experience should enrich future learning. Ongoing supply chain disruptions and the decisions taken to overcome the challenges of fear, uncertainty and doubt that define the COVID-19 pandemic should be recorded and applied if and when another crisis emerges.

Creating a digital foundation

A strong digital foundation equips an organization with the capabilities to embrace a product-centric and digital-native state, and to be forewarned and forearmed for potential disruptions in the future. We are never sure from where the next disruption is going to come, but with a strong digital foundation, consumer goods and retail organizations can be more prepared when a surge hits. This means focusing on three business basics:

  • People. Make sure to educate your employees, partners and customers on the challenges and opportunities in this new supply chain era. System thinking will allow supply chain leaders to zoom out and plan for disruption rather than making one-off operational decisions with each crisis. Instituting a learning culture that feeds back into the intelligent supply chain is a top priority for businesses across the value chain.

  • Processes. In a VUCA world, supply chain processes should be agile and disruption-ready. With AI and ML, digital supply chains can take a fresh look into the process of decision-making. Organizations need to move from command and control to exception handling and management behavior. While designing new business processes, collaboration across the supply chain should be in focus to enhance disruption readiness.

  • Platforms & tools. Digital platforms and tools (e.g., Blue Yonder, IBM Sterling, Oracle Supply Chain, etc.) are central to delivering advanced supply chain planning capabilities. These tools help create a digital foundation and promote collaboration in the supply chain. Many supply chain vendors are investing in platforms that are self-learning and have the ability to manage complex networks. For example, IBM Sterling Supply Chain Suite, is using Watson AI, which can integrate with third-party data sources including social media and news feeds. This provides the ability to interpret social signals and learn from the recommendations provided.

Given the ongoing COVID-19 pandemic, it is important to balance efficiency and resilience. Supply chains that factor in disruptions before they strike and inform workaround strategies in real-time outperform supply chains that were created exclusively for operational efficiency. As such, they enable organizations to contend with ongoing uncertainties such as those surfaced by supply chain disruptions caused by the novel coronavirus and can help enable a more sustainable business operation moving forward.

This article was written by Premankur Roy Paladhi, Industry Solutions Group Lead within Cognizant’s Retail, Consumer Goods, Travel and Hospitality Practice in the UK&I. For more information, visit us at the Consumer Goods and Retail section of our website or contact us.

Visit our COVID-19 resources page for additional insights and updates.

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COVID-19 Learnings for Consumer Goods: Supply Chain Efficiency vs. Resilience