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.