COVID-19: Importance of supply chain resilience & working proactively with business assumptions

The COVID-19 outbreak continues to spread on a global scale and is being felt heavily in supply chain operations at various companies. Many industries are heavily affected by the corona virus like the automotive industry (incl. automotive suppliers), the shipping industry (taking a sharp hit in short-term), electronics (semiconductors etc.), pharmaceuticals (as most API's produced in China) etc. According to some posts I've read, 44% of companies do not yet have plans or answers on how to face the upcoming challenges.

What to plan for if there is not only one potential outcome? You start working with business assumptions!

No one can really predict the potential outcomes of COVID-19, therefore it becomes key to work with business assumptions and deal with business risks and costs. There are various scenarios like a quick recovery, a global slowdown or even a recession underlined by a global demand shock. All of these scenarios do have different impacts on your supply chain and require completely different approaches. For supply chain leaders it becomes now key to:

• Analyze changing demand patterns and variability and leverage corporate knowledge within S&OP processes. Balance demand with supply and drive prioritization strategies towards your requirements.
• Keep your customers informed about potential delays and continuously review your allocation plans
• Analyze the global supply chain network e.g. manufacturing sites, warehouses, etc. and move inventories away from quarantine zones
• Analyze/Define your global inventory buffers and locations
• Determine bottleneck resources which are key for production, assembly or service / after-sales business while analyzing supplier capacities and their risk profiles. Evaluate alternative sourcing for key resources to reduce risk.
• Product genealogy and origin of supply becomes key: analyze deeply your value chain and product composition, from the sourcing of ingredients down to finished goods
• Get immediately in touch with your carriers / LSPs and secure transportation capacities
• Run operational risk assessment for core processes etc.

It becomes key that for a diagnosis of the current supply chain setup, you first need to get an end-to-end view across your supply chain network, before you can effectively start working with business assumptions and related impact parameters.

Leverage your supply chain planning (APS) system to capture global demand, inventory and supply

Leading supply chain planning systems, like SAP Integrated Business Planning, can support you in assessing the current situation in your supply chain while giving you the required flexibility to work with business assumptions and risks.

How could SAP Integrated Business Planning (SAP IBP) support you in creating a resilient supply chain and mastering expected business challenges?

• Get global visibility on your current demand, inventory, supply and suppliers capacities to capture the status-quo
• Create various scenarios like "quick recovery", "global slowdown" or "recession" and align your expectations / impacts across various parameters and time horizons. Depending on the scenario, you can expect completely different action plans for your organization - you better be prepared
• Change perspectives: SAP IBP allows you to combine physical supply chain with financial value streams. As such, you're enabled to look beyond volumes and consider values from various angles (revenue, budgets, profit, etc.) to drive an optimal plan.
• Drive customer segmentation strategies to prioritize demand and enable demand sensing for short-term demand variability management. Adapt country or region specific demand patterns towards expected consumption profiles given the economic and pandemic situation. Review your allocation strategy according to the required business goals in short- and mid-term.
• Analyze global inventories, buffers and stock/location combinations across all production stages within your network.
• Review manufacturing / supply capacities and identify potential bottlenecks / shortage situations across various time horizons. Get supplier commitments across longer time-horizons for mission-critical components/ingredients.
• Review various types of lead times and align with business expectations
• Leverage the full corporate knowledge from sales, supply chain, market development, crisis management, risk management within an S&OP framework to balance demand and supply

As you see, there are many opportunities to drive more resilient supply chains. However, the importance of working with business assumptions, risks and opportunities is more important than ever!

Cheers, Arsim