COVID-19 Supply Chain Resources & Recovery Strategies
3 Innovations on the Fast Track
1. Delivery drones. Their deployment has been fast tracked to reduce the risk of exposure for drivers and bolster capacity to meet soaring demand for home deliveries. For example, UPS and CVS plan to use drones to deliver prescription medications to a Florida retirement community. Alphabet's drone delivery company, Wing, has also seen a strong increase in demand for drone deliveries, with volumes more than doubling at its test locations in the United States and Australia.
“For retailers, an option worth considering is to shift slower-moving inventory into a reverse-to- forward distribution model, or even a reverse to-e-commerce flow, keeping saleable returns and overstocks in commerce with a chance to sell at full price.”
—Rob Zomok, President, Global Operations, Inmar Intelligence
2. Autonomous vehicles. In April 2020, the Mayo Clinic announced it would use self-driving shuttles to move COVID-19 tests from a testing site to a processing lab in Florida to speed delivery and limit potential exposure.
3. Robotics solutions. Retailers are increasingly adopting technology to combat supply chain disruptions caused by the pandemic. In its latest earnings report, Target notes accelerated investments in robotic solutions to rapidly replenish in-demand products and monitor pricing on the sales floor. Grocers Albertsons and Stop & Shop are testing the use of robotics to process customer orders at their warehouses.
—Gaurang Shastri, Managing Director, Lincoln International
Container Lines Map out Solutions
While supply clearly outstrips demand, ocean carriers have been working hard to make adjustments to protect rates, aggressively withdrawing capacity from the market and adopting more creative strategies.
For example, on the Far East-Europe trade, some owners now send ships around the Cape of Good Hope rather than utilizing the Suez Canal. This takes longer, temporarily removing capacity, while also saving on Suez transit rates. As such, contracted rates are generally holding strong—with spot rates, despite a bleak outlook, also proving resilient for the time being.
—Patrik Berglund, CEO & Co-Founder, Xeneta
The Price Is Right
We are in the middle of an e-commerce boom, which could expose dangerous issues with pricing inconsistency across products, locations, and channels. That includes in-store, online, phone orders/direct sales, and third parties such as Amazon.
“Companies should try to have at least one domestic option for production to mitigate the risk of a shutdown in global shipping or country-level production.”
—Jane Mosbacher Morris, CEO and Founder, To The Market
A majority of U.S. consumers have shopped for groceries online recently because of the COVID-19 pandemic, reports a recent survey by Fabric, a fulfillment company. Respondents say they'll keep up more than 50% of their online shopping even after life returns to a new normal where they can venture out of their homes.
More online sales in the "next normal" means distributors and retailers will have to figure out how to measure price sensitivity and the impact of price changes on demand.
Online sales are more price sensitive, so that's tricky. Establishing pricing consistency will require deep and wide analysis of price sensitivity and customer willingness to pay across all products. Unless you have a team of 1,000 data scientists at the ready, you'll want to implement price optimization software.
Price optimization software allows you to quickly and accurately uncover valuable information across all products to maximize profitability as opposed to operating on a cost-plus basis.
For example, why is your higher-quality pipe fitting or oil filter priced lower than your lower-quality one? In a cost-plus pricing scenario where you are selling more of the higher-quality product, you may get a lower cost and end up with a lower price. That inconsistency will be both obvious and damaging online. A price optimization solution does the heavy lifting to identify "good-better-best" price tiering to optimize prices for profitability and make them consistent.
—Cliff Isaacson, Executive Vice President, Product Strategy, Blue Ridge
5 Ways to Manufacture Goods Outside Your Core Expertise
Quickly ramping up manufacturing can be a delicate task with existing product lines. For completely new product lines, that task becomes daunting at best. Here are some techniques for success:
"Supply chains have largely been run on the basis of minimizing cost per piece. After the COVID-19 disruption, manufacturers and retailers will look more toward the best places to source, build, and store their goods and not simply the cheapest places. This will be a more holistic view."
Logistics & Supply Chain Management Practice, McCarter & English
1. Collaborate in a safe place. Executive committees for various supply chain conferences have formed COVID-19 task forces to discuss challenges and solicit assistance from experts at other member companies.
2. Extend relationships. For example, JD Logistics, one of the largest logistics providers within China's Wuhan province, is partnering globally with a supplier to provide that supplier's other customers with extensive on-the-ground expertise and infrastructure to make sure that critical shipments happen as quickly as possible.
3. Harness core competencies. Closed factories are deploying their vast engineering talents to quickly retool lines and develop processes to ensure that critical goods are manufactured and flowing to the market.
4. Deploy manufacturing shifts. Organizations are dividing their workforces into groups of shift workers that can swap in and out for one another. If one person in any given shift becomes ill, then that entire team can be quarantined and swapped out with another team.
5. Develop data science war rooms. SWAT teams consisting of data engineers, data scientists, and supply chain modeling experts are rapidly setting up applications to help organizations harness artificial intelligence to drive decisions on how to effectively utilize manufacturing capacity for alternative products.
—Matt Tichon, Vice President of Industry Strategy, LLamasoft
Grocery Supply Chain Shops for Solutions
Grocery retailers have been working diligently to keep supply lines coming into stores, and best practices in sourcing and distribution are emerging among retail grocery stores coping with disruptions to normal supply lines.
Under normal circumstances, grocery retailers source from vetted manufacturers and large wholesalers. Additionally, some retailers work with contract manufacturers to create white-label products, and others produce products in their own manufacturing facilities.
COVID-19 has brought forth some problems with the current system, particularly around sourcing and distribution.
Long-term collaborative relationships with manufacturers have made it harder for retailers to quickly switch suppliers. Rigidity in sourcing means that when large consumer packaged goods (CPG) companies cannot scale production as quickly as is required, retailers are unable to quickly turn on an alternate source.
The problem is compounded by the chasm between the supply channels for food distributed to grocery stores and food distributed to restaurants, hospitals, schools, and hotels, and the near inability to switch flows from one channel to another. Suppliers who generally sell into food service have found it challenging to change their packaging to distribute it through grocery retail.
Efficiency-based distribution arrangements between large CPG manufacturers and grocery retailers create another layer of rigidity in the system. Large CPG manufacturers that provide a wide assortment of items to grocery retailers typically supply retail store-specific pallets to cross docks or distribution centers from which stock is delivered to specific retail stores. In some cases they deliver product directly to the store shelf, thus saving the retailer the cost of having to stock the item.
This model is extremely efficient for the retailer, but it limits the degrees of freedom in stock reallocation when supply is scarce and store-level demand has changed between the time the replenishment orders were created and actual delivery from the supplier.
While demand planning/tracking systems are able to identify demand surges, the tight coupling of flows with the selected manufacturers limits the ability of a grocery retailer to respond and react to such surges quickly by sourcing from additional manufacturers or reallocating stock to other stores. To help alleviate this challenge, retailers can implement the following best practices:
Sourcing flexibility: While deep relationships and extensive collaboration with manufacturers will still remain the cornerstone of retail supply chain management, having the flexibility to source from multiple suppliers, including food service providers in conjunction with copackers, on short notice, will regain importance.
New data integration technologies have made it easier and quicker to share demand projections and other forms of collaborative information with new suppliers. As a result, bringing new suppliers on board is easier both operationally and tactically if the overall strategy to guide this exists.
Sourcing and procurement teams should frequently revisit the triggers of when sourcing would switch on an additional source, and define what level of demand surge or supply shortfall would trigger this. Digital solutions and advanced analytics that dynamically readjust such triggers will gain popularity.
Pick to zero and quick stock reallocation capabilities: The trade-off between efficiency at the distribution center and flexibility will shift post-COVID-19 and more stock allocation decisions will be made at the distribution center level. Distribution centers can also be used as a repacking station, perhaps taking certain products that were diverted from food service and repacking them for retail. Metrics should shift from cost per case shipped to include the additional workload at the distribution centers.
Grocery retail supply chain professionals who are able to make these strategic shifts will not only be better equipped to meet crises like COVID-19, but even during normal circumstances will be better at providing their customers an assortment of products from a multitude of suppliers, which meets customers' dynamic and shifting preferences.
—Prashant Yadav, Affiliate Professor of Technology & Operations Management, INSEAD, and Senior Fellow, Center for Global Development
—Kirsten Curtis, Board Member, PurePlus, a CPG company
Expediting the Inevitable
Post-COVID-19, it's critical that companies go back to the basics and shore up gaps in their IT and operations. For some, it will be more incremental changes; for others, it might be a total system overhaul. And for others it will mean leveraging their current systems to enable more efficient data analysis. In many ways, the COVID-19 crisis has expedited the inevitable—changes that were coming, but are now even more essential to strengthen the supply chain for the future.
Mobile technology is the lifeblood of operations, and companies that continue to hold on to legacy Windows Mobile-based hardware will find themselves quickly outpaced.
This is the time to trade up to Android. While it seems a bit counterintuitive, moving to new hardware will lower the total cost of ownership and create more flexibility as the supply chain continues to change at a rapid pace. Look for as-a-service options to help prioritize cash flow while continuing to innovate.
Companies need a way to effectively—and remotely—troubleshoot mobile device issues for their teams at the warehouse or in the field. New devices give more flexibility and allow for video learning and remote access. Companies can also outsource the management function of mobile devices to a supply chain partner, which frees up internal IT to focus on top-priority projects.
Companies that have already modernized devices can use this time to focus on data—improving the types of data capture and how to use that data toward continuous improvement initiatives.
—Shane Snyder, President, Barcoding, Inc.
Scenario planning and demand sensing
For life science industries, the current crisis demonstrates how crucial capabilities such as scenario planning are, since customers need and depend on their medications to be delivered on time. Even if one source shuts down, the supply chain will need to be resilient enough to efficiently pivot to respond.
Since the start of the pandemic, scenario-planning usage has spiked dramatically in the life sciences industry because these companies need to model responses quickly and often. Demand sensing will also be elevated, as companies will need to more closely monitor what true demand looks like.
Moving forward, companies across all industries will need to show the inner workings of their supply chain several tiers deep to ensure true visibility.
Life sciences organizations in particular will need to provide global visibility across all tiers so they can predict and respond to imminent or forecasted shortages of life-saving or life-sustaining medical treatments, vaccines, and equipment.
—Bill DuBois, Director, Industry Marketing, Kinaxis
Collaborative freight technology
The COVID-19 pandemic has revealed the importance of partnering with logistics providers that invest in cloud-based collaborative transportation management systems as well as automated tools to ensure each shipment is efficiently and effectively handled every time.
For example, does the logistics provider have an AI algorithm to identify that the truck driver is falling behind schedule without human intervention? Such an algorithm will automatically notify the appropriate users to help them take immediate action to avoid missing on-time delivery.
Using this example, shippers should also ask how the algorithm triggers this event. How is the truck plugged into the TMS? Is the driver plugged in via mobile application, electronic logging device, text message tracking, or an Internet of Things device tracker placed in the trailer? Are you sure the integration is robust enough? Can you demonstrate on a case-by-case scenario?
Achieving excellent supply chain management requires using AI-based systems and people working together, where the outcome will be greater than when each executes on its own.
—Nick Damanchev, CEO, Archerhub
Supply Chain Pivots
Working with suppliers to procure parts, such as elastic straps and third parties to streamline design, manufacturers are refashioning production lines once dedicated to churning out automobiles, zippers, and perfumes to produce face masks and ventilators. Addressing the need for personal protective equipment, makers of everything from jewelry to plastic film to plane interior components are repositioning production capacity.
Logistics service providers are staying in lockstep with these about-faces, completing expedited deliveries and rerouting shipments to the hardest-hit areas. Here are just a few examples:
- Forklift truck maker Raymond utilized its facility in Greene, New York, to 3D print and assemble face shields. It made more than 2,000 face protectors for local hospitals and emergency responders.
- Lufthansa converted its Airbus A350 passenger aircraft to transport protective equipment from China to Munich Airport in Germany, operating two daily flights in April and May 2020.
- Organic vape juice producer Kai's Organics repurposed a portion of its production facility to make certified organic hospital-strength hand sanitizer. Logistics provider Capacity LLC transported the products from the e-liquid producer's California facility to New York.
Digging Deep with Data
Within a single product line, you may see demand for certain SKUs quickly spike up, while others decline steeply. This pattern can vary by channel, segment, and region during the COVID-19 crisis.
To help companies with production and transportation planning, supply chain forecasting and analytics techniques should address the following:
1. Forecasting models based on pre-crisis conditions are no longer relevant or reliable. Companies can't rely on the well-established techniques that suit them well in a steady-state environment. It is key to be able to discover new predictive patterns within the latest data refreshes, train useful models, and get models into use quickly.
A platform that can evaluate millions of factors in minutes can help data scientists build useful forecast models quickly, based on learnings from early impacted areas. Additionally, it can enable data scientists to quickly incorporate and discover useful predictive signals in external datasets, such as maps and demographics.
2. Typical reporting and business intelligence methods are revealing their blind spots. They provide an aggregated view of the business, which overlooks much of the underlying insights that are visible only when one, two, or three levels of additional factors are considered.
Take the example of a B2B distribution company: In a recent month, within a particular customer segment and region, demand for some SKUs increased dramatically while other SKUs plummeted. Standard reports showed no change in demand on aggregate, overshadowing the extreme SKU-level volatility in that segment and region.
The company missed this early alert, catching it only in the next cycle of reporting once it had become a major issue, and was weeks behind in making supply chain changes upstream.
Given the speed with which opportunities and threats are emerging, the ability to rapidly and exhaustively detect emerging trends is key. An AI-powered solution provides this level of exhaustive, multidimensional, and dynamic trend detection that cuts through the blind spots and noise of traditional reporting and provides timely and actionable intelligence, in near real time, to supply chain decision-makers.
Now more than ever, supply chains must react quickly and nimbly. Having the right insights at the right time, and refreshed, relevant forecasts, are key to getting their actions right.
—Mike Sterling, Director of Impact Management in the Americas, SparkBeyond