In early 2020 the world was hit by crisis with a degree of intensity the world has not seen in recent decades. COVID-19 led to a global pandemic situation which in consequence and due to political decisions resulted in a strict lockdown for most European areas.
Not only people’s private lives were affected but also almost all industries suffered severe demand collapses. Even industries without comparable drastic demand loses were affected due to heavy disruptions in their supply chains as worldwide suppliers ceased operations – some of them perhaps forever.
In the graph below you can see the assumed European economic development during the pandemic.
While most European companies have survived the decline as well as orientation phases and lockdown restrictions have been loosened, the challenge and great uncertainty continues along the upcoming recovery phase. No one can clearly predict if there is going to be further infection waves, that will lead to tougher business restrictions – not only in Europe but e.g. in Asia. Therefore, it is mandatory to further stabilize your business relevant processes and improve their resilience. Global supply chains and modern logistics are key elements for efficient, competitive production and trade enterprises – no matter how intense the phrase “Glocalization” is stressed in recent weeks. However, resource consuming transformations like digitization & both ecologically & socially sustainable supply chains continue to exist aside your efforts to strengthen logistics processes, which enable your business.
We have prepared five tricks to facilitate the identification and picking counter measures of COVID related implications on your logistics processes and network. Each is underlined by a real-world example from the recent months during the pandemic:
Logistics Process Excellence
Manual and historically grown processes are often either not (well-)documented and even too complex or twisted to react to events like COVID. Especially, for long-term digitization projects it is highly advisable to document and review processes by applying industry best-practices. A more sophisticated deep-dive process optimization approach is to apply AI: It assists identifying pain points by simulating the respective process flow and spots e.g. bottlenecks & process redundancies faster and more precise compared to conventional brown-paper-workshops. The mandatory prerequisite is having prepared well documented process environments. However, multiple benefits including increased resilience towards exogenous impacts and short assessment efforts can be generated out of both approaches.
A chemical company manufactured different products before COVID has disrupted their supply chain heavily and made it impossible to maintain the current product portfolio due to missing raw materials. Production and logistics processes were twisted convolutely which took time and high effort to simplify: At first this needed had to be broken down, followed by realigning the relevant products process flows for which raw materials still could be procured. After this, responsibilities for production and logistics processes were clearly defined. With now “untwisted” processes, production could continue with a reduced portfolio. After some time spent for the recovery the company could generate revenue again.
Transparency is key in warehousing – for both stocks and personnel. In dynamic times intelligent warehouse waving concepts for e.g., pick & pack operations allow efficiently distributed and adaptable employee utilization. State-of-the-art technologies and processes, like SAP EWM, support real-time information of stocks and enhance your supply chain planning, e.g. by providing real-time dashboards and sophisticated inventory simulations (what-if-analysis).
A machine manufacturer was confronted with an almost complete stop of inbounds as COVID caused closures of international suppliers. For the processes used an IT-supported information exchange of warehouse, production, and procurement on a E2E level was not considered. As consequence in these dynamic times warehouse personnel was either under- or overstaffed – leading to additional implications on manufacturing processes.
Make or Buy / Tendering in Logistics
Partnering with external supply chain parties is necessary to focus on own business strengths. However, the same partners can put your business at risk if one or more specific performance criteria are no longer met or unfortunately fail completely. For example, we observed severe impacts on companies that outsourced their production of semi-finished goods to Asian countries which were heavily affected by a strict lockdown. Therefore, instead of processing a tender for several months, a proven logistics integration checklist with industry specific templates may be introduced allowing a truly rapid transition to another, more resilient, logistics partner. Such a checklist, including a preliminary risk analysis, can also be advisable as a fall back and recovery plan. For an instance, predefined supply partners can be setup more quickly.
A Europe-based company with factories in Asia imported half-finished goods from Asia by relying on local logistics agents for transportation and customs clearance, mainly due to costs reasons. When transport capacities on routes between Asia and Europe collapsed, these agents were unable to fulfill their promised transportation services for various reasons. A selection of alternative Logistics Service Providers was available to take over, but it took weeks of negotiations, preparing quality criteria and (virtual) implementation efforts before the first shipment could be processed. This led to heavily increased lead times, in some cases by more than 60 days. Moreover, revenue of more than USD 1.2m$ and the favor of the customer was put at risk during that time.
Logistics Network Design
Trends like globalization, glocalization and general market demand shifts require regular network reviews. A self-developed Logistics Analyzer initially provides insights of a supply chain with which first quick adaptions can be applied but above all its forms the basis for further analysis. These insights, first analysis results and data can be employed to feed supply chain optimization solution by e.g. LLamasoft in cooperation with CAMELOT which leverages SC enhancements.
A pharmaceutical company took the Covid-19 pandemic as an initiator to review their logistics network design since the company was faced with drastically increased transportation lead time due to closed borders. In future storage locations will be closer to European target markets and enhance delivery reliability which also consider the EU’s minimum safety stocks requirements within Europe.
Supply Chain Risk Assessment
Supply chain managers need to know which suppliers are most likely to meet their obligations and which could be at risk if they do not deliver soon under pressure (risk management). CEOs require knowing which risks, such as collapsing distributions channels and absence of new supplies due to closed borders or factories, affect their businesses the most and why. Both cases can be supported by AI driven risk analytics of current events (e.g. local lockdown area in which your supplier is located), historical patterns as well as including most recent market information (e.g. political situations etc.). Those AI Analytics applications search autonomously for recent & relevant information on the internet (e.g. newspaper articles, breaking news on news channels & specialized magazines). The obtained information, if it proves to be relevant to your business, changes the risk assessment of your suppliers, your logistics partners and/or market segments in which a new, relevant information gave reason for a new risk assessment.
Transparency of key supply chain performance drivers is critical to mitigating a company’s risk. Relevant data is an essential precondition for having KPIs and reports at your disposal so that supply chain bottlenecks can be identified early and managed accordingly. During the Covid-19 pandemic organizations had to learn this the hard way. Almost “blindly” and without suitable tools to realistically evaluate supply chain risks, a company was forced to trust its gut feeling as they did before but in far less dynamic market environments. Later, their ERP might find ways to integrate a SaaS-based service partner which provides an AI supported risk calculations for all their suppliers.
What can be learnt from these supply-disrupting events like Covid-19:
Covid-19 has overwhelmingly pointed out to companies and organizations their individual vulnerabilities in the supply and logistics chain, which lead to enormous business impacts: Convoluted logistics processes, unreliable supply chain partners and unsatisfied customers, just to name a few. With the mentioned above tricks, these vulnerabilities can be traced back to their origin. The knowledge gained in this way forms the basis for a successful transition into state-of-the-art process environment as well as transparency in management.