Operations

The Impact of COVID-19 on Supply Chain Planning

  • Guy Brammar
  • May 19, 2021

One of the biggest impacts of COVID-19 was the unanticipated swings in customer buying behavior. This was particularly difficult to foresee for certain commodities, for example, toilet paper, where underlying consumption remained flat, but customer demand underwent huge spikes as a result of consumer stockpiling.

To meet future surge in demand, supply chain planning may revolve around increasing inventory, deploying strategic de-coupling points, investing in short-term “flash” capacity to meet fluctuations in demand, or greatly reducing lead times in the supply chain to respond—although, without increased installed capacity, benefits will be limited.

The other obvious impact of COVID-19 has been the switch to online purchasing and home delivery as the pandemic supercharged the move from bricks and mortar to digital—a trend that will force all companies to increase investment in online sales channels. Given that volume drives efficiency in the online sales channel (increasing drop density, reducing the average miles per drop), it seems extremely likely that the consolidation of suppliers in this space is inevitable, with a consequent effect of lower unit prices for delivery. This will encourage further volume through this channel, thereby reducing unit costs further, potentially inducing a self-perpetuating feedback loop.”

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Supply chains in 2021 will be operating under the twin shadows of both the after-effects of COVID-19 and the as-yet, uncertain impact of Brexit. Taking COVID-19 alone, it seems highly likely that companies will develop an increased focus on identifying, planning, and understanding the consequences of extreme demand volatility, in order to anticipate and avoid the issues suffered in 2020.

This increased focus on forecasting is likely to manifest itself as material changes in the supply chain planning function, particularly in the deployment of improved decision support software and more rigorous sales and operations planning processes. An increase in scenario planning, supported by more powerful ‘what-if’ algorithms in planning decision-support software seems inevitable.

Planning-support software has been available since the late ’90s, but as forecasting events become more critical to successful supply chain execution, the extent and complexity of the decision support software (as well as the capability of the supply chain planners to operate the packages) must improve.

For decades the process by which a company unites supply chain, financial, and sales forecasts has been sales and operations planning (S&OP). It provides the forum for business-wide decision-making and planning how future scenarios will best be met by changes to the current business model. There is likely to be a strong resurgence of interest in this cross-functional process. Improved S&OP processes will allow companies to anticipate and assess the impact of extreme changes in supply chain operating conditions and translate these impacts into overall effects on the parent business.

The key success criteria for supply chains in 2021 will be increased agility, characterized by high levels of responsiveness and shorter lead times to react to changes in the marketplace as quickly as possible. Consumer trends, driven by increased online sales, are likely to become more volatile and less predictable, hence the ability to respond and adapt becomes paramount to any supply chain.

Increased focus on inventory management to buffer service from demand instability will become a cornerstone feature of successful supply chains. The trend of the last three decades for reduced supply chain inventories may be arrested or even reversed for a short time until the new operating models have been established.

Inventory management and capacity planning go hand in glove. As inventory policies become more flexible, the focus on the availability of supply chain capacity to accommodate demand changes will also increase. Improvements to available capacity could take the form of expanding capacity flexibility, provision of reserve capacity, options to extend into trading-partner capacity, reducing lead time to deploy additional capacity or a mix of any of these strategies.

What appears to be certain is a resurgence in supply chain planning as a discipline to cope with the ever-increasing pressure on service and costs in 2021.

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