As the novel coronavirus hits the logistics industry, the essential goods have seen an unexpected surge, failing all the expected and forecasted strategies and plans of the logisticians to strike the right balance between demand and supply. In the below feature, we explore the problems faced by the logistics companies in meeting the demand, their strategies to cope up with the sudden surge, the role of technology and the implementation of their past wisdom in a fight against the virus.
With the rapid spread of the coronavirus outbreak across the globe, customer demand patterns have changed significantly over the past couple of months. The previous demand forecasts are outworn and demand planners are recalculating the productions. The industry is experiencing a demand fluctuation which was never witnessed before. While the demand for consumer appliances, apparel furniture has dropped; personal care products, food and beverages have gained all the attention. Many e-commerce companies, retailers, supermarket chains have reported a surge in orders amid the outbreak of COVID-19, putting extreme pressure on its operations.
Further, many governments are encouraging people to stay at home and maintain social distancing, which has propelled fear and urgency in people, pushing groceries and household goods to an intense level. The outbreak has not only led consumers to stockpile but has also triggered false demand signals repeatedly, thus posing a rare
challenge to the supply chain professionals and having them taste the bullwhip effect in real time.
V Raju, Vice President – CL- Chemical, Pharma & Food Sector, Avvashya CCI Logistics Pvt Ltd explains, “For many supply chain leaders, this presents the enormous and potentially costly challenge of dealing with the bullwhip effect. When major swings in inventory occur from panic buying and hoarding, the impact of this sudden demand is magnified as it moves upstream in the supply chain. The customer feels the pain of empty aisles. The retailer loses potential sales and customer service suffers. Distributors are left scrambling to determine who should get how much of a given product in a shortage, and manufacturers are overwhelmed with sudden, unanticipated spikes in demand.”
The bullwhip effect is caused due to little or no visibility in demand patterns. Thankfully, it can easily be eliminated by
synchronising the supply chain and working towards meeting the irrational buying and massive demand spikes which are difficult with little knowledge or insight into what shape demand will take in the immediate future.
V Raju says, “When the market (or the media) signals a sharp increase in demand, especially in times of global crisis, supply chain leaders’ profitability depends on being informed and agile enough to forecast and fulfill inventory at the right speed, in the right places, at the right time.”
With the increasing fear of the COVID-19, manufacturers, distributors and retailers are struggling hard to keep up with
the stock outs and the rising demands.
COPING WITH THE UPWARD TREND OF DEMAND
At such a time when demand is uncertain and false surges are coming every now and then, supply chain professionals are struggling to manage the demand.
Lalit Das, Founder and CEO, SS Supply Chain Solutions Pvt. Ltd. said, “Principally, the key focus is to get the visibility from demand and supply end to understand and control the volatility. It’s important to have a unified and correlated view of end-to-end supply chain data, processes and risks.”
While talking about the ways to manage demand, Mr Das mentioned a few important points. They are:
- Start by creating a daily demand review process to know about changes in the market with exceptions.
- Maximise visibility on supplier capacity as broadly as possible is essential, and daily demand monitoring (instead of monthly) is crucial to maintain profitability in times of crisis.
- Assess the impact of the disruption across sourcing, labour, materials and logistics.
- Monitor supply disruptions in the short term and reprioritise available supply and inventory accordingly. Then run multiple, real-time fact-based scenarios.
Apart from these, some other methods one can implement to improve demand variability management are reduction of lead times, usage of buffers for inventory, time and capacity, and learning from past experiences.
TECHNOLOGY STABILISING SUPPLY CHAIN AMID CONTINUOUS CHANGING CONSTRAINTS
As the novel coronavirus continues to expand and tighten its grip on people and places, concerns regarding its impact on supply chain and business too, have picked up pace. The only way to maintain stability at such a time when companies are already operational at 25-30% is to respond efficiently and rapidly to whatever disruption brings tomorrow. The right technology or supply chain planning software can automate the achievements of service level even under continuous changing constraints resulting from major disruptions.
According to V Raju, the right technology can help an organisation respond to the changing markets in the present situation, by facilitating greater efficiency, smooth collaboration and Data analysis. It also helps with reliable forecasts, fewer stock shortages, and reduced costs.
Forecasting software and demand planning services, driven by artificial intelligence, can help rebuild the respective industries and be in the game.
According to Lalit Das, “In terms of forecasting softwares, the ones which are enabled by advanced methodology through Machine Learning/Artificial Intelligence, will help businesses to capture economic re-build and impact respective industries at a granular level. And, Demand Planning services have to be digitalised to improve real-time efficiency by bringing all stakeholders into one platform, driven by Artificial Intelligence.”
In such a time, it becomes critical to rely upon optimisation and continue to provide services to the customers. AI-Driven digital planning can respond to the changing disruptions of the market in the following way:
Using Demand Modeling to fine-tune demand forecasts:
Probability forecasting and machine learning engines crunch multiple demand variables to automatically generate a reliable demand forecast in an uncertain, volatile environment. You can model alternative flows and networks while guaranteeing service policies to customers.
Taking advantage of dynamic multi-echelon rerouting tools:
Being able to understand if the supply expected needs to be re-routed is important when entire channels become unavailable. Having a system that can shift the order calendars, restrictions and timings will help keep important goods available where needed.
Utilising automatically optimised “fair share allocation”:
In a condition of scarcity, one cannot meet 100% of demand. Thus, it’s critical to use optimisation and automation to determine the best way to allocate those resources until supply can be replenished.
LESSONS FROM SUPPLY CHAIN SHOCKS OF THE PAST
Logisticians have responded to the current crisis and made good progress in decreasing fragility by increasing information and better alignment of risk and responsibility. In this fight against the pandemic, the previous supply chain shocks have helped them stay strong.
According to Lalit Das, some of the lessons demand planners have learnt from the previous supply chain shocks that have helped them respond to the current crisis are assessing business and supply chain risks and failure points, relying more on data and information, patterning of business and consumer behaviour, conducting supply chain continuity planning and developing visibility into upstream tiers, if not a level of collaboration and control.
Touching upon the same grounds, he further points towards modifying and upgrading the end-to-end supply chain in making it more risk resilient, running daily scenario plans, and monitoring and reporting your supply chain health and formulating a disruption-recovery readiness command centre.
IN A NUTSHELL
As the COVID-19 pandemic hits lives and economies across the globe, the demand and supply for medical equipment and other essentials are most mismatched than ever, and if this continues, it will lead to a breakdown of supply chains. To handle the demand, it is imperative to improve visibility and use the right technology to respond to the crisis. Further, communications and flexibility in and outside the supply chain are needed in the short term for crisis response.