Shocks to new normal : How supply chain adapting lockdowns

Hello all, My name is Vikas S Menon and i am a 2nd year MBA student at Amrita school of business, coimbatore. As this is my first blog, I would like to depict down about an article named “ Digesting the shocks” which is published in Institution for management development.

 

As the world tussle with pandemic followed by an Economic crisis, the supply chain is also experiencing unique challenges. Almost all countries forced to implement lock-down leads to public panic and further to supply and demand disruption. Still, the Supply chain is adapting changes during the lock-down facing the challenges and welcoming the new normal.

Supply-Demand shocks

 

The first challenge is supply shocks where the disruption in the availability of goods which consists of both finished goods for sales and raw materials to manufacture products in a factory. Companies are sorting out what production is feasible and how to meet demands. The first shock points out exactly to supply chain resilience and supply chain resilience levers. Companies have integrated supply chain resilience still some didn’t. Those companies sacrificed resilience in interests of costs have unceasingly consolidated production and expanding sourcing. The problems of resilience are less relevant to the food supply chain as they incline to rather more local than the non-food supply chain.

 

The second challenge is demand shocks where people are stocking up consumer staples. The consumers buying a month's worth of goods in a single day due to the fear of the unprecedented condition. For example, toilet paper in which a huge spike in demand before the lock-down is implemented. Perfectly forecastable products were out of stock due to this unprecedented situation and still, the supply chain professionals behind the scene helped to restock the store shelves with a herculean exceptional effort. The classical planning model is not built to handle such severe peaks in demand. This situation narrows down the companies to identify priorities, redirect inventories so to meet the demands.

 

The third challenge is the aftershocks of supply and demand. A small increase in demand at the consumer level increases the production at a manufacturer or their packaging suppliers. This situation points to the bullwhip effect but it is not sure that such action can happen or not. One classic cause of the bullwhip effect is due to the shortage of a product. In such a situation, the market artificially inflates their production requirement to demand a larger share of scare resources. Many replenishment systems use a simple moving average method to measure store-level requirements. With such an unpredictable demand spike, the supply planner will rearrange supply quantities manually scrabble to adjust the planning system. Since the lock-down restriction duration is unknown, it is impossible to predict how consumers behave tomorrow.

 

The New Normal and opportunities

 

Economists are predicting recession of unknown length and the supply chain is trying hard to keep up with demand. For supply chain planners, they have to avoid inventory bounce to move forward. This is because in the previous recession period the inventory bounce fooled some of the supply chain planners into taking that the demand was rebounding. Later, the bullwhip effect began and bounce was amplified leading to supply chain disruption. Companies are thinking about localizing production and sourcing while some are trying to be flexible in the case of technology. Automobile companies like ford and general motors are trying to produce ventilators while LVMH, L’Oréal, and Coty started producing hand sanitizer. Perhaps this would cause integrated manufacturing roles in the Supply chain which leads to various market segments.

 

This is an overview of my understanding of the topic. Let me know your opinion on the topic.

 

Thank you.