The Case For Reactive Supply Chains!
As provocative as it might sound, the recent coronavirus pandemic forced most logistics and supply chain practitioners to change their focus from proactive management to reactive management. In this article, we will be first discussing the trends prior to the COVID-19 pandemic with a view on proactive and forward-looking supply chain processes. Then, we will discuss the recent changes triggered by the challenges related to the pandemic and impacting how supply chain professionals had to react to the drastic changes in their supply chains. Finally, we will be making some recommendations to integrate the two approaches for the best outcome.
Pre-virus, most supply chain philosophies were focused on mid and long term horizons. For example, Sales and Operations planning techniques (S&OP) have proliferated in businesses with an emphasis on forecasting. Forecasting remains a crucial function (and not just for supply chain but for the entire business) with planning windows that usually go from 3 months to 18 months. We have also seen efforts to use IBP (Integrated Business Planning) across business units and companies. While the need for forward-looking techniques remains strong, the reality of the current economic environment around the world leaves us with a lot of uncertainties. Spending excessive time on forecasting could bring diminishing returns. As a result, we do recommend keeping the forecasting work but making sure we do not spend time over-optimizing. Besides, the first rule of forecasting is that forecasts are always wrong, after all.
Once the virus started to disrupt the global business environment, supply chain practitioners had to react immediately to the situation. They looked at the current disruption and worked within daysweeks horizons. The mid to long term view started to be less important at that point since “knowing what will happen tomorrow” was already a challenge. It sounded like moving to a more reactive point of view, but ultimately ended up being more of a “sense and respond” supply chain activity. Sense-and-respond supply chains can monitor, manage and optimize business exceptions— anomalous events that occur within supply chains—with a limited need for human intervention. They rely on a cohesive model where data and insights are the keys.
All things considered, the virus reminded us to focus as much on the “now” as the “future”.
As the pendulum makes a swing towards “sense and respond”, we believe that a fully integrated approach is the best way to handle the current environment.
It is based on a strong view of the future, balanced with an eye on what’s on the dashboard at this moment. Teams must be involved in forecasting, IBPs, S&OPs and Business Continuity/Contingency to prepare the future with the limited information they have and considering the challenging tumultuous environment. Teams must focus on building a sense and respond engine based on key metrics that allow rapid adjustments to business cases. This can only be achieved with a birds-eye view on the end to end supply chain involving all partners (suppliers and customers as well as intermediaries - distribution network for example) and a state of the art data and insights model.
Finally, we should be grateful for the opportunity to rethink our focus. When the sea is calm, it is time to reflect on the adventure and the new horizons. When the sea is turbulent, keeping the boat afloat becomes a priority, but should not distract the captain from focusing on its destination.