Since March 2020, global supply chains have been significantly disrupted in almost every industry. Surveys conducted in March by the Institute for Supply Management revealed that a staggering 75 percent of companies report supply chain disruptions.1 The US healthcare industry, representing 17.7 percent of GDP,2 has been broadly impacted. In addition to the well-publicized concerns about shortages of ventilators and PPE, in the first two months after the pandemic began, 15 new drugs were added to the FDA drug shortage list.3 Most of us saw ourselves impacted as customers of the consumer packaged goods industry, when panic-buying of food, beverages, and cleaning products led to temporarily empty shelves.
Now, as states open up, it’s wise to continue learning and reinventing. Today’s challenges present tomorrow’s opportunities — and that includes how businesses manage their supply chains going forward. Below are some key thoughts to consider as the economy reopens:
Check your measurement systems. Are your metrics and dashboards providing the information you need to move forward in this environment? All companies benefit from key data analytics around the supply chain. For example, ability to see realistic on-time delivery metrics is essential. Metrics showing the level of work-in-progress throughout the end-to-end processes are frequently overlooked, creating a common gap in understanding. Business guru Peter Drucker famously said that “what gets measured gets managed.” That’s never been more true than now.
Demand is changing; determine your new normal. Review updated demand forecasts regularly and check inventory levels. Flexibility will be key going forward. Consider putting inventory management on a “replenishment pull” system, in which manufacturing occurs in response to customer demand. In our many years of experience with implementing such pull systems, we’ve seen them reduce working capital by as much as 50–75 percent and improve on-time delivery by 35–50 percent. We’ve also seen significant quality improvements. One manufacturer went from an 18 percent failure rate to less than 3 percent. Pull systems can be tuned to the needs of your own people, products, and processes.
Identify opportunities for simulation modeling in your supply chain. Simulation is more valuable than ever. Some companies have developed a full digital twin. Many would benefit from process modeling in key areas. Building simulation models that consider inventory levels, demand patterns, and supplier lead times will not only enable a comprehensive view of operations and value chain risk now, but the models will also help anticipate if interventions are needed as disruption continues or becomes more severe. Modeling software costs have reduced significantly, making this option widely accessible.
Review your risk management of end-to-end processes. The Automotive Industry Action Group recently developed a new “failure mode and effects analysis” (FMEA) process — used to identify causes and effects of various potential failures in the supply chain — harmonized with their European counterparts. Compared with their previous risk management approach, this one is much more comprehensive, with increased focus on prevention.
We recently worked with a manufacturing company that was planning to implement some state-of-the-art automated equipment; in their case, this FMEA process offered great benefit. This manufacturer was experiencing substantial growth in demand, and also wanted to offer more flexibility in models to their customers. Multiple vendors were supplying parts. The area this company operates in has an aging workforce, with the most experienced and knowledgeable personnel retiring. The new FMEA approach helped with risk mitigation across the system, and also with knowledge transfer to less experienced personnel.
Tap into your existing continuous improvement resources. Experienced Lean Six Sigma professionals have many of the skills needed to implement change in this challenging time. Here’s how Joel Smith, Director of Continuous Improvement at Keurig Dr Pepper, describes what happened when members of the continuous improvement team were asked to contribute to the COVID response:
The playbook was no different than for managing any process change in supply chain. First, standard work for screening, distancing, and hygiene was developed, deployed, and tracked across all sites to ensure that employees felt safer inside the company’s walls than out. Then a continuous improvement loop was developed that started with formal COVID risk identification using a modified FMEA and input from employees; this in turn led to the development of best practices, which then were shared across all sites and became standard work if proven to be especially effective.
The team added to this with predictive analytics that ensured employees’ health would not be put at risk. Smith credits the Lean Six Sigma mindset and toolkit with helping Keurig Dr Pepper’s operations run effectively, even through unexpected growth and change.
Investigate potential for new business and distribution models. Traditional models are changing. As an example, prior to COVID-19, Walmart offered a “ship from store” service from about 100 locations. As their online fulfillment centers became overwhelmed during the pandemic, they quickly expanded “ship from store” to 2,500 stores, which allowed them to better serve their customers and distribute their inventory locally.
Walmart also announced a plan for a two-hour delivery service. The company said it had tested the service in 100 stores since mid-April, expanded it to nearly 1,000 stores in May, and had plans to reach nearly 2,000 locations in the following weeks.4
Consider broadening your supply base. Historically, many US companies have looked abroad to realize increased value across the supply chain. Some of these partnerships now look vulnerable to trade barriers caused by the pandemic or ideological disputes.
In a late-March survey of CFOs, mainly from US Fortune 1,000 companies, 42 percent told auditing firm PwC that their supply chains would likely broaden as a result of the coronavirus crisis. As an example, auto parts retailer AutoZone has made a public statement that geographic diversity will be a priority to manage risk moving forward.5
For business leaders, the pressures of setting the right course are unmistakably high at the moment. Yet, even in this make-or-break environment, there are opportunities for businesses to improve. Use this list as a starting point for a systematic investigation into your supply chain — where it can be strengthened, improved, and maybe even reinvented.
- Institute for Supply Management, “COVID-19 Survey: Impacts on Global Supply Chains,” News Room, March 11, 2020.
- Centers for Medicare and Medicaid Services, https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsHistorical.
- Stuart Henderson, et al., “Addressing the Pharma Supply Chain Problem During COVID-19,” MedCity News, April 22, 2020.
- “Walmart Ekes Out an Edge in Groceries During the Pandemic,” The Economist, May 23, 2020.
- Emma Cosgrove, “AutoZone Rethinks Supplier Diversity After Coronavirus Disrupts Parts Supply Chain,” Supply Chain Dive, May 27, 2020.