Minimise The Impact of COVID-19 On The Supply Chain

Completely unpredictable demand and supply

The Coronavirus is currently causing an unprecedented crisis worldwide. The uncertainty within supply chains is huge; factories are forced to temporarily close their doors, companies experience significant problems with supply and sales has become totally unpredictable. Supermarkets are noticing a huge increase in sales, as a result of consumer behavior and the closure of bars and restaurants. Simultaneously DIY shops like Bunnings and nursery’s see an increase in demand as people are forced to stay home and start projects in and around the house. However, other companies see big drops in sales, or to the point sales stops completely. To get through this crisis in the best possible way, we must act quickly.

Steps to minimise the impact of COVID-19 on the supply chain

Step 1: Determine the priorities

Firstly we recommend identifying the most important products for your company and which of them will be most affected by the situation. It is extremely important to identify which of these products could run out of stock and are crucial to maintain satisfied customers. In terms of opportunities, which products are now trending or selling more than expected? Flour and yeast, exercise gear, home and garden items, disinfectants and books are just some of the products which have a high demand. Products in these categories are potential new A products and deserve more analytical attention.

Step 2: Protect inventory

When you have identified the products with the biggest risk of scarcity, it is important to take measures to mitigate this risk. Make sure these products are dedicated to customer demand A and are not sold to customer C or worse, to your competitor. This sounds like a very easy measure, however in hectic situations it is difficult to implement. All departments have to be aware of the new business rule and implement it straight away. Sales needs to know what they are allowed to sell and your web team needs to know what products need to be temporarily removed from the web shop. Furthermore, in store, managers need to be informed on changes to product availability and demand. We may need to withdraw or increase product volumes to meet unpredicted demand during this period. And in case of manufacturing, it is vital for facilities to monitor component stock levels to minimise any risk of raw materials becoming out of stock.

Normally these decisions are made at various levels within a company, but these days, they must be made quickly and implemented urgently.

Step 3: Secure provisioning

When there is uncertainty in demand it is very important to maintain a close relationship with your suppliers, especially for the items which have a high risk of shortage.

What do we have in transit and what is the estimated arrival date of these orders? Many orders are delayed now, but it is important to agree to realistic delivery times with your suppliers, in order to plan and anticipate. Don’t forget to also contact your important (overseas) customers to anticipate for any (delivery) problems.

For important A class items it could be wise to check if other, faster alternative modes of transport are available to secure inventory. Even though it is more expensive, the current situation requires drastic measures, especially for A class products. In case your suppliers have capacity problems, look for different alternatives.

Step 4: Prevent excesses

It could occur that the demand of products, for which you already have too much inventory, completely disappears. It is important to check for which products this leads to a direct problem. If you are overstocked with long-life items it isn’t an urgent problem, but if the items do have a short life cycle, expiration date or are seasonal items extra focus is required. For these items you have to take action to manage the risk of obsolescence. Perhaps your sales team can identify alternative sales channels? Furthermore, don’t forget to cancel open purchase orders and adjust the purchase parameters.

Step 5: Deliver alternative products

Several companies are repurposing their production lines to meet the changing demand. For example LVMH adjusted their production line to be able to produce hand sanitizer instead of perfume. Distilleries produce disinfecting alcohol. Hotels are becoming quarantine centers or change hotel rooms into delivery rooms to reduce pressure on hospitals. In case the demand for your products has reduced it might be an option to see if there are any possibilities to change production or your product assortment to meet new demand. As this allows you to (partly) cover operational costs and retain the workforce.