All of us accept the fact that these are unprecedented times which none of us has witnessed in our lifetime. The disruptions are multifold. Firstly, there are major disruptions on the supply side owing to the tremendous restrictions that were imposed by the government at the start of the lockdown. We are also witnessing huge disruptions on the demand side wherein certain products have seen a surge in demand. With factory production affected for over 40 days, one can imagine the strain it has put on the supply chain. While the demand for certain hygiene products is experiencing the well-known bullwhip effect, supplies of input materials is constrained by logistical disruptions.
Certain products depend quite heavily on imported inputs. These are under stress due to disruptions in cross-border movements. Mitigating actions include developing local vendors as well as working on alternate formulations using substitute materials. Distribution of finished goods is also severely affected in the current context. Since demand is so volatile and unpredictable, companies with Demand Driven Supply Chain practices have a definite edge as they are able to allocate the available stocks to the customers in a fair manner on a daily basis.
We all know by now that the consumer goods companies are struggling to prioritize their short-term actions to tide over this crisis. I believe that there are three simple supply actions that the companies can take in the current context to help minimize the stockouts.
Debottleneck capacity: I know the term is quite daunting and many companies think that it can’t be done overnight. However, if we look deeper into the working of a typical production line, there are certain policies and practices which do result in wastage of capacity. Here are a few pointers:
Does your line shut down or operate at reduced speed during lunch break, tea breaks and shift changes? If so, you could stagger the breaks and have an overlap of crews during the shift change to get more out of the same line. While this may entail some additional costs, the benefits of meeting higher level of consumer demand would far outweigh it.
Some critical production lines work in a single shift or a 12-hour shift. Is it possible to make it a 24-hour operation by hiring additional workmen till the crisis subsides? Certain industrial areas insist on a compulsory weekly off. I am sure the authorities would look at relaxing this rule if your company’s product is serving an urgent consumer need during the crisis. Make it a 24x7 operation and see for yourself how much extra production capacity suddenly becomes available.
Reduce portfolio complexity: Most companies offer several SKUs of their products… different sizes, colors, fragrances, etc. Unless your lines have achieved the highest level of flexibility with zero changeover time, offering the whole portfolio does take a hit on the production capacity.
Limiting the portfolio complexity over the short term helps in increasing production and meeting more of the sudden increase in consumer demand. Cutting down the smallest SKU is often the most helpful, unless it is produced on a dedicated line (like sachets) or there is a distinct consumer segment which can’t afford bigger sizes. In such cases, look at trimming the middle SKUs as the biggest SKU would typically have the highest rate of production.
Allocate stocks based on demand signals: Many consumer companies still distribute their products based on demand forecast. It is of paramount importance during the current crisis that we start listening to actual demand signals coming from various customers and allocate the available stocks on a dynamic basis, so that all the customers get their fair share. This practice must be followed on a daily basis since demand is expected to be quite volatile and unpredictable.
Companies which are already on Demand Driven Supply Chain would do well to increase the frequency of demand capture as well as the frequency of their supply actions to improve their supply chain flexibility and responsiveness.
I am sure these three simple actions would help you serve more of the enhanced consumer demand.