Over the last year, the globe has seen tremendous swings in supply and demand stemming from the effects of the pandemic. We saw manufacturers shut their doors for anywhere from a couple of weeks to a few months depending on the circumstances. This was an obvious reaction to COVID-19 and what had been determined as the likely trajectory of business during the onset of the pandemic. We also experienced shortages on a number of household goods such toilet paper and cleaning supplies. The shortages did not stop there. We have continued to see shortages off and on throughout the pandemic, notably in home gym equipment, electronics, and raw materials for manufacturing. What we are experiencing is the bullwhip effect — something that many of us in the supply chain world are all too familiar with, but consumers are now seeing firsthand.
Sharp drops in demand have led to manufacturers and retailers taking action, that was thought to be appropriate in order to safeguard their bottom line, by reducing inventories and cutting manufacturing where possible. Companies then began to drain their inventories as consumer demand started to grow, but manufacturing was far behind this uptick in demand. The global era of supply chain has led to sourcing decisions with suppliers scattered across the globe. This means that the ability of manufacturers to react to demand swings (especially all at once) is quite limited. If we consider the main links of the supply chain to be plan, source, make, deliver, and return, we can see there is a breakdown in the planning of what might happen, the forecast, and what is actually happening, the demand. Since the plan was incorrect, this will lead to inaccurate sourcing decisions adding to the delays.
The changes in the downstream (closer to the end-user) supply chain cause greater and more volatile swings in the upstream (earlier in the supply chain) supply chain as demonstrated below:
This shows how the suppliers may be impacted by small changes in the downstream supply chain. Changes in customer preferences or demand can cause bigger shifts in manufacturing which then lead to the greatest shifts at the very beginning of the supply chain. The beginning of the supply chain will get hit with the absolute greatest shifts and usually the least amount of time to react. In our current state of sourcing from international suppliers, combined with the continued shipping and port delays, this bullwhip effect is leading to great challenges of keeping up with consumer demand. This has resulted in business and manufacturing continuing to struggle with the increasing demand that was unforeseen at the beginning of the pandemic.
Understanding the impacts of changes to the supply chain on both the organization and the stakeholder’s standpoint is a crucial portion of the planning stage for any project. While it may seem that a small forecasting model adjustment or different warehousing layout change might appear to have minimal impact throughout the organization, that is most likely not that case. We often have tendencies to focus only on how a change will affect the immediate group and occasionally some of the secondary groups. For example, changing the warehouse layout may have a long-term improvement on pick efficiency, but will there be short-term setbacks of employees learning the new system? If this is the case, perhaps a secondary impact will be a delay in how long trucks are waiting to be loading. That is possible, but what a lot of groups forget to think about is who else that delay could impact. There is potential for that one change to then impact the end customer deliverable and then the sales team having to explain why a shipment was late. Many of these “issues” could become opportunities if a “heads-up” to the sales team about the change and explanation of the long-term benefits of the project were given. This can then better prepare them to deal with the bumps and bruises of a new process, as well as help them pass that information to their customers if needed. These are just some of the reasons why ensuring strong stakeholder communication within supply chains is so important.
Stakeholder communication plans should be part of every project’s initial focus. This is an opportunity to not only communicate better with external groups, but also brainstorm solutions and help teach other groups about the current state process and why it needs addressed. As supply chain professionals, we are uniquely situated to understand the end-to-end process of getting a product to the customer’s door. It is a responsibility of the supply chain to help educate other areas of the business and help identify key areas for improvement. The supply chain is able to make a great deal of change that can ripple through the organization for increasing benefits. I have personally seen small changes within the planning process greatly reduce waste—stabilize production, reduce inventories, and increase customer on-time in-full delivery (OTIF).
One key to success for these business developments is to foster strong communication within groups of professionals regardless of their familiarity with one another. This is a great opportunity for the team to demonstrate leadership by example and involve all the players that may not always be involved with a chance to weigh-in on the matter. This can help build stronger teamwork and new innovation within a company as well as improve the overall sense of communication throughout the organization. As far as externally, there is a really great opportunity to work closely with suppliers or customers to determine if there are common issues or creative solutions to problems that would benefit both parties.