When a supply chain changes overnight

COVID-19 outbreak has changed the way companies are planning their capacity and their demand in a blink of an eye. There are companies that doubled or tripled their sales during this event and, on the other side of the coin, the ones that stopped their operations.

Fast-Moving Consumer Goods (FMCG) retailers are on the side of the coin that is dealing with an unexpected demand increase without precedent and, most of them, are not able to cover it in full. This change of demand pattern also impacts their up-stream flows, where suppliers and manufacturers are facing this peak combined with interruptions or delays in raw material deliveries as several factories closed their doors due to the outbreak. FMCG manufacturers are taking actions as follows:

• Prioritize critical and fast moving goods in production lines (reduce the product mix).
• Delay launch and production of novelties if it’s not related to cover people basic needs.
• Produce articles locally when possible, to reach local markets as fast as possible.
• Think on alternative facilities as factories could be temporary closed if a virus case is identified in their facilities.
• Identify potential cuts of supplies to be ready to change production lines. The same for distribution networks.
• Study market share temporary changes to know competitor situation as other players could be suffering lack of raw materials and an extra demand should be temporary covered.
• Allocate available products in a fair way when its demand is higher than its availability.

On the other hand, there are companies totally stopped that will face a fully uncertain scenario at the time they can reopen, such as, fashion, textile, perfumeries, tourism… Probably, most stock they bought for Spring season is not going to be sold at all.

The truth is that all companies are facing the same challenges and questions: how long is covid19 going to affect their supply chains? How demand is going to change when this outbreak ends? What will be the future customer’s behavior?

Some recommendations from our side:

• Mark this event in your forecasting & replenishment system (or keep it manually if your company doesn’t have one) to exclude it from future historical data analysis.
• Reduce planning periods enough to update the plans according to fast demand changes.
• Think out of the box: try to identify alternative suppliers, transportation routes and extra capacity to be added to your supply if a new pandemic appears again, if your company needs it.
• Enhance your e-commerce operations and if you’re not there yet, go online as soon as possible. And if you need help, call us.
• Make future plans: how the company is going to be prepared for the next outbreak? What are the main learnings?

Author: Casandra Cabrera
Publication date: 2 April 2020