How supply chains can prepare for a second wave of COVID-19
From both a humanitarian and business standpoint, the impact that this novel virus has had and continues to have cannot be underestimated. For businesses, it has led to significant drops in revenue and productivity. The combination of the two is now leading to thousands of job losses and an impending global recession. It has also changed the way they approach their supply chains, transitioning away from the notion of static networks towards more dynamic value chains.
Partly due to a relaxation of lockdown protocols and partly as a result of businesses beginning to reassess their supply chains, there have certainly been recent signs of recovery. The UK’s retail sales figures for June reaching ‘near pre-lockdown levels’. However, in conglomeration with this signal of hope there remains a residue of uncertainty and concern, which is quickly rising to the surface. This comes in the form of a second or even third wave of infections across the globe. Businesses need to take the lessons they have learned from the last six months and prepare for this eventuality.
Unprecedented? Not anymore
When COVID-19 first emerged as a global pandemic the word ‘unprecedented’ was, and in many cases, still is used with a frequency which has somewhat negated the meaning of the word. It is, of course, certainly true that nobody saw this pandemic coming and that there have been precious few viruses in human history to compare it to. The World Health Organisation has even labelled it the ‘most severe’ global health emergency ever.
However, there has to be a point at which businesses stop using the word ‘unprecedented’ and use the new precedents set by the pandemic to become both more resilient and more agile. Across the globe, we have now lived with this virus for long enough to know what measures can be used to tackle it, the speed with which they can be implemented and the disruptions that they cause.
Whether it concerns the impact of stockpiling, which led to shortages of essential items such as toilet paper, or the issue of excess stock as demand for products fluctuated, there now exists six months’ worth of data about the impact of COVID-19 on businesses. Therefore, should there be a second or a third wave of the virus, which leaders across Europe are bracing themselves for, businesses now have both the information and the opportunity to leverage technologies such as AI and machine learning to prepare and react accordingly.
The phrase ‘hindsight is a wonderful thing’ is often framed sarcastically or regrettably. However, in this instance, there is a great deal which businesses can gain from hindsight; from looking back at the last six months and assessing what went wrong, why and how they can avoid history repeating itself.
For businesses, one of the major pain points during the pandemic stemmed from lockdown protocols, which saw shops, offices and even entire countries locked down. This caused havoc within the supply chain. Firstly, it meant that key nodes within the supply chain, whether for transportation, sourcing or storage, were either eliminated as an option or reduced to very limited capacity. Secondly, a shift in consumer priorities saw huge fluctuations in demand, leading to both excesses and shortages in supply.
These disruptions, and the suddenness of them, highlighted one very important lesson for businesses: failure to prepare is preparing to fail. For many businesses, the issue was simple: they did not have the technology in place to adapt to these disruptions. As a result, if they were able to recover at all, it was either too late or not a long-term solution. In many cases, it might have been both. This needs to change moving forwards.
Bending not breaking
When considering how businesses can make their supply chain both flexible and resilient, a good analogy to draw is how buildings are made to withstand earthquakes. In Japan, a country more at risk with earthquakes than most, buildings are fitted with base isolators. These act as shock absorbers between the building and the ground. Essentially, when an earthquake hits, the building can slide back and forth while remaining upright: flexible, yet resilient.
Similarly, the supply chain has to be flexible in order to withstand shocks and continue performing its primary function. However, instead of using base isolators, flexible supply chains should rely on technology such as digital twins, AI and machine learning to navigate through disruptions.
Using COVID-19 as an example of a disruption, businesses which have a living, breathing digital twin of their supply chain can rapidly model all kinds of scenarios and evaluate the cost and service trade-offs associated with changes in the supply chain – whether planned or unplanned. Advanced algorithms can then be used to simulate and optimise the outcomes, providing insights which businesses can both rely and act upon.
With these systems in place, businesses can not only prepare for the expected, but for the unexpected too. Using digital twin technology, in combination with advanced algorithms and artificial intelligence, businesses can virtually test out contingency plans within the supply chain before putting them into practice. That means, should there be a second or third wave of COVID-19 infections and the subsequent disruptions, the supply chain can be quickly adapted to tackle these.
Businesses that want to be truly agile and resilient within their supply chain need to accept today’s reality: there is no ‘new normal’, just the ‘never normal’. Disruptions will always exist, whether we know they are coming or not, so businesses need to expect the unexpected and have the technology in place to deal with them. When it comes to implementation of this technology, the old adage rings true here: there’s no time like the present.
NTT DATA Services, Remodelling Supply Chains for Resilience
Joey Dean, the man with the coolest name ever and Managing Director in the healthcare consulting practice for NTT DATA and is focused on delivering workplace transformation and enabling the future workforce for healthcare providers. Dean also leads client innovation programs to enhance service delivery and business outcomes for clients.
The pandemic has shifted priorities and created opportunities to do things differently, and companies are now looking to build more resilient supply chains, none needed more urgently than those within the healthcare system. Dean shares with us how he feels they can get there.
A Multi-Vendor Sourcing Approach
“Healthcare systems cannot afford delays in the supply chain when there are lives at stake. Healthcare procurement teams are looking at multi-vendor sourcing strategies, stockpiling more inventory, and ways to use data and AI to have a predictive view into the future and drive greater efficiency.
“The priority should be to shore up procurement channels and re-evaluate inventory management norms, i.e. stockpiling for assurance. Health systems should take the opportunity to renegotiate with their current vendors and broaden the supplier channel. Through those efforts, work with suppliers that have greater geographic diversity and transparency around manufacturing data, process, and continuity plans,” says Dean.
But here ensues the never-ending battle of domestic vs global supply chains. As I see it, domestic sourcing limits the high-risk exposure related to offshore sourcing— Canada’s issue with importing the vaccine is a good example of that. So, of course, I had to ask, for lifesaving products, is building domestic capabilities an option that is being considered?
“Domestic supply chains are sparse or have a high dependence on overseas centres for parts and raw materials. There are measures being discussed from a legislative perspective to drive more domestic sourcing, and there will need to be a concerted effort by Western countries through a mix of investments and financial incentives,” Dean explains.
Wielding Big Tech for Better Outcomes
So, that’s a long way off. In the meantime, leveraging technology is another way to mitigate the risks that lie within global supply chains while decreasing costs and improving quality. Dean expands on the potential of blockchain and AI in the industry.
“Blockchain is particularly interesting in creating more transparency and visibility across all supply chain activities. Organisations can create a decentralised record of all transactions to track assets from production to delivery or use by end-user. This increased supply chain transparency provides more visibility to both buyers and suppliers to resolve disputes and build more trusting relationships. Another benefit is that the validation of data is more efficient to prioritise time on the delivery of goods and services to reduce cost and improve quality.
“Artificial Intelligence and Machine Learning (AI/ML) is another area where there’s incredible value in processing massive amounts of data to aggregate and normalise the data to produce proactive recommendations on actions to improve the speed and cost-efficiency of the supply chain.”
Evolving Procurement Models
From asking more of suppliers to beefing up stocks, Dean believes procurement models should be remodelled to favour resilience, mitigate risk and ensure the needs of the customer are kept in view.
“The bottom line is that healthcare systems are expecting more from their suppliers. While transactional approaches focused solely on price and transactions have been the norm, collaborative relationships, where the buyer and supplier establish mutual objectives and outcomes, drives a trusting and transparent relationship. Healthcare systems are also looking to multi-vendor strategies to mitigate risk, so it is imperative for suppliers to stand out and embrace evolving procurement models.
“Healthcare systems are looking at partners that can establish domestic centres for supplies to mitigate the risks of having ‘all of their eggs’ in overseas locations. Suppliers should look to perform a strategic evaluation review that includes a distribution network analysis and distribution footprint review to understand cost, service, flexibility, and risks. Included in that strategy should be a “voice of the customer” assessment to understand current pain points and needs of customers.”
“Healthcare supply chain leaders are re-evaluating the Just In Time (JIT) model with supplies delivered on a regular basis. The approach does not require an investment in infrastructure but leaves organisations open to risk of disruption. Having domestic centres and warehousing from suppliers gives healthcare systems the ability to have inventory on hand without having to invest in their own infrastructure. Also, in the spirit of transparency, having predictive views into inventory levels can help enable better decision making from both sides.”
But, again, I had to ask, what about the risks and associated costs that come with higher inventory levels, such as expired product if there isn’t fast enough turnover, tying up cash flow, warehousing and inventory management costs?
“In the current supply chain environment, it is advisable for buyers to carry an in-house inventory on a just-in-time basis, while suppliers take a just-in-case approach, preserving capacity for surges, retaining safety stock, and building rapid replenishment channels for restock. But the risk of expired product is very real. This could be curbed with better data intelligence and improved technology that could forecast surges and predictively automate future supply needs. In this way, ordering would be more data-driven and rationalised to align with anticipated surges. Further adoption of data and intelligence and will be crucial for modernised buying in the new normal.
These are tough tasks, so I asked Dean to speak to some of the challenges. Luckily, he’s a patient guy with a lot to say.
On managing stakeholders and ensuring alignment on priorities and objectives, Dean says, “In order for managing stakeholders to stay aligned on priorities, they’ll need more transparency and collaborative win-win business relationships in which both healthcare systems and medical device manufacturers are equally committed to each other’s success. On the healthcare side, they need to understand where parts and products are manufactured to perform more predictive data and analytics for forecasting and planning efforts. And the manufacturers should offer more data transparency which will result in better planning and forecasting to navigate the ebbs and flows and enable better decision-making by healthcare systems.
Due to the sensitive nature of the information being requested, the effort to increase visibility is typically met with a lot of reluctance and push back. Dean essentially puts the onus back on suppliers to get with the times. “Traditionally, the relationships between buyers and suppliers are transactional, based only on the transaction between the two parties: what is the supplier providing, at what cost, and for what length of time. The relationship begins and ends there. The tide is shifting, and buyers expect more from their suppliers, especially given what the pandemic exposed around the fragility of the supply chain. The suppliers that get ahead of this will not only reap the benefits of improved relationships, but they will be able to take action on insights derived from greater visibility to manage risks more effectively.”
He offers a final tip. “A first step in enabling a supply chain data exchange is to make sure partners and buyers are aware of the conditions throughout the supply chain based on real-time data to enable predictive views into delays and disruptions. With well understand data sets, both parties can respond more effectively and work together when disruptions occur.”
As for where supply chain is heading, Dean says, “Moving forward, we’ll continue to see a shift toward Robotic Process Automation (RPA), Artificial Intelligence (AI), and advanced analytics to optimise the supply chain. The pandemic, as it has done in many other industries, will accelerate the move to digital, with the benefits of improving efficiency, visibility, and error rate. AI can consume enormous amounts of data to drive real-time pattern detection and mitigate risk from global disruptive events.”