May 17, 2020

McKinsey: six key areas of resilience to combat COVID-19

Supply Chain
Sean Galea-Pace
4 min
McKinsey: six key areas of resilience amidst COVID-19
Supply Chain Digital breaks down McKinsey’s report ‘Supply chain recovery in coronavirus times - plan for now and the future’.

In McKinsey’s re...

Supply Chain Digital breaks down McKinsey’s report ‘Supply chain recovery in coronavirus times - plan for now and the future’.

In McKinsey’s report, it was discovered that there are six sets of issues that require efficient action across the end-to-end supply chain amidst COVID-19. These are:

  • Create transparency

  • Estimate available inventory

  • Assess realistic final customer demand

  • Optimise production and distribution capacity

  • Identify and secure logistics capacity

  • Manage cash and net working capital

Create transparency 

First, it is important to work out the most important components of operations. Working with operations and production teams to review your bills of materials (BoM) and catalogue components will work out the ones that are sourced from high-risk areas. 

Following the identification of the critical components, organisations can subsequently assess the risk of interruption from tier-two and onward suppliers. This stage of planning should include asking direct questions of tier-one organisations about who and where their suppliers are, as well as creating information-sharing agreements to work out any disruption being faced in tier-two and beyond organisations. Manufacturers should engage with all of their suppliers across all tiers in order to establish a series of joint agreements to monitor lead times and inventory levels as an early-warning system for interruption and work out a recovery plan for critical suppliers by commodity.McKinsey Coronavirus

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Estimate available inventory

Lots of businesses would be surprised at how much their inventory sits in their value chains and should work out how much of it is available. Estimating the inventory along the value chain helps capacity planning during a ramp-up period. Specific categories include:

  • Finished goods held in warehouses and blocked inventory held for sales, quality control and testing.

  • Spare parts inventory that could be repurposed for new product production.

  • Parts with lower grade ratings or quality issues, which should be assessed to work out if the rework effort would be justified to solve quality issues.

  • Parts in transit should be considered to see what steps can be taken to speed up their arrival, including those in customs or quarantine.

  • Supply currently with customers or dealers should be considered to see if stock could be brought back or transparency could be created for cross-delivery.

Assess final customer demand

When a crisis happens, it is important to forecast demand. To prepare correctly, organisations should:

Develop a demand-forecast strategy, which includes defining the granularity and time horizon for the forecast to make risk-informed decisions in the S&OP process.

Use advanced statistical forecasting to obtain a realistic insight into base demand.

Integrate market intelligence into product-specific demand forecasting models.

Ensure dynamic monitoring of forecasts in order to react quickly to inaccuracies. 

Optimise production and distribution capacity

With demand forecast, the S&OP process should be able to optimise production and distribution capacity. Scenario analysis can be used to test different capacity and production scenarios to understand their financial and operational implications. Optimising production starts with ensuring employee safety. This will include sourcing and engaging with crisis-communication teams to communicate effectively with employees about infection-risk concerns and options for remote and home working.

Identify and secure logistics capacity

In the midst of a crisis, working out the current and future logistics capacity by mode is even more vital than ever before. As organisations seek to increase productions and make up time in their value chains, they should prebook logistics capacity to reduce exposure to potential cost increases. Working with partners can be considered an effective strategy to gain priority and add capacity on more favourable terms. 

Manage cash and net working capital

As the coronavirus continues to take over, constrained supply chains, decreasing sales and significantly reduced margins will add more pressure on earnings and liquidity. Companies will require all available internal forecasting capabilities to stress test their capital requirements on weekly and monthly bases. It remains imperative that supply chain leaders focus on freeing up cash locked in other parts of the value chain. Decreasing finished-goods inventory through thoughtful, ambitious targets that is backed by robust governance can help towards achieving substantial savings.


To read McKinsey’s full report, click here!

For more information on procurement, supply chain and logistics topics - please take a look at the latest edition of Supply Chain Digital magazine.

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Jun 11, 2021

NTT DATA Services, Remodelling Supply Chains for Resilience

NTTDATA
supplychain
Supplychainriskmanagement
Procurement
6 min
Joey Dean, Managing Director of healthcare consulting at NTT DATA Services, shares remodelling strategies for more resilient supply chains

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.

The Challenges

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.”

 

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