6 Key Supply Chain Planning Strategies to Prepare for the New Normal
By now we all understand the importance of adapting to the impacts of COVID-19. The critical question now is, what do we need to do to prepare for recovery, a potential second wave, and whatever normal becomes in the future?
Blue Yonder customers have a set of powerful tools at their disposal to help learn from the past, position for what’s next, and prepare for the long-term future. But given the options available, what are specific and tangible steps that every company should consider exploring further?
1. Normalize Demand History
With the impacts of the virus, the recent past is a stark departure from anything we’ve seen before, and what we’ll see six months from now may bring new challenges. So, what do we do? The first step is to normalize historical demand to adjust the baseline. The key deciders of “how” are: accuracy (get it right), speed (get it fast), and efficiency (get it with minimal cost and effort). The data used to drive statistical safety stock calculations should also be scrubbed to ensure that the wild swings in forecast accuracy, vendor reliability, and lead time variability don’t lead to unsustainable inventory levels in an attempt to meet customer service goals. Both Blue Yonder and Chainalytics are available to help you analyze your data and make the necessary adjustments to your statistical models.
A new forecasting algorithm called Luminate Demand Edge (LDE) is being introduced that will make this process much easier going forward. LDE uses machine learning (ML) to remove the effects of short-term anomalies from your data.
2. Identify and Execute Scenarios
While the future is still unclear, there are sets of economic scenarios that have a higher level of probability, such as an L-shaped vs. U-shaped recovery, a second stronger wave of COVID-related disruption, etc. Companies must be agile for whatever scenario becomes reality. Regardless of the business model or industry, supply chain planners must evaluate alternatives, calculate costs, and develop a plan of action before the window of opportunity closes.
3. Assign Probabilities and Weighting to Scenarios
Developing an action plan based on what is learned from scenarios is critical. There are several ways to do that, including weighting the probability of each one and calculating a weighted scenario outcome, picking a “most likely” based on probability ranges, or shooting for the middle of the most likely outcomes. Most components of Blue Yonder’s supply chain planning and optimization solutions include powerful scenario-building capabilities that allow planners to change parameters, data inputs, and processes to model possible outcomes.
4. Realign Inventory Strategies
In “normal” times, companies managed uncertainty by balancing buffer inventory and customer service goals with safety stocks. In the current environment, inventory planners must consider both typical and atypical uncertainties by using strategies such as:
- Change Deployment Rules. For example, reprioritize demand to DCs where long-term demand is expected to be the strongest. What type of demand is now most important to the business? Online orders? Customer pick-up orders? When the strategy has been determined, this should be reflected in the inventory plans so that stock will be sent to the right locations to support the strategy.
- Modify Inventory Strategies. Inventory strategies used in a less turbulent environment may not work when the business is in uncharted territory. For example, service-level based methods may not work as well — or may have unintended consequences — in an environment where forecast accuracy is substantially degraded or expected to degrade further. In those cases, changing to a more coverage-based model provides a more predictable result that is aligned to the forecast.
- Try New Solutions. For example, Blue Yonder’s Dynamic Allocation could provide value for companies that have historically utilized Fulfillment alone.
5. Constrain Limited Supply
It is critical to re-evaluate where bottlenecks and constraints are now occurring in the supply chain. Are formerly unconstrained manufacturing or procurement sources now unreliable? More than just measuring the level of uncertainty, what can be done to manage what is known and make better use of the supply that is available?
6. Look Outside Your Four Walls
Uncertainty rolls through the supply chain, affecting both customers and suppliers, making collaboration more important than ever. Visibility into vendor capabilities and true customer demand has never been more important to manufacturers, distributors, and retailers. Is now the time to consider tools that provide a deeper view of the entire supply chain? Companies that try to go it alone in this market will be at a disadvantage compared to those that look for strength through linkages up and down the supply chain.
Finally, speed and agility will be critical for the foreseeable future. Use the technology available both to plan and execute as effectively as possible. If you aren’t using planning technology to its full potential, you are likely leaving money on the table (expressed as lost revenue, increased cost, or unproductive inventory). If you have the tools, make sure to put them to use as effectively as possible in order to maximize customer satisfaction and strengthen your position in the marketplace.
This blog was written in conjunction with Steve Thrift, CFPIM, PMP. Steve leads the Integrated Demand and Supply Planning practice at supply chain consulting firm Chainalytics.
Tony Verdi is Director, Product Management Group, at Blue Yonder.