By Eric Domski and Ryan Sumrak
Disruptions can come in many sizes. From those smaller, everyday disruptions of machines going down, unexpected orders, suppliers missing, or shorting shipments – issues businesses deal with every day, every week, every month. To the medium disruptions such as new competitors like Dollar Shave club which has attained a $1 billion market cap in only a few years or the shutdown of Sears which impacted brands like Kenmore and Craftsman. We also soon forget that only 6 months ago we were in a tariff and trade battle with China and needed to understand the net impact against margins and consider options. And of course, there are the big disruptions – those that have strategic and global impacts - like the 1978 Oil Crisis, the Tsunami in Japan, 9/11 and the financial crisis in 2008, and the current state of the supply chain now.
As recent events have put a huge spotlight on the global supply chain, they’ve also highlighted just how interdependent we all really are. Like never before, companies need to understand how to be resilient, manage risk, and respond to sudden and sharp changes in their global supply chain landscape. This is just a taste of what the “new normal” looks like. In fact, with so much volatility ahead, I like to say that “never normal is the new normal.”
Responding to Global Supply Chain Turmoil
These past couple of weeks, top analysts such as Deloitte and McKinsey have shared their perspectives on how companies can transition to the new normal or the “next normal”. We are all on the same page. Approaching this from a technology perspective, we’ve identified four key changes that global supply chains will need to be prepared for now and in the future. Let’s briefly look at each one and discuss strategies that companies can use to react, respond, and successfully navigate through these tough times.
1 – Dramatic product sales volatility
We’ve seen incredible volatility in the demand for products and the channels through which they’re sold. In a landscape where people are no longer leaving their houses for non-essential items, the expectation of fast and secure delivery straight to their door has grown. If it wasn’t a priority before, the need for visibility into customer demand is definitely a priority now. It’s important to understand where demand is coming from and ensure you have the right supply in the right distribution channel.
As buying behaviors shift, companies will need to sense and react to these changes, while understanding the ripple effect across their plants, data centers and extended supply chains. Now’s the time to fully utilize your supply chain planning solutions to simulate likely scenarios and generate forecasts that better predict ever-changing global demand patterns.
At the same time manufacturers and distributors need to realign production and distribution of scarce products to the best customer or channel (based on profit, priority, etc.). All while prioritizing orders to fulfill critical, essential items first before meeting other pent-up demand.
2 – Supplier and production shutdowns
International suppliers and producers throughout the global supply chain have shut down for an unknown period of time — perhaps even until the danger has completely passed. These impacts can be far-reaching. For example, when a raw material supplier goes down in Malaysia, it can slow down a production line in China, which in turn can add delays to another production line in Michigan. The result: stock outs at a Walmart distribution center in Arkansas and empty shelves at your local Walmart store. This can all happen in just a couple of weeks.
How can companies plan for these unknowns and determine their business impact?
The best solution is to integrate business and operations planning. When planners can simulate how supplier shutdowns are likely to impact product revenue, executives can be alerted ASAP. Integrating this process with your enterprise performance management solution allows executives to understand the impact of supply chain disruptions, including the gap between the updated supply chain plan and the current financial plan. Together, this comprehensive view can drive rapid and strategic decision-making when supply and demand become unbalanced.
3 – Commerce and logistics disruption
The reality is, international commerce has just gotten a lot more complex. With manufacturing shutdowns in China earlier this year and now in Europe and the U.S., international and domestic commerce has been significantly impacted. Unplanned disruptions – such as closures of shipping ports, distribution centers and warehouses and delays based on cross-border trade and quarantine measures – can severely disrupt the movement of goods over logistics networks.
These are times when it makes sense to perform strategic and tactical scenario analysis to help navigate around the disruptions and avoid excessive transportation costs. Getting visibility into your logistics network, allows businesses the ability to quickly analyze and implement design changes, leading to a more resilient supply chain that can adapt to constant change.
Not only has physical upheavals disrupted supply chains, but the changing landscape of sanctions, tariffs and trade agreements has also roiled national economies in recent years. However, companies can tame the complexity and enforce compliance between trading partners, both during and after the crisis, with a global trade solution.
4 – Plunging oil prices / Crude awakening
In recent months, oil prices have taken a free fall. The result is a huge worldwide imbalance of supply and demand. In fact, the oil industry has run out of room to store the excess inventory. The good news – albeit not for oil producers – is that the cost of gasoline, heating fuel, and petroleum-based raw materials is plummeting. With over 6,000 materials manufactured from petroleum, there is a great opportunity to lift product profit margins by understanding the underlying costs of these raw materials.
In this environment, companies should leverage tools to isolate any individual cost component and recalculate cost-to-serve and profitability across an entire product portfolio. This can include costs for any common component, including commodities or even labor. In the case of fuel, the recent cost decline can open opportunities for shippers to save on transportation costs. Companies can profit by ensuring they have visibility into cheaper ways to deliver essential goods.
Transitioning to the New Normal
As we embrace the new normal, many companies will want to evaluate alternate sourcing plans and some may be forced to produce essential products domestically instead of relying on riskier offshore producers. Organizations will likely look to become less lean and build more flexibility into their supply chains. Evaluating alternate means to avoid tariffs and reduce exposure to risk will be at the top of the agenda for many business leaders.
Oracle Cloud solutions can help companies accelerate their journey to recovery and be prepared to monitor, analyze and react to the next Big, Medium or Small disruption.
It is very possible that global supply chains and consumer behavior may be changed forever, and we can equip companies with tools to detect these lasting trends and plan supply chains accordingly. And, companies need to be prepared for whatever is next. Just remember, “never normal is the new normal.” So you always need contingency plans for the next disruption – whatever and whenever that might be.
(Eric Domski and Ryan Sumrak are both senior executives at Oracle).