Lessons from the past
Hurricane Katrina taught organizations many supply chain lessons concerning preparedness and the need for coordination within country, when disaster strikes. Hurricane Katrina did not teach how to handle a disaster that immediately shuts down global commerce at all levels: city, country, factory, and supply chain. As consumers we have all felt the impact of broken supply chains beyond supply and demand mechanisms. Think about toilet tissue, hand sanitizer, and some foodstuffs, particularly meat and poultry. Some if it is specifically the volume of demand, but other aspects are repurposing supply, for example, foods destined for restaurants now having to be repackaged for grocery store consumables. As a result, either because they are caught, or because they want to get out in front, many enterprises have been scrambling to re-think their supply chains. It begs the question, can modernized ERP systems meet the need and provide the flexibility and agility to adapt to supply chain changes more quickly?
For the main part most organizations continue to modernize their ERP platforms. These initiatives are often part of a larger Digital Transformation and the need for that transformation amplifies amid the current circumstances. The next generation ERP platforms, SAP S/4HANA for example, bring capabilities that offer companies more transparency and flexibility with the core systems that run their businesses. This flexibility can help improve adoption of new markets and operating models. It can also positively impact an organization’s ability to transition to the new normal.
In a previous article, nine steps were identified to address Immediate Crisis Management and a bridge to the new normal. The opportunity is there to re-think current operational processes, partnerships and suppliers in the global supply chain and readdress strategy to incorporate learnings into their longer-term ERP systems strategy and capabilities. For example, many companies will reconsider the global network and focus on regionalization for their operations in order to sustain operations at a higher level. More flexible and transparent ERP systems will support these strategies.
Exposing the weak links
The lifeblood of a factory is the inbound and outbound supply chains. Typical disruption, captured by a survey conducted by Zurich Insurance with the Business Continuity Institute found that over 50 percent of firms had “significant disruption” in their supply chains. The survey listed five most common sources of supply chain disruption:
Unplanned information technology (IT) or telecommunications outages: 44.1%
Adverse weather: 35.1%
Cyber-attack and data breach: 26.1%
Loss of talent/skills: 21.2%
Transport network disruption: 15.8%
However, the first half of 2020 has exposed critical vulnerabilities in global supply chains beyond the “normal”, specifically supplier’s inability to provide critical components that have created a bottleneck in the chain. For example, a survey by German supply chain consultancy Kloepfel Consulting, found that every third company has a material volume of Chinese customers and 81% of the companies rely on Chinese suppliers. Beyond the reliance on China, both as a market and as a supply-source, corporate risk models did not account for the speed and rapid change that has occurred in terms physical work stoppage.
When China was found to be the epicenter for the Covid-19 virus, factories and supply chains were shut down as workers were ordered home to reduce contact in an attempt to reduce the spreading of infection. Companies like Unilever and Coca-Cola reported they were able to continue operations with only minor disruptions. “Most of our supply chain is local, it’s very flexible, and generally speaking the vast majority of the products we sell in a country we supply in that country,” reports Unilever Chief Financial Officer Graeme Pitkethly. The CEO of Coca-Cola Co., James Quincey, said in an interview on CNBC that “The supply chain is creaking around the world.” A “great strength” during the disruptions has been local production of Coke’s soft drinks and juices. “The drinks in the U.S. are made in U.S. The drinks in Germany are made in Germany. The drinks in Kenya are made in Kenya.”
COVID-19 needs to be viewed as a wake-up call as well as an opportunity to improve operations and reduce risk.
In the first instance, what this pandemic has done is to take risk management to an entirely new level, not just the spread of its impact, but its speed. The crisis management steps in the “nine steps” article apply here in order to not just react, but to assess and monitor. The speed of the escalation requires continuous end-to-end assessment, optimization and monitoring. Companies need to respond rapidly and confidently to shape and execute a short-term tactical plan that will mitigate the risks to human health and protect the functioning of global supply chains. In doing so, strong data and analytics capabilities are crucial in understanding complexity, anticipating potential disruption, and quickly developing a response.
Bridging the gap to the new normal
Marketplace dynamics combined with a much wider choice of supply chain infrastructure platform within hybrid cloud environments means that most organizations are examining their supply chain strategy, with strong intent to change. And that was before this pandemic. Now, it’s even more complex with the macro political, social, and economic environment impact of Covid-19. So how does this adjust supply chain strategy?
5 Strategies towards the new normal
Strategy 1: systems thinking
Any adjustments to supply chain must be in the context of the organization’s stability within the circumstances, but also the adjusted growth plan. Assess the impact of supply chain changes and policies. Are they in line, and do they provide a net positive impact on growth and operational efficiency? Take the opportunity to identify persistent or long-term restrictions within the existing system and look to analyse and resolve using globally integrated systems thinking processes.
Strategy 2: IT service supply chain
Make IT service platform design part of your supply chain program, utilizing “Supply-as-a-service” consumption models, allowing you to adopt demand-driven capacity planning for more efficient operations. Hybrid cloud, with various global hyper-scaler platforms, and technology vendor consumption platforms such as HPE’s GreenLake offering means there is more opportunity to operate in agile environments, lowering costs, reducing capital investments, and improving performance. Perhaps the biggest shout for help from HPE customers of our SAP experts has been to address capacity, performance, and latency issues within their systems, pressured by the crisis. Hybrid cloud infrastructures help alleviate these issues
Strategy 3: use data and analytics for planning
For many organizations, insights and intelligence is the path to new growth, and that includes applying intelligence to the supply chain, SAP refers to their product as being for “The Intelligent Enterprise.” Today, and even more so in the ‘new normal’ supply chains span a lot of complexities from their touchpoints, such as Lines-of-Business, centralized organizations, supply chain information, and resources, be that products or people. The design point, though, is having the AI and machine learning systems to make sense of the volume of data available, if captured (and does the organization have that capability?), to integrate it into supply chain planning and processes. There is a clear linkage between hybrid cloud platforms to RUN supply chain, but those same platforms have the capabilities to ANALYZE the supply chain and its embedded tasks and movements, with a common interface.
Strategy 4 – adopt a new system to go with your new infrastructure platform
If we were talking about automobiles, there’s no value in building the IT service supply chain chassis, engine, and performance, if the car doesn’t have the onboard systems to complete it. The days of ‘muscle cars” is over. As we entered this pandemic crisis, many companies were making plans to modernize ERP systems. They are identifying the benefits of customization that drive unique advantage to their business are important. They find that data gravity and country data compliance laws impact their hybrid designs. As an example of effective ERP systems, SAP S/4HANA enables companies to be more agile to better manage the unexpected, providing better visibility into operations that include the diversification of supply chain sourcing and improved decision making that is based on data. As such, organizations are learning the need to baseline performance and the SAP S/4HANA platform provides real-time data availability for informed business decisions.
Strategy 5 – Evolve to being a responsive organization
What this pandemic has taught us is that a global supply chain is only as strong as its weakest link. Enabling a responsive organization involves viewing supply chain in a Global Project Management sense in order to make a dimensional difference. This involves aligning supply chain with business goals by integrating sales and operations planning with corporate business planning. A pandemic is just one example of disruption. Consider the tearing up and restructuring of trade agreement, or for UK companies the impact of Brexit. An ability to react as a single entity across all discplines makes it necessary to integrate sales and operational planning with budgetary and financial planning, creating a far better chance of avoiding crisis management and adjusting to changing market conditions.
The COVID-19 pandemic is not just a short-term crisis. It has long-lasting implications for how people work and how supply chains function. Could this situation be a critical bridge to the future of robust and adaptable systems to handle the next crises? Given the scrutiny organization were already putting onto the ERP systems, the answer is “hopefully, yes,” and organizations will become leaders if they adopt the opportunity. It requires each business unit and function to be flexible, agile and adaptable in order to adjust to increased changes being demanded. That is: flexible to bend and not break; agile to enable changes in speed and direction; adaptable to ever changing business conditions. Most current technologies in usage are not flexible enough to adjust at the new “speed of business,” but those adjusted for the new normal are.
About the Author
Ed Faichtyger is Managing Practice Leader, Global SAP Practice at HPE Pointnext Services. Over 25 years of progressive and diversified experience in the Information Technology field. Demonstrated success in leading the strategic and tactical direction of an organization’s IT initiatives. IT visionary driving innovations for the modern enterprise by translating business challenges and requirements into viable technical solutions. More info: www.hpe.com/pointnext
Featured image: ©Ekostov