COVID-19 Disruption Demands Supply Chain Elasticity

The time to react to an extreme disruption such as the COVID-19 pandemic is not when the pandemic is imminent, or in the midst of the pandemic. The time to react is before the pandemic, or the disruption event, to prepare reactions based on the potential. This enables your organization to identify and evaluate potential reactions prior to the event and this dramatically reduces reaction and also ensures appropriate and effective reaction. Reaction to a disruption requires elasticity in the process and the organization in order to bend and stretch rather than break. Reaction to disruption also requires the ability to sense the disruption in time to react.

Recently there is a great deal of bluster focused on the dangers of the global supply chain that suggests the only way to eliminate the risk is to move manufacturing back to the US. This sounds great in a sound bite but is really not feasible and would never move forward. There are a few significant challenges to moving manufacturing back to the US starting with the challenge of an increased cost resulting from

products manufactured in the US. The US has been addicted to the cost savings delivered by global manufacturing and it will be next to impossible to wean off that drug. The other challenge is the people and manufacturing capacity that would be required to meet the consumer demand.

The appropriate solution involves a flexible and nimble global supply chain that incorporates backup and alternative options for both raw materials, manufacturing plants and even transport options to reduce the risk of disruption. The issue is not a global supply chain, the issue is the deficient risk identification and mitigation to react and address disruption. This requires a focus on analysis and reaction to respond and resolve the disruption. The supply chain must be able to react to difficult situations and conditions best described as VUCA (Volatility, Uncertainty, Complexity and Ambiguity) that requires the continuous ability to sense and react to disruption as it materializes.

As an industry we have implemented the process and the tools to respond to disruptions to ensure business continuity and now the use of these tools must be extended in order to react to the VUCA earlier in order to limit the business disruption. The challenge for the industry is the early planning and preparation for VUCA events so the reaction can be predetermined and practiced so the disruption can be limited. This requires robust tools and capabilities to sense the disruption earlier to allow time to implement the business continuity procedures.

The business continuity procedures must be predefined and practiced regularly so that they can be executed quickly and efficiently in response when the disruption is identified. This is standard operating procedures for businesses in the supply chain. One of the new factors to this continuing challenge is the types of disruption and the ‘surprise’ of the disruption. I think sensing and responding to VUCA must be the key starting point to business continuity. The definition of business disruption must be expanded to focus on VUCA and the analytics must be improved. The business continuity is not all or nothing and should be viewed as modules that should be engaged depending on the situation.

We must accept the fact that we have entered a time of extreme disruption and must focus on the ability to sense the disruption and quickly implement the response to the disruption. This means the business continuity procedures must be extended to be utilized in response more efficiently to the disruption. The first step though is focus on sensing the disruption! This is where tools and technology will play a key role, including advanced analytics and artificial intelligence and even process automation.

Business Continuity In Extreme Disruption

The coronavirus pandemic is another Black Swan event that highlights the importance of a robust and flexible business continuity plan that utilizes big data analytics technology and artificial intelligence to support a reactive and flexible framework rather than a structured process of recovery. We see a discontinuous river of disruptive events that are impacting the supply chain along with businesses and customers and the reactions to these events must be swift in order to limit the impact. The world will not slow down and in fact will only speed up in the types of disruptive events that must be addressed in creative and flexible ways.

The seemingly continuous stream of Black Swan events speaks to the need to sense and respond to these events to limit or even eliminate the impact. Early detection and response to the pending event dramatically reduces the impact of the event and this should be the goal going forward! It makes no sense at all to develop a quick response system that leaps into action when the impact is upon us. This goal of early detection requires a focus on risk analysis and that allows early detection in order to act before the crisis. I suggest that a key to the rise and frequency in Black Swan events is due in large part to a lack of focus on detection.

This is the reason I have been focused on the continuous improvement practice of sense and response. The supply chain is in the position of canary in the coal mine and the continuous improvement practice including and focused on robust identification, or sensing, analytics to sense the coming disruption early in order to respond early. The goal should be in risk identification and then analysis of the pending impact and most importantly the likelihood of the risk manifesting itself. After the 5th ‘500 year flood’ it's time to understand and take action to focus on risk analysis and early detection!

This increased importance of sensing the disruption requires an increased focus on risk management and especially risk identification as a key area of identification in the continuous improvement process. This is a big change in focus from short term cost control to risk and disruption control. Focus on risk and disruption control will increase supply chain costs however will reduce disruption impact. This reduction in impact will in the long term reduce costs of the impact on the supply chain and the economy.

The challenge for risk management is incorporating the lessons in day-to-day supply chain management and especially the extended supply chain. The correct answer to the global disruption is not eliminating global manufacturing and the global market, the correct answer to global disruption is early detection and risk management plans to address the disruption. This means alternative supply chain capabilities for materials, manufacturing plants and delivery. These all would produce different effects on the success of reaction to the disruption and each of these require focus on risk and cost analysis to identify when it makes sense, financially and production-wise to make the change.

Unfortunately we are in an age of quick and easy answers and this does not work well in a global economy and supply chain. This requires a level of continuous effort to monitor and analyze the risks and likelihood of occurrence. This process of risk mitigation must be incorporated in the regular review and analysis process of the continuous improvement practice. The good news, in my opinion, is that this risk mitigation can be supported more accurately and quickly by embracing data analytics improvements brought about through artificial intelligence technologies. This is a baseline requirement to the effective analysis of the amounts of data available!

Disruptive Forces In The Supply Chain

There are so many factors driving transformation and disruption in the supply chain that we have moved from a model of discontinuous change to a model of discontinuous disruption.

The disruptions in the supply chain now are driven by the developments and incorporation of new capabilities that are more and more identified and developed utilizing the information and capabilities delivered by data analytics and artificial intelligence technologies. The pieces of technologies are being brought together through the immense amount of data and abilities to fully utilize the data that themselves have been made possible by technology. In the same way that technologies have allowed consumers to mold their professional interactions to meet their lifestyle needs, technology is also supporting the supply chain and extended partners to meet the supply chain business interaction and operational needs.

In a very real way consumers are driving the disruption through their embrace of technology combined with increased network capabilities that are blending their interactions across every corner of their professional interactions. Supply chain leaders and partners have embraced growth in data analytics that is made possible by technology improvements in data storage, network improvements to move the data and then most importantly the computing power improvements to drive the data analytics capabilities to analyze the data to understand and define direction and capabilities required to improve the supply chain to meet the demands. The supply chain supports the consumer demands across all industries and the computing power along with the network capabilities available to every individual across the supply chain is driving the discontinuous disruption.

The pieces of discontinuous disruption have been developed and also been growing in their use in the supply chain starting with the growth of the Internet of Things technologies and tools and naturally expanding in the supply chain arena into automation of processes and then add to this the robotic movement that is growing now, especially in the third party logistics industry and you can see that these pieces required a technology and capability to coordinate and connect the dots. All of these technologies are collecting immense amounts of data for the supply chain to utilize to improve the services and increase their capabilities without necessarily increasing the long term costs.

Supply chain leaders are using these technologies and really driven by their own imagination and questioning ‘why not’ to drive this growth and expansion of supply chain processes and operational improvements and most importantly efficiencies. These technologies are disrupting through the implementation and growth of automated operational and process improvements that are driving efficiencies into the supply chain. The true disruption innovation in the supply chain is the imagination that has been released through the implementation of these technologies that are driven in large part by the improvements in analytics and computing power to release and encourage this imaginative approach to disruption.

This is the amazing thing in my opinion, that the consumer is at the center driving the disruption into the supply chain industry based on their demonstrated imagination and use of technologies to put together their own solutions. These strong outside influences are driving the basic need for the supply chain to understand and maintain the velocity of disruption in processes operations and especially functionality in order to meet the consumer and market demands. Most importantly, though is the continuous improvement process and data analytics capabilities that must be implemented to allow the supply chain to sense and respond to the disruption that is now impacting the supply chain marketplace.

Disruption Driving Transformation Of The Supply Chain

 

Disruption displaces an existing market or industry to produce something new and more efficient and worthwhile. It is at once destructive and creative. Disruption in the marketplace is driving a transformation of the supply chain into a more efficient and flexible framework that can support the continuous disrupting forces. This transformation of the supply chain is driven not only by reaction to disrupting forces in the marketplace but also from the enabling technologies developing at a breakneck pace.

Historically, supply chain disruption has been described as a major breakdown in production or distribution nodes that comprise a supply chain. This definition of disruption implies an event within the supply chain that interrupts the normal process and flow that must be overcome to return to the pre-event state. However, technologies, especially eCommerce technology, coupled with improvements in network capabilities that are driven by consumer lifestyle demands have redefined disruption into a break that will never return to the pre-disruption normal, the disruption creates a new normal.

NOTE: The COVID-19 disruption is another example of disruption driven by consumer demands, in this case though there are additional disrupting factors that add to the equation. These factors include disruption in the manufacturing capabilities and also, more importantly, business continuity disruption that has highlighted the brittle nature of the pre-COVID-19 extended supply chain.

This process of recovery into a new normal is what makes up innovation and new capabilities for the market. Rather than a recovery to the pre-disruption state, the disruption produces a recognition of a need for innovation and change based on the market demands for innovation in the process. Disruptive innovations tend to be produced by outsiders and entrepreneurs in startups, rather than existing companies. This innovation cycle is now driven by consumer lifestyle demands colliding with the existing market practices creating an innovation cycle. This innovation cycle disrupted the continuous improvement cycled to a continuous innovation cycle and the market leaders recognized and adjusted to the change.

Currently, the waves of innovation in the market are driven by supply chain participants recognizing and developing features and functionality designed to meet customer expectations, partner needs and financial requirements. Supply chain disruption is the repurposing and realigning of existing capabilities to support changing consumer lifestyle demands. Then, just for good measure, the great disruptors add new supply chain capabilities to enhance the innovation.

The best change agents in the extended supply chain implement these features and functionality before the consumer recognizes the need. This drive to experiment based on sensing a market shift that creates the demand for goods and services is the actual driving force of disruptive innovation in the market. Disruptive innovation in the supply chain is a leading influence in remaking the market to meet consumer demands. Consumer demands are being driven at an enormous speed and this velocity of change requires robust tools and practices to react. I believe the supply chain is particularly ready and capable to develop these required tools and capabilities because of the history of disruption within the supply chain.

Shifting demands from all corners of the market—ranging from product and consumer services to supply chain partners—contribute to supply chain disruption and in turn are driving innovation in the supply chain as a reaction. Consumers as the ‘Great Disruptor’ in the marketplace and are driving the supply chain to innovate in capabilities and flexibility in order to react to the disruption. The supply chain innovators are driven by a spirit of experimentation that in turn allows them to innovate in the face of the discontinuous disruption. The best of the innovators incorporate the continuous improvement (PDCA - Plan, Do, Check, Act) practice to support the innovation cycles driven by the disruption.

This transformation will only increase in speed as disruption drives new disruption. We have entered an age of disruptive transformation driven by the demands of the market that is no longer accepting the status quo. In order to survive in the age of disruptive transformation the market partners must also embrace a practice of experimentation based on flexibility.

Supply Chain Reshaped By COVID-19 Disruption

There is no question that the Coronavirus has disrupted the world and in the face of all this disruption, the supply chain is being reshaped in reaction to the waves of disruption started by this pandemic. It is safe to say that the world social and economic order has been turned upside down during this time in reaction to the speed and the range of disruption driven by this virus. There has been no area left untouched at this point and the focus is on reaction and adjustments in reaction to the disruption. This requires more than ever extreme flexibility and robust collaboration and communication to sense and respond to the disruption.

I firmly believe that one of the key strengths developed over the years on the extended supply chain is the ability to sense and respond to disruption in a manner that efficiently identifies disrupting factors and resolves through a robust process of continuous improvement. The baseline tools, practices and procedures are in place to respond to the disruption and these have really been the foundation framework that has helped the supply chain to respond and continue to support the market.

The question now is - What process and procedures should be incorporated to allow the extended supply chain to support the multi-faceted waves of disruption that will continue?


These are some key factors that will support the velocity and impact of disruption:

First and foremost is robust, open and holistic collaboration practices. This is key to the ‘sense’ process in sense and response to the disruptions. This requires open sharing of information collected from all quarters in order to better understand relationships and impact of the disruption. Without the collaborative practices the response portion of sense and respond runs a great risk of reaction to the wrong cause of the disruption.

Data collection and analysis provides the information and identifies the relationships that are driving the disruption. There is really nothing new to the level of importance of data in the ability to first sense the disruption and then determine the cause and identify a reaction to the disruption.

Define and implement actions and change based on the data analysis in response to the disruption. One key to the implementation of change is the realization and acceptance that there is no silver bullet that will address the disruption. The disruption is fluid and the changes and reaction must be fluid as well!

The reaction in the system to the change must be reviewed and validated to confirm the response to the change provided a positive impact. This is starting the process over again.

Finally, the most important factor now is speed of reaction! This means multithreading reactions and actions with the analysis of the data. There are two key tool in this time to analyze reactions; the use of Artificial Intelligence and robust collaborative practices.

The guiding factor in this time of disruption must be ‘Don’t Panic and Respond to Data’! This will be the most difficult and greatest time of disruption and when you add the cultural and health disruption to this business disruption the impact can initially seem overwhelming. In order to overcome this feeling we must identify a program that includes a process of actions to address the disruption. We should be using the experience gained over the recent years driven by business and consumer disruption in order to meet the demands of the current disruption.