Now that public restrictions accompanying the lock-downs have been eased and production in countries such as China has been restarted, decision-makers are considering how they can ramp up their supply chains again in a cost-efficient manner. A new survey has identified the key challenges.
In cooperation with the management consultancy Abels & Kemmner, the Arbeitsgemeinschaft für wirtschaftliche Fertigung (AFW, English: Working group for economic production), has surveyed 250 decision-makers from the fields of SCM, logistics, production, purchasing and work preparation. The focus was set on the challenges faced on the path out of the crisis. According to the publication, the key challenges when it comes to reactivating supply chains include:
- Fluctuating demand
Currently, the vast majority of respondents (91 percent) assume that demand will fluctuate strongly and remain uncertain in the coming weeks.
- Unstable material supply
While only two percent of those surveyed believe that there will be no material supply problems at all, just under eight out of ten participants (77 percent) assume that the material supply will also be a fluctuating and uncertain factor in the weeks to come.
- Difficulties concerning procurement
In addition to the expected problems regarding material supply, 81 percent of the survey participants expect problems with the procurement of raw materials, purchased parts or packaging materials. Only a clear minority (17 percent) expect few procurement issues or none at all (2 percent).
- Changed inventory management
More than half of the respondents (55 percent) expect inventories to decline in the coming weeks in favor of capital commitment. With demands increasing, companies are consequently faced with the challenge of having to re-adjust their inventories quickly.
- Insolvencies of supply chain partners
When asked whether supply problems will arise due to the insolvency of their own supply chain partners, the assessment is somewhat more differentiated: 22 percent of those surveyed are certain that there will be supply bottlenecks due to insolvencies. 42 percent are relatively certain of this, while almost a third (31 percent) of those surveyed do not expect this to happen. Only 5 percent of decision-makers assume that there will be no supply problems due to the insolvency of their own supply chain partners.
Eight out of ten respondents are convinced that transport capacities between Europe, the USA and Asia will remain not only scarce, yet also expensive in the coming weeks.
Clear advantage for digitized companies
But how can companies successfully master the challenges mentioned above? The current, unprecedented situation requires a high degree of flexibility, creativity and the ability to adapt quickly to changing conditions from all players along the supply chain.
A recently published PwC study has shown that digitized companies can react more agile and faster to disruptive changes in the supply chain, such as those caused by the Corona pandemic.
Avoiding the Bullwhip Effect
In general, companies should try to adjust to a fluctuating demand and an uncertain supply situation. However, it is important to minimize the risk of the Bullwhip Effect through close cooperation with supply chain partners and transparent and demand-oriented supply chain management. In the case of the Bullwhip Effect, fluctuations in demand whip up so much that overstocking and overproduction can occur. Multi-stage supply chains are particularly affected by this phenomenon, with fluctuations increasing as the distance between the operator and the end customer increases.
Mastering challenges wisely
Decision-makers should therefore proceed strategically and cautiously. Uncertainties regarding the supply of materials, procurement difficulties and reduced transport capacities are currently affecting all sectors and companies – including competitors. Actionism is therefore out of place and could lead to a deterioration of business performance.
Rather, central and consistent demand planning is required, which can conserve existing resources and minimize the risk of additional expenditures. In this context, priority should be given to transparent communication between all stakeholders involved. Only in this way can demand, need and capacities be identified and the corresponding processes initiated.