Coronavirus and lessening the impact on supply chains

The impact of the coronavirus has been huge to Chinese business. According to official data, Chinese exports in January and February fell by 17.2% compared with the same period last year. For one of FuturMaster’s beverage customers, sales in February were down 80% compared to last year. For a fashion client, it was only able to achieve about 30% of like-for-like sales thanks mainly to online, which has remained relatively resilient.

There still remains a lot of trepidation around consumer demand. Short-term demand from end-consumers has fallen sharply. And due to so many people being quarantined at home, the geographical distribution of demand has also changed. A lot of demand shifts online.

During times of such uncertainty, every company needs to make simulations on how demand may evolve and if and how they can satisfy this demand. You also need to closely monitor which transportation routes are cut, or how many workers will be unable to show up at various sites due to lockdown.

Food shortages and empty shelves

Panic buying – where many UK supermarkets have already seen empty shelves from people buying up all the bottled water, hand sanitisers and toilet rolls – and further stockpiling is likely to test suppliers to the limit. Retailers and manufacturers face many challenges from the impact of the coronavirus.

However, sourcing materials may not be the biggest problem on the supply side. Companies are also seeing reductions in warehousing capacities due to labour shortages: for instance, when one worker tests positive, the whole team has to be put into quarantine.

Moving products around can turn out to be an issue as well, especially when transportation routes are affected due to border closures. According to a recent McKinsey report, trucking capacity to ship goods from factories to ports in China is at around 60-80% of normal capacity, with goods facing delays of around eight to 10 days on their journey to ports.

Anticipating ahead – by doing simulations – enables companies to be better prepared. Being able to react in an agile and efficient way is vital for coping with any crisis situations. All the normal variables that supply chain planners use on an everyday basis become uncertain and questionable. But you can act with foresight to mitigate risk. In times of panic – and against a backdrop of empty shelves – digital technology can help make better decisions afterwards and prioritise things whenever there’s a choice to be made.

Case study: bottled water supplier, China

China consumes more bottled water than anywhere else in the world: around 25bn gallons a year according to the IBWA trade association, which accounts for more than a quarter of the world’s volume. And yet, one of the largest suppliers of bottled water to China has been able to avoid severe stock shortages thanks to using sophisticated supply chain planning technology to help the company anticipate and respond quickly to the emergency.

The company has numerous factories it can call upon to change capacity whenever and wherever necessary, based on forecasting of demand and supply capacity. It was also able to determine which were the most important products to prioritise, by taking into account the stock on hand in each warehouse and the available production and distribution capacities.

As it happens, most factories in China were already scheduled to close for a week over the Chinese new year, at a time when many coronavirus cases were threatening to bring Wuhan (where the Covid-19 virus outbreak started) to a standstill. However, shortly before, a team of planners were already busy gearing up and preparing for various possible closures after hearing more and more news of lockdowns in different areas. So it looked at the areas likely to be most affected and where else it could produce and at what capacity.

The supply chain team learned about the traffic restrictions in various places, using the FuturMaster system to make an updated plan for the supply network. It regularly collected information from local managers to understand and build a picture of where and how many workers were most likely to be available at any given time. It ran simulation after simulation. It came up with a plan A, B, C, and so on. This foresight and planning meant that it was less likely to be taken by surprise and resulted in continued supplies to almost everywhere.

The bottled water company was able to endure the turmoil largely thanks to its supply chain planning technology and sufficient preparations to allow it to model various different scenarios and come up with the best solutions. For instance, by shifting production capacity to different locations and planning ahead for change, it was able to supply enough goods to cope with factory closures and offset transportation problems elsewhere.