Firms across the globe are dealing with uncertainties in the wake of the global pandemic that is roiling markets. In the short space of a month, they have to grapple with shifting consumer demand, a reluctant labor pool, a comatose logistics sector, and diverse approach to implementation of guidelines. Saurabh Lal talks about his experience and takeaway from the crisis. The views expressed here are his own, and has nothing to do with Kellogg.
The COVID-19 is a black swan event. We have not seen anything like this in our career. Yet, one of the biggest gains for supply chain is – we have become a part of a much larger community. COVID-19 will bring in far reaching changes to how we organize our supply chains. One significant development will be – we will go hyper local. Both in terms of how you respond to the directives and changes which happen in the areas where the plants, warehouses, and CFAs are situated. For example, the union government has made it clear warehouse operations across the country will continue without stop. However,parts of the country are in complete lockdown. The Union Government directive will not apply hare. At this juncture, supply chain professionals need to keep an ear to the ground and identify the local situation. As soon as one can start operations, start applying for permissions to conduct business. For example, Kellogg’s has 22 distribution centers across India but only 18 of them are operational today. And even here, on again, off again there are hurdles in smooth operations. The disruptions can even be from the local concerned population.
Amidst this flux, demand forecasting is a challenge. A very difficult question at this point of time is the forecastability of demand.
Firms have to continuously monitor the permissions granted for operations. And there are cases where the permission were withdrawn a couple of days after they were granted. There are plans to announce different zoning guidelines. They may even go smaller where a locality or even an individual building may be quarantined. In such scenarios, going hyperlocal is the only way forward. The man on the spot has to keep his ear to the ground and identify these trends early on. The person should be connected to the decision-making hierarchy in the firm, to speed up implementation of decisions. At a time when there is uncertainty about the number of places firms can operate from, supply chains have to be very responsive.
Amidst this flux, demand forecasting is a challenge. A very difficult question at this point of time is the forecastability of demand. There are no easy solutions to this question. There is no way to definitively ascertain when goods in transit will reach their destination. To add to it, consumers have stopped buying the entire range. Therefore, customers have stopped ordering the entire range. And therefore, Kellogghas to stop manufacturing the entire range, and the IBP teams have to come up with plans to reduce complexity of the supply chain. Firms need to focus on what people are buying today. The challenge in these volatile times is – how do we focus on an estimate what people are going to buy next week – forget about next month or next quarter? These are too far out to talk about today. Today we need to borrow from the single minute exchange of die principle and create the single minute exchange of plans. No one can today afford to say – I will not change my plan. The important questions are- should we forecast, and if we forecast is it still going to be important, how do we forecast. More importantly, according to me, the world will move to a DDMRP mode – what is sold is what you should be manufacturing and selling. Kellogg’s has been active in this area for some time now. The pandemic is a test of our efforts.
Firms need to ensure flexibility in their supply chains, and put in place labor and management policies required to ensure flexibility during this pandemic.
IBP will continue to provide, if nothing else, financial direction. What is it that you are looking at the category level? It will help bring activation in the market; it will help bring innovation in launches in the market. However, the execution and replenishment planning is where we draw the line. When you plan for activation, innovation, and financial planning, use S&OP and IBP to the extent possible. Don’t ever use it for your day to day execution. If you can manage this thing, you will see the power of IBP coming through. Most companies suffer in innovation planning. The success record of innovation is around 50% in the first six months. We need to focus on the big-ticket innovations.
Firms need to ensure flexibility in their supply chains, and put in place labor and management policies required to ensure flexibility during this pandemic.The first responsibility is to ensure labor reaches the work site. Earlier labor was available radius of 5 kilometers of the factory. Today it is not uncommon for labor to travel 50 kilometers for the same, navigating multiple districts or in some cases multiple states. At the core of it,firms need to build in flexibility and agility. For example, when some Kellogg employees were not allowed to travel from a particular village, we anticipated similar problems and moved 40 to 50 of our associates to a hotel near our factory. This did push up our manufacturing cost, but ensured production. This gives you some kind of predictability of supply. The second thing we looked at was planning for alternate routes for the buses ferrying our associates. We created flexibility in route planning. Had we done this in normal times we could have been much more agile.
Another change that we did bring in was in utilizing the trucks which came in with raw materials to dispatch finished goods. In fact, our executives supervise the entire operation including loading finished goods on to the truck and even data entry.
One major issue is the availability of personnel. In fact, agility of people is very important. We can no longer be dependent on people who will only do one type of job. We need a pool of multi-skilled manpower. Can we create a set of people who can be used in multiple roles across the organization?
Finally, we need to explore how we can enable people to come in spite of possible family objections – including incentives, absolute safety for employees in the plant – including cleaning and sanitization of the entire plant every 3 to 4 hours, ensuring social distancing even within the plant. In short, we need to enable our workforce, incentivize them, ensure that they reach the plant to ensure continued operations and create a multi skilled workforce.
The effects of the pandemic are yet to be fully felt. We are still in the middle of a lockdown. However, supply chains will emerge stronger, resilient, and efficient from this. We have the gumption and we will see this through. Till then, stay safe. ♦♦♦♦♦