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How do we Predict the Supply and Demand Situation Now?

Dr. Rakesh Singh
2nd May, 2020

Supply chains have faced major disruptions. However, the planning process has faced challenges that are even more difficult. As we venture out into an era of unknown unknowns, firms need to map incidence and distribution of the disease along with disposable income and build relevant scenarios in order to plan your supply chain better.

Dr. Rakesh Singh
Chairman – ISCM

We are in the second phase of lockdown in India. Ever since Corona virus has hit the world, firms have faced tough supply chain challenges. Unlike most crises this one is different. It has affected man, material and money. It started in china and has moved to 186 countries. Factories have stopped, Logistics crippled, Manpower confined to their localities, world trade has come to a halt, and seaport and airport crippled. Across the world economy has come to a halt.

The question now is – how can we predict the supply and demand situation during this pandemic and post pandemic? How do we plan during these two periods? A large number of voices have emerged which clearly indicate that planning is dead. Uncertainty is the biggest enemy of planning. The pandemic has redefined the dynamics of Supply chain planning? Or, has it?

All businesses are information business. The need of the hour is to use the available information and build a demand planning response around it

In this article, we explore the most effective planning approach in the short run. The immediate question is how have we planned for demand during lockdown periods? What kind of approach is needed to fulfill the demand in the mid-term as phased relaxation starts? Will it be a return of the normal or return of a new normal of planning? What will be the role of long run planning amidst this uncertainty?

Let us start with raising a simple question. What is common with the immediate past in the context of demand planning and forecasting? Most of us will come out with a simple answer – nothing. You may be right that immediate past history based supply chain planning will be of no use in planning during these uncertain times. But you may have missed a point – that is the role of information in supply chain. All businesses are information business. The need of the hour is to use the available information and build a demand planning response around it. The basic principle of planning suggests that during uncertainty we need to collect information about the current state of our supply chain capabilities. Map the capabilities to uncertainty, and react to the market demand. This is what most companies have done and it seems to be the biggest shift.

The questions that arises is – how do you map your planning attempts with various time intervals post economic lockdowns? During this dynamic length of the pandemic and reactive lockdowns how have companies reacted i.e. planned their approach and delivery? As the central Government eases up by opening neighborhood stores what needs to be taken into account while planning for this? What do you do with your sales and operations planning and integrated business planning, and how would they change? What would be the impact of this Pandemic on supply and demand planning within organizations?

We need to incorporate the way economy will perform in the near future and in the long run i.e. a year or 18 months.

What was the approach during one month of lockdown in India as far as supply and demand planning is concerned? The firms adopted, knowingly or unknowingly, a hyper local approach. This hyper local approach is to map the demand in the immediate locality and fulfill the same with the help of service providers and local fulfillment markets. Each day is different and each day became dynamic with the nature of the pandemic, spread and lockdowns in zones. During this one-month, we have seen a shift in consumer behavior. Category consumptions, package sizes, channel selection, shopper trip frequency, brand preference, and media consumption. All these changes forced companies to react.

Firms have started planning dynamically. The hyper local approach has led to a careful analysis of portfolio based on emerging demand; this has required reducing product variety. Firms have revised buying plan and reallocated staff towards high demand categories, overridden analytics, and directed inventory towards high-density area. Manufacture and stock relevant products and preserve cash. Book and reserve more transport capacity as well as reserve warehousing space to serve these hyper local markets through this hub. Given the stoppage of factories, disruption in availability of transportation and manpower, firms have done an optimal job of reaching grocery and other essentials to all the nooks and corner of the country. Planning during the Covid period has been fantastic and optimized.

The planning needs to take into account how various states are affected by the virus and how local geography is being defined by the degree of these infections

The big question is how do we move ahead from here on?  Can we forecast how the future will unfold from now on? Will the deterministic models work? So what’s the way forward? What are the assumptions that a planner needs to change? How do we see the immediate and 18 month horizon from now to give direction to the business supply chain?

Learning from the past one month can help. What will change is the need to open up to kick start livelihood as pandemic reduces and nears zero. We need to incorporate the way economy will perform in the near future and in the long run i.e. a year or 18 months. We should build in this twin of pandemic and the economic disruption impact assessment into the planning processes immediately. We should be able to foresee various scenarios and plan for it and build in flexibility to change the plan due to various positive and negative scenarios that may unfold. This is the biggest enemy of forecasting and even most revered Demand Driven MRP.

So what could these scenarios be? How do we prepare for these scenarios in terms of manpower, material and money?

According to me we need to build the following scenarios:-

Worst-case scenario:

Pandemic escalation prolongs downturn without economic recovery.

The more optimistic:

Virus is contained progressively over next few months through testing and social distancing.

Best-case scenario:

Finally, in the most likely scenario, the pandemic peaks in various regions differing in time and magnitude, the effects of the pandemic on the economy will stretch out beyond the second quarter and will be long drawn.

A combination of second and third scenario looks more likely. The planning needs to take into account how various states are affected by the virus and how local geography is being defined by the degree of these infections. In a vast country like India, businesses will have to take into account various regional differences in the incidence of viruses. The Procurement of agricultural commodities will pick up as government has started buying and the non-essential businesses are allowed to operate in tier three and tier four cities. In the medium term we need to factor in the economic impact of lockdown and on disposable incomes and marry them to unfulfilled and postponed demand of the non essential which may show a huge surge. To fulfill demand, firms will have to create strategic hubs or new warehousing points to feed smaller neighborhoods, stores which have been allowed. Use new fulfillment players to fulfill demand. The whole approach will rewrite the assumptions which are basis of demand planning. Using alternative and supplemental delivery options to reach red, orange, and green zones.

Finally, when the economy returns to normal over its own natural length a strategic review of COVID strategy needs to be done and the normal day supply chain reimagined. And the transition from today to the normal period needs to be mapped along another axis of disposable income over this period too.

Firms must use Bill of Material to identify, which supplies will be affected and it should move to cover the last tier suppliers.

Let me come to final question. What happens to Sales and operations planning? Unlike what many people say this will become more frequent in terms of integrated tactical planning, may be hourly daily or weekly depending upon the incidence of virus infection dynamics in immediate future. The real test of IBP is to map the scenarios in terms of virus infection and the way the economic outlook changes. The need for supply review during this pandemic is very critical. There is a need of thorough mapping of the firm’s suppliers. As professor Yossi Sheffi suggests, firms must also determine the physical location of the firm’s plants and warehouses. Firms must use Bill of Material to identify, which supplies will be affected and it should move to cover the last tier suppliers. Identifying supplier’s capability needs to be assessed by tracking the norms of safety and social distancing and laborers living condition. A rebound can be dangerous. This will be also true for your factory. In recent time, one should also work hard to attract laborers to the site, maintain good hygiene, and cross train manpower to fulfill multiple task and pay well. Reserve logistics by entering meaningful contracts and partnership for long-term sustainability. A collaborative approach by partnering with 3PLs will help you secure trucks and warehouses in the dynamic times as well as post crisis recovery time. All these should be a part of your ITP and IBP discussions or your S&OP discussions.

In Conclusion, it can be said that Pandemic has changed the landscape completely, managing the business during pandemic will bring lot of wisdom and good practices to the fore and best of the past will always be a part of this learnings. What will change is the use of digital twin and connected planning in the long run. Bringing visibility, flexibility will help trace trouble and build resilience. ♦♦♦♦♦

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