The COVID-19 outbreak has led to unforeseen disruption for retail. Stores have been closed as lockdowns were put in place to keep people safe. Categories have declined 30-75% as a shift to ecommerce has not sufficiently compensated for lost in-store sales.
As the pandemic crisis deepened, supply chains have experienced demand shocks, where people are stocking up on consumer goods to comply with restrictions on movements, in some cases buying months’ worth of goods in a single day.
This leads us to the ‘shortage’ cause of the bullwhip effect that must be managed. This describes how, when there is a shortage of a product, the tendency is for downstream players to increase their supply needs to claim a greater share of a scare resource.
The supply chain has not seen the end of manual interventions in supply processes, however. Many replenishment systems use simple moving averages to calculate store-level requirements. With such an unprecedented demand spike polluting these moving averages, supply chain planners will have to modify supply quantities manually and scramble to adjust their planning systems.
Adding to the complexity moving forward is the ability to develop robust demand plans. There are several variables that bring unique uncertainty. It is impossible to predict how consumers will behave moving forward, since the extent and duration of restricted movements is unknowable.
Supply chain planners should avoid the inventory bounce. When demand reaches a new steady state that is lower than the previous steady state, there must be a cut in production to allow the pipeline of stock to lower to a new steady state level. At that point, production actually increases a bit to match the new demand.
Supply chains are showcasing singular resourcefulness and adaptability, though the challenges are far from over. Providing a seamless journey for consumers through a mix of digital and physical infrastructure will require the backing of a strong supply chain. COVID-19, in all its volatility and stress, has opened up opportunities to take a hard look at the entire supply chain and reimagine it for tomorrow’s needs.