The last few months have seen a lot of so-called risk-management strategies fall by the wayside, as businesses have scrambled to cope with unimaginable upheavals in supply chains and consumer habits brought about by COVID-19. What’s the best way to cope with a crisis?
The first piece of advice is old as the hills: Don’t panic. You might think you have the right tactics and strategies in place, but in the real world you’re likely to be blindsided by a disaster, whether it’s a pandemic, political insurrection or social media firestorm.
Once you’ve taken a deep breath, what do you do next? Here are five recommended steps toward calming the supply-chain madness.
1. Keep senior executives focused on the medium and long-term view. You want senior executives staying focused on what they do best — determining tactics that are aligned to strategy to drive performance. They’re not going to be able to do much to influence operations today or tomorrow. You want them concentrating on the direction of the business long term.
2. Take control of the firm zone. Think of the firm zone as the time horizon where execution is occurring. Some companies may refer to this as the ‘fixed zone,” but is that ever really true? Taking control of the firm zone requires deployment of established best practices in master scheduling, creating valid plans that take into account realistic lead times given the new circumstances. Master schedulers are custodians of the valid plan.
A valid plan has two pieces. First, make only the products you need, and cease production of those you don’t. Second, confirm that needed materials and capacity are available to make the products you’ve committed to make.
Once a valid plan is in place, do what you said you were going to do! Under-promising and over-delivering is just as bad as over-promising and under-delivering. Having committed to a valid plan, the supply chain is accountable to execute that plan. Results do not equal “no results plus a good excuse.” It’s the supply chain’s responsibility to execute flawlessly.
When COVID-19 hit, some businesses got wiped out in terms of inventory, while for others demand dropped to zero. These dynamics create the extraordinary challenge of managing current inventory on slow-moving items while quickly rebuilding inventory positions on fast-moving ones. Because no company has unlimited capacity, you must make decisions and prioritize. Sudden, unplanned changes to production in the firm zone can cause extraordinary chaos and significantly impair the ability to rebuild inventory. Changes in the firm zone should be limited to no more than five percent.
3. Manage near-term volatility with ITP. Next, you need the ability to manage extraordinary volatility in the near term. Most companies do this in a reactionary way, and that’s what gets them lost. Integrated tactical planning (ITP) fills this need. This approach involves analyzing, on a weekly basis, where abnormal demand has occurred, along with other significant changes to demand inputs that are impacting production plans. The goal is to identify priorities in a focused and disciplined manner. ITP is designed to hone in on near-term variability, determine priorities, and allow the right level of management to make execution decisions.
4. Engage in alternative scenario planning. After gaining some level of control over near-term issues and actions, scenario planning allows management to play forward the consequences of multiple alternatives and possible outcomes. The important question to ask is: What if? What if COVID-19 goes on for another 12 months? What if spikes or drops in demand became permanent? In every example, what is the impact on your business? Ultimately, well-oiled alternative scenario planning allows management to see the proposed plan, along with high- and low-side risks and opportunities.
Alternative scenario planning may be used effectively in support of both high-level aggregate planning and detail-planning processes. It’s usually best to start at a higher level and then dive into the details. In any case, you’ll need a robust capability to perform top-down aggregate planning and bottom-up detail planning, and analyze alternative scenarios.
5. Chop the tail. When a crisis occurs, it’s impossible to be all things to all customers. Something, somewhere is going to take a hit. To minimize the impact to customers and the business, the best thing you can do is make informed priority decisions.
One way to gain better focus and decision making is to trim the portfolio. Many companies have a very long tail of low-volume, marginally profitable items. Often there’s the mentality that every sale is a good one. Now is the time to revisit this attitude. It’s vital to understand the full cost implications of this long tail of underperforming items in the portfolio. Slow-moving, unprofitable products are always more expensive to manufacture and can add significant risk to business continuity. A crisis like COVID-19 is an excellent opportunity to chop the tail, so you can focus on what’s important.
How Oliver Wight Helps Businesses Manage Crises
New London, New Hampshire-based Oliver Wight promotes integrated business planning — a high-level, aggregate planning process that affords a 24-month view into the future. IBP promotes a disaster-ready mentality, because clients gain an accurate view of what they were doing, before they decide what needs to be done when things change.
“When this crisis hit back in March, I told all my clients, ‘As this crisis unfolds, executives will run to the details and away from the long-term view, because they sense they have more control. The exact opposite is true,” says Tom Strohl, principal at Oliver Wight Americas Inc. “My advice is to keep your executives focused on the longer-term tactics through IBP, and simply provide guidance to the teams executing the plan on priorities in the near term.”
For T. Marzetti Company, a 100-year-old food and packaged goods company, keeping a short tail on SKUs was already part of its strategy. “It keeps you from getting caught up in slower-moving SKUs so that you can concentrate on the big sellers,” explains Juliann Forcina, director of integrated business planning at Marzetti’s headquarters in Columbus, Ohio.
Marzetti also applied scenario planning. “If I can tell you where we’re going to have capacity issues in 24-36 months, and then COVID-19 happens, it’s not a firefight — it’s an adjustment,” says Forcina. “The unique thing about COVID-19 is the speed at which things shut down. But you’ve planned for it.”
Strohl agrees. “Managing through a crisis like COVID-19 isn’t easy for any company. But you want to be well-positioned to weather the storm, and that’s exactly where Marzetti is right now.”
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