With billions of people under lockdown, trillions of dollars wiped out from global markets, and millions of jobs already lost, the COVID-19 pandemic has definitely bought the world to a halt. Even our prosperous Western world which was expected to be better prepared to fight this global health emergency is struggling. The United States has become the new epicenter of the virus with more than a million cases.
A recent Washington Post report noted that, “More than 22 million Americans have filed for unemployment aid since President Trump declared a national emergency, a staggering loss of jobs that has wiped out a decade of employment gains and pushed families to line up at food banks as they await government help.
The United States has not seen this level of job loss since the Great Depression, and the government is struggling to respond fast enough to the deadly coronavirus health crisis and the widespread economic pain it has triggered.”
Amidst all this, businesses whether small or large are struggling around the world. While there are businesses which have adapted to the work from home model and have revenue streams still open, aviation, hospitality, manufacturing, etc. have virtually come to a standstill. With economies under total or partial lockdowns to contain the spread of the novel coronavirus, supply chain disruptions have become the norm. While bigger cash rich businesses may still be able to withstand this shutdown, smaller businesses will basically be wiped out.
The true impact of this human tragedy will be clear in the months to come, however, one thing is for sure, there will be global economic and financial ramifications that will be felt through global supply chains, from raw materials to finished products.
Though businesses which have been around for some time are not unknown to disruptions, it is the preparedness of a business to mitigate disruptions which ultimately matters and determines its fate.
Here is a comprehensive look at mitigating disruptions and getting your manufacturing and supply chain in robust shape. This is based on a case study. The focus should be in understanding business objectives, as well as, constraints, as well as in conducting a structured optimization/resiliency process that results in an optimal network configuration and strategic roadmap.
The Case Study
A multinational was looking to develop a comprehensive and industry leading disruption mitigation strategy and a well-laid implementation plan to mitigate disruption. The strategy would also have to fuel growth to achieve business goals. It is vital to note that the disruption planning had to account for both global as well as local disruption that would cause significant negative impact to the business.
The business imperatives were analyzed and a disruption sensitivity analysis was performed with well-thought levers to understand the impact of the disruption on the business and to come up with a mitigation plan. Taking the sensitivity analysis into account, the optimal network configuration and strategic roadmap was determined. A comprehensive implementation plan was also drafted to achieve the desired results.
This approach to mitigate disruption can be extended to other forms of disruption and to other business sectors with specific adjustments as per the type of disruption, and business.
The Business Imperative – At A Glance
The business imperative should be clear, well-defined, and well understood across the organization and its principal decision makers. It should take into account the short term and long term objectives of the business and should focus on mitigating disruptions in the network, addressing capacity constraints, and being prepared to fuel growth and withstand downturns.
Below are the highlights of the business imperative for this case study which would be valid for any supply chain or manufacturing business facing disruption.
Risk mitigation in the network
- Mitigate the risk of sole source across major components, processes and finished goods
- Mitigate the risk of key operational levers that can hinder capacity – including productivity, space and rate of resource ramp up/ramp down
- Mitigate network strategy execution risk – including paced, managed deployment of product changes across the network
Capacity constraints
- Existing facilities may need to grow/shrink to support capacity requirements or downside risk
- Understand resource growth requirements to support capacity requirements
Growth requirements
- Growth needs to be supportable by the manufacturing network or a viable outsource alternative
- Planning of product changes to achieve capacity needs to be evaluated and planned
- Balancing of resources across the business in support of growth/shrinkage needs to be structured
Core competencies to pursue suitable network strategy
- Assess people, process, technology requirements to support network strategy
- Highlight gaps and make necessary changes to build required core competencies
Disruption Sensitivity Analysis
Sensitivity analysis is the first step to estimate the impact of disruptions in a manufacturing network and to understand the impact of different levers to mitigate the resulting revenue loss.
In this case study, local, regional, global, component-specific, product-specific disruptions were analyzed to come up with a holistic approach to mitigation strategy
Multiple sensitivities were run to understand the impact of various levers (resource reallocation, overtime and additional months of FG inventory) on achieving recovery from a disruption. The objective should not be to achieve full recovery necessarily, but to seek the cost-benefit analysis that the organization is most comfortable investing into.
Country Disruption Analysis
A country disruption for the business would result in an estimated loss of $300M. Executing contingency plans outlined below would result in losses of only a fraction of this amount; representing a much more palatable scenario for management and shareholders. Let’s suppose that the following happens, and management takes the outline of actions below.
- Disruption occurred for a period of 6 months
- 20 FTEs relocated to other sites in 4 months
- 100 FTEs cross trained from Prod X to Prod Y in 4 months
- 2 Months of FG inventory present
- 10 percent overtime is utilized during disrupted time period
Below is the impact of running multiple sensitivities to mitigate the revenue loss:
- Utilizing 10 percent overtime throughout the year and resource reallocation the business could reduce the loss by almost 50 percent
- Utilizing 10 percent overtime throughout the year without resource reallocation reduces the loss by half. However, in this case the business is not able to meet 100 percent of the demand
- 10 percent overtime, 3 months FG inventory and relocation/cross training results in meeting 100 percent demand for Prod X, but approximately 90 percent for Prod Y
- By utilizing only the inventory and overtime levers, the network is able to meet almost 100 percent of demand
Regional Disruption Analysis
A regional disruption for the business would result in an estimated loss of $400M after executing contingency plans outlined below:
- Disruption occurred for a period of 6 months
- 20 FTEs relocated to other sites in 4 months
- 100 FTEs cross trained from Prod X to Prod Y in 4 months
- 2 Months of FG inventory present
- 10 percent overtime is utilized during disrupted time period
Below is the impact of running multiple sensitivities to mitigate the revenue loss:
- Utilizing 10 percent overtime throughout the year and resource reallocation results in meeting only 90 percent of Prod Y demand
- Utilizing only the 10 percent overtime lever results in meeting less than 90 percent of Prod Y demand
- Utilizing all 3 levers result in meeting 100 percent of demand in the year
- Utilizing only the inventory and overtime levers result in falling short of Prod Y demand requirement by approximately 10 percent
A Structured Decision Support Model
Here are some thoughts around a structured Decision Support model to determine the optimal network configuration and strategic roadmap.
- Build decision support model with core inputs and functionality
- Evaluate model scenarios with no constraints with respect to capabilities and manufacturing changes
- Add business rules to constrain the number of changes, buffers, etc.
- Prioritize product changes according to total net contribution to the business and the network/site strategy
- Lock configuration and changes and run scenarios, sensitivities
- Conduct final evaluation of the configuration for fit with overall business objectives
- Make final changes to recommended configuration
The Recommended Network Configuration
The recommended network configuration was arrived at after considering a number of scenarios and sensitivities on the network model. The focus again was on mitigating disruption and determining the end state profile.
The end state profile is what a business plans to achieve within the predefined timeline to mitigate disruption, restore normalcy, and fuel growth. It includes effective management of resources, and utilization, network reclassifications, Capex planning, and a handful of other considerations.
Key Execution Requirements for Network Strategy
The key requirements outlined in the network strategy need to be executed successfully to realize the benefits and risk mitigation requirements. Key areas to manage carefully include:
Execute multiple product/process transfers
▪ Improved management of tech transfer and compliance/regulatory requirements
▪ Decentralization supports risk mitigation, but there is no one-size fits all
Manage shifts in production volume
▪ Advanced inventory planning across sites
Manage aggressive hiring and training of direct labor
▪ Enhanced focus on workforce recruiting, training, and talent management
Execute infrastructure and technology investments
▪ Capacity incremental options at the different sites
▪ Integrated product hierarchy & master data management
▪ Enhanced systems and inventory controls (PLM, Planning, MES, etc.)
▪ Visibility to new product demands on manufacturing technology
The Implementation Roadmap
The implementation roadmap needs to be comprehensive and should include all the key elements needed for ensuring success.
Strategic Requirements – The product moves and volume shifts from the recommended model drive the execution requirements.
Execution Requirements
- Capacity Builds, and Changes – The product transfer, regulatory processes and capacity build-outs are key execution requirements
- Hiring and Training – Improvements to the hiring and training process will be required given any steep ramp up rates or downside adjustments
- Supply Chain and IT – There are select Supply Chain and IT related activities key to execution
Project Management – Managing transformations on such a scale requires establishment of appropriate change management, and governance mechanisms.
Effective Contingency Plan During Disruption
Reallocation of resources after prioritizing the product portfolio can mitigate the impact of a disruption to an extent. The prioritization criteria should be well-defined and must include:
- Gross Profit and Capacity Impact – Prioritize products with higher contribution to gross profit and impact to capacity (hours).
- Product Growth Potential – Prioritize products with higher growth potential and the one’s that require minimum resources to produce (ease of production).
- Flexibility and Risk Mitigation – Ensure redundancy across networks for growth products and substitutes.
- Network Management Complexity – Reduce network complexity for e.g. reduce the number of SKUs (SKU Rationalization), minimize the number of hand-offs / touch points, etc.) and ensure the focus is on managing the core business.
The Verdict
Disruptions are common for any business. While it may not necessarily be as severe as the current COVID-19 situation, it is good to plan for even smaller disruptions which can negatively impact a business. A well-defined disruption mitigation plan has the potential to not only bring the business back on track, but also deliver growth.