Jul 22, 2021
The impact of continual COVID-19 lockdowns on your supply chain
Continual, unpredictable lockdowns are slowing down or stopping supply chain processes and management of supply chains. How can you deal with the effects of lockdowns on your supply chain?
COVID-19 has been a global disruption for many businesses, industries, societies, regions, and countries and continues to be. According to Nature Asia, a publishing group, “The duration of COVID-19-related lockdown measures and the number of countries in which they are implemented have a greater impact on global supply chains than the severity of the restrictions, according to a modelling study in Nature Human Behaviour. Global supply chains are the systems for the worldwide production and distribution of goods and services. The research also suggests that gradually easing containment measures that could eradicate the disease generates smaller losses than lifting restrictions quickly and then having to reintroduce lockdown.”
As we continue to fight the coronavirus pandemic globally, inventory planners feel the adverse effects of continual, unpredictable lockdowns on their supply chains. According to McKinsey, “73% of executives said they had encountered problems in their supply base as a result of COVID-19. The immediate and most obvious impact of COVID-19 on these supply chains was that of supply. There were clear increases in demand on certain products due to consumer concern about supply.” But, what are these effects, and how can you make sure to plan better for these unexpected events?
1) The negative effects of lockdowns on our supply chains
With sudden lockdowns, governments, businesses, and consumers are all struggling to get essential products, which places a lot of strain on your supply chains as there is a sudden need to procure more products quickly.
The impact on your supply chain:
- Supply shocks: During and after implementing lockdowns, businesses find it challenging to meet consumer demand as goods are not always immediately available.
- Increased demand: Supply chains experience higher demand than usual when lockdowns occur. Think toilet paper! People are stockpiling to obey the rules of lockdowns and maintain a safe distance from other people.
- Strained supplier relationships: During lockdowns, suppliers have become more unreliable. Do you have greater visibility of your suppliers and their financial stability, sustainable practices, processes, and operations?
- A lack of global supply chain resilience: Companies are not prepared for production, supply, or demand.
- Forecasting is inaccurate: Companies can’t adapt quickly to situations and have supply chain flexibility as their demand planning is done manually.
- Increased lead times: Delays in orders, inefficient supplier management, port delays, and inaccurate forecasting are all factors contributing to longer lead times which affect business operations.
2) How can you deal with the negative impact?
- We recommend you follow these best practices to optimize your supply chain before it’s too late. Manage and optimize your inventory successfully and efficiently during uncertain times.
- Minimize stock-outs by retaining your customers and increasing sales. Make sure you stay on top of your inventory performance by setting and refining your inventory KPIs.
- Have an inventory solution in place so you can place orders at the click of a button and save time on planning, ordering, and forecasting.
Reduce excess stock by:
- Identifying your excess inventory - can you track or do you have full visibility of your inventory?
- Rationalize your product range - do you have too much in your catalog or products in your offering?
- Reduce your order cycle - do you order weekly, biweekly or monthly, and should this be changed?
- Adjust your safety stock to free up working capital - change your margins and figure out if your ordering cycle and method are working.
3) The role of safety stock
Safety stock protects your business against sudden demand surges and inaccurate trend/industry/market forecasts like global lockdowns.
According to Retail IT, “Inventory planners look at the history and behavior of a stock item to determine what its safety ‘premium‘ should be. Safety stock is there to protect you from late or part deliveries from suppliers and from underestimating your sales, so you can sleep better at night knowing your inventory is covered.”
To succeed as inventory planners in our “new normal,” it’s essential to implement processes and technology to safeguard supply chains during difficult times.
The key is implementing a solid demand planning solution to help you with your forecasting and overall inventory visibility. Our affordable, cloud-based demand planning solution will help you with reliable forecasts by factoring in seasonality and trends and creating baseline forecasts.
Connect with our inventory experts to help you identify problems and implement solutions to get the best results. Free up your working capital and start making better inventory decisions today!
* Photo by John Cameron on Unsplash
Written by The Inventory Mentor
The Inventory Mentor provides thought leadership insights and industry trends for the supply chain industry.