Recently, FourKites’ CEO Matt Elenjickal joined Michael Watson of Opex Analytics, Ted Stank of the Global Supply Chain Institute and Helen Atkinson of Supply Chain Brain to talk about how going back to basic supply chain principles like the bullwhip effect can help supply chain leaders overcome the challenges and reverberations caused by COVID-19.
A quick review of the bullwhip effect: In essence, it’s the idea that just as a bullwhip amplifies a simple flick of the wrist into an Indiana Jones-level sonic crack, a 5% change in demand at one end of the supply chain can cause up to a 40% disruption in downstream operations. As Ted put it during the webinar, in an era when we’re seeing upwards of 60% shifts in demand, basic principles like this have never been more relevant.
As a recent article in the Wall Street Journal reported, demand for essential goods has gone through the roof, with hardware supplier Do it Best reporting that they’ve sold as much as 40 years’ worth of hand sanitizer in the last 10 weeks alone. How can you deal with that kind of variability in your supply chain? First, by recognizing that the game has changed; a new era of supply chain challenges requires new strategies and approaches to ensure success. And second, by finding better ways to adapt your business, and more accurate ways to interpret and act upon the information at your disposal.
All Bets Are Off
If there’s one thing that was made abundantly clear during our webinar, it’s that supply chain planning has fundamentally changed from what it once was. You can no longer just rely on your past experience, your gut instinct or even what other companies are doing. The challenges and impacts we’ve seen our customers facing over the past several months have shifted dramatically by industry, geography, carrier base and more. Here are a few examples:
Capacity Shifts Across Industries: We’re seeing lots of empty warehouses in the automotive and manufacturing industries. Since many of these sectors rely on parts and large shipments from overseas, they’re vulnerable to disruptions in maritime freight, such as the disproportionate wait times FourKites has measured at ports throughout the world via our free, publicly-available Network Congestion Map.
Geographical Implications: Due to the uneven spread of the virus and its often disproportionate impact on individual regions, we’re seeing supply chain delays proliferating in certain areas while others remain largely unscathed. For example, traffic patterns, load volumes and dwell times have varied drastically by region, and are subject to change quickly over time. Take a look at our new Regional Insights tool to get a clearer picture of where they are today.
Carrier Disparities: Different-sized carriers are holding up differently during the global crisis. As was mentioned during the webinar, even the government’s emergency relaxation on hours of service requirements has been a mixed bag. We’ve noticed that larger carriers are particularly reluctant to make major operational changes in their handling of hours of service, while many smaller carriers and owner-operators have been quick to jump on the opportunity for broader operating hours.
To manage such drastic changes occurring over so many different variables, we need to start leveraging the data at our disposal in ways that allow us to go beyond our gut instinct, and make strong, well-reasoned decisions at a moment’s notice.
Somewhat ironically, the supply chains that have been doing the best job of running lean, efficient operations during this pandemic are often those that have been hit hardest by this new set of challenges. Because many shippers – especially those dealing in high-value commodity items – operate on-demand planning cycles of three months or more, the massive shifts in consumer demand brought on by COVID-19 have been devastating to their ability to ensure that they’re filling shelves with an appropriate amount of product.
Does this mean that shippers should react by flooding their operations with excess inventory as soon as the opportunity arises? Absolutely not. What it does mean is that big companies with large, sprawling supply chains need to find ways of becoming more nimble, despite their size. The first step in achieving this is simply doing a better job of mapping out your supply chain in order to build an accurate and detailed picture of where your freight is at any given time. That way, when consumer behavior starts to diverge from projections, you’re in a better position to understand where the problems are arising, what kinds of resources are in position to alleviate the pressure, and ultimately respond effectively.
If you’re going to make a dent in the challenges facing supply chains today, you need to do so in a way that reflects a clear, up-to-date understanding of your supply chains. To do that, you need better visibility.
We’re starting to see volume ticking up in the US and beyond, as the global economy appears to be stirring back to life. Interestingly, it’s doing so while dwell times continue to decrease, pointing to the emphasis companies have placed on their site-level loading and unloading processes. We’ve shown in the past that comprehensive and collaborative supply chain data can have huge impacts on reducing dwell times, which then goes on to create an even greater impact on your supply chain as a whole — a reverse bullwhip, if you will.
When are things going to return to some semblance of normalcy? Only time (coupled with accurate data) will tell. Some things will revert back to the way they always were, while other aspects of our world have just as surely changed forever. The role of e-commerce, for example, is likely to retain at least some of the increased market share it’s gained from consumers trapped at home, unable to shop at traditional brick-and-mortar retail outlets. Shockwaves, both major and minor, are likely to stay with us for quite some time, even after we’ve seen businesses have reopened. To survive and thrive in this continued era of uncertainty, we’ll need to surround ourselves with good data, collaborative partnerships and innovative colleagues who can help us find unprecedented solutions to these unprecedented challenges.
As Matt mentioned multiple times during the hour-long session: Supply chain is a team sport. In a world that’s only becoming more crowded and complex, the only ones who will succeed are those who succeed together.