Managing a manufacturing supply chain: how to plan for the new norm

Carl McInerney
Collaboration Solutions Manager
@CarlMcInerney

Date : 06 May 2020

The Coronavirus (COVID-19) pandemic has affected grocery and consumer goods retailing along the whole supply chain. From where and who produces goods, to how they get to shoppers and how they are marketed, its effects are ongoing. They will play out over the next 18 months and into the longer term.

We have identified three interdependent challenges manufacturers’ supply chains are currently tackling. They are:

  1. Global asset protection strategy
  2. The changing world of retail
  3. Adapting supply chains to the new norm

In this piece, I detail how we are moving from crisis management to the new norm. And I explore actions you may consider to mitigate risk and build future resilience in your supply chain.

FMCG supply chains must manage risk better

We are likely to experience frequent business interruptions due to health scares and pandemics. Even if pandemics do not occur, concern will lead people and businesses to react quickly to any suggestion of one. Manufacturers anticipate further disruption, volatility and uncertainty. They’re examining their supply chains to identify key points of risk and the impact in the short, medium and long term.

Our industry faces several headwinds as we move to the new norm. Businesses short on cash after the initial shock of COVID-19 may struggle to invest in measures to insulate against a second wave or a new disruptive event. The infrequency of high-risk, high-impact events like this pandemic can breed complacency. Our focus on short-term goals may crowd out efforts to create long-term organisational resilience.

As we move from crisis management to the new business as normal, we need to manage risk better within food and grocery supply chains.

We will need to implement measures, alongside traditional KPIs, to assess and review risk over multiple time horizons. These will cascade down from the top and influence activities across organisations. Consequently, companies are developing expert resources to facilitate strategy and action planning to prepare for the new world we operate in.

1.Global asset protection (GAP) strategy

A GAP strategy identifies, assesses and prevents potential incidents from occurring. The development and preparedness of an organisation’s GAP strategy may vary considerably based on its size, perceived risk and past experiences. Manufacturers in the FMCG industry are particularly sensitive to any potential threat to the safety and supply of produce, and consumers’ welfare.

Global in this case could be in the literal sense of worldwide. Or it could refer to the breadth of the business in geographical, functional, product and service terms.

The strategy is directed at building and maintaining a robust capability to protect tangible assets – people, products, infrastructure, information and financial assets. Protection of these leads to the protection of your organisation’s most valuable intangible asset – your image and reputation.

Even with the very best asset protection strategies however, incidents will happen. Your system must move quickly and effectively to prevent or reduce their impact on your business. It must fully use the resources of your incident management and crisis resolution (IMCR) system.

Now would also be a timely opportunity to overhaul the protocols and robustness of your IMCR system, based on the learnings from the COVID-19 outbreak.

What you can do to tackle this challenge

  1. Reformulate your GAP strategy: asset protection is a key management activity along with asset creation, provision and promotion. All managers are responsible for managing assets and accountable for their effective protection. The GAP strategy is directed at building and enhancing the capability of managers throughout your business
  2. Develop an asset protection process: this is a cyclical process with each area of your business system focusing on different activities but contributing to each part of the process. You can view the process as: formulate and provide strategy; integrate and apply strategy; validate and assess capability; recognise and report threat; manage and resolve threat; incorporate learnings
  3. Formulate and provide strategies: it is generally the role of the central senior management team to formulate and provide strategies for asset protection. The business units or functions apply those strategies to your business’s operating environment, management structure and processes
  4. Validate and assess capability: once you have implemented the appropriate strategies, the central team will validate, assess and confirm their capability. They generally do this by exercising components of the asset protection program and helping the business unit refine its processes and procedures
  5. Recognise and report threats: a key outcome is that a business unit or function should have an enhanced ability to recognise and report threats. It should be able to use appropriate resources and expertise, internally and externally, to manage and resolve these threats. It’s everyone’s responsibility to ensure that lessons learnt are documented and incorporated into future management practices
  6. Overhaul your IMCR system: any IMCR strategy is based on preventing incidents from occurring by establishing and maintaining robust asset protection capabilities throughout the business. This includes continuously monitoring your business environment for indications of impending incidents and acting to prevent them. The aim is to protect your company’s most valuable assets: image and reputation

2.The changing world of retail

Coronavirus will lead to a greater concentration of the retail market. The strongest will thrive in the short to medium term, with all retailers focusing more on efficiency. In the new post-pandemic world, there are likely to be fewer retailers. Channel shifts will accelerate, while retailers will maintain parts of the initiatives implemented during the pandemic.

With online grocery penetration accelerating, retailers will look for innovation. They will need help shifting from apps that optimise homeworking, to platforms that support purchasing and distribution of goods.

Agile and flexible store formats will emerge. These will require further digitisation of processes and automation to mitigate a similarly disruptive event for our industry’s workforce. Retailers will increase and improve their use of ERP technology, like SAP, to collaborate and communicate internally and with suppliers. This will provide far more transparency on areas like EPOS, demand planning and stockholding.

Uncertainty and risk management will lead to the exploration of alternate routes to market and lines of supply in anticipation of a second wave of the pandemic.

What you must consider to tackle this challenge

  1. Increasing market consolidation: food retail markets in developed countries will experience increased levels of concentration, enabling larger companies to continue gaining scale. Alliances and buying groups will globalise, helping retailers to operate more efficiently and purchase key lines in ever-larger volumes. These lines will be more focused given range optimisation. Retailers will look to align with others to share the burden of differing operational challenges. This will see them work on channel development, IT, supply chain and buying.
  2. Prioritising operational efficiency: the drive to deliver operational savings will increase. This comes from a need to reduce prices to meet shoppers’ heightened demand for value, stronger competition from online, and crisis-preparedness costs. The challenge of managing a larger online business, which impacts margins for most retailers, creates an immediate priority to address.

    Retailers will develop hybrid stores that serve both in-store customers and act as micro-fulfilment centres for home delivery and click-and-collect orders. They will reorganise store teams to make them more cross-functional, and they will accelerate the drive for automating store processes.
  3. Agile and flexible store formats: the physical store will become more agile and flexible to accommodate more extreme trading cycles. Retailers will need to find more inventive solutions in-store to provide safe and reliable shopping environments. Range rationalisation and bulk floor stacks have been used to improve product availability and reduce time spent in-store.

    Retailers will flex space in-store to accommodate high-demand categories and operational needs. They will use stores better to increase capacity for online orders. Digital initiatives like in-store apps, cashless payment and the use of robotics will accelerate.
  4. Elevated online grocery penetration: online grocery retail remains at an elevated penetration relative to pre-crisis levels. New shoppers using online home delivery will continue to use the channel when social distancing ends.

    Operations are struggling to keep up with demand and retailers are redeploying staff, hiring new pickers and drivers, rolling out click and collect, and partnering with last-mile providers. They are seeking to reduce costs e.g. rationalising ranges in low-engagement categories and investing in efficiency e.g. micro-fulfilment centres (MFCs). Mergers and acquisitions e.g. meal kits, D2Cs, logistics, last-mile providers are likely to emerge.

3.Adapting supply chains to the new norm

COVID-19 represents a period of extended crisis with a requirement for sustained resilience. The new rhythm of communication, problem solving, and decision making is challenging. Senior leadership teams must engage at a deeper level of detail: technically, operationally and emotionally. This will continue to be essential in aligning objectives and resources to ensure collaboration across teams.

Product availability, whilst certainly a main priority, will be one of many concerns requiring hour-by-hour attention from the senior leadership team across multiple functions. Understanding the tensions between sales demand and operational capacity, and creating effective decision-making and communication mechanisms becomes more critical.

Moving to the new norm needs to recognise that flexibility and different thinking are required, particularly across functions. Redeployment of resources and cross-functional working must be extended to incorporate insight from your organisation’s collective knowledge and experience. Problem solving and decision-making skills become vital. Practitioners with experience in facilitating solutions should be identified and allocated to hotspots.

What you can do to tackle this challenge

  1. Maintain business agility: recognise the need to maintain flexibility and plan for a variety of post-pandemic scenarios ranging from fast recovery to more prolonged economic slowdown. Your company will undoubtedly have cost control measures in place, challenging operating expenses and avoiding spend on non-essential activities. That said, capital planning and investment in the right infrastructure and resources at the right time and the right place become critical to maintain and develop resilience and competitiveness
  2. Consider production and sourcing: globalisation may be reversed driving a stronger focus on localised production and sourcing. The impact will be felt initially on food and beverage products, where output could be hoarded by producing countries. Given the challenges around keeping supply chains open, products made from components from several countries could be impacted, leading to some reshoring of production
  3. Refocus sales and marketing: cost control will also apply to your marketing and trade spend. You will have to adjust your budgets from consumer and trade promotions towards digital. But at the same time, recognising that traditional above-the-line and shopper marketing has limited effectiveness in the current trading environment. In planning for the economic downturn, commercial teams will prepare for a stronger consumer focus on affordability with a continued emphasis on revenue growth management
  4. Adapt category management strategy: teams will battle to maintain brand visibility and improve availability in retail stores and online. Adapting to this new world, including digitisation, will bring significant challenges to ranging, space, promotions and pricing. Pack formats, including use of multi-packs, are likely to shift. They will include types that are relevant for online sales whilst providing alternatives for foodservice customers
  5. Ensure product supply: securing adequate inventory in key channels, prioritising core brands and pack formats, simplifying supply chains and eliminating the long tail of products will be essential. New product development will be required for the changing retail and shopper landscape. You should focus innovation pipelines on larger, scalable solutions for the current trading environment
  6. Redefine customer collaboration: you will need to redefine relationships with retailers to adjust for the reality of the new norm. You should realign supply chain characteristics, product range, communication routines and operating practices to optimise resources and build a new reliability standard. Investment in ecommerce will intensify to support retailers and develop business-to-consumer digital models to capture demand for at-home consumption.

    The last-mile challenge faced by retailers will intensify, requiring ambitious retail ready packaging (RRP) solutions. New shopping formats are also emerging such as remote click-and-collect hubs. These need investment in pooled load carrying devices where security, product safety and temperature control are paramount.

Moving from crisis management needs greater collaboration

As we move to the new business as normal, we need to better manage risk within food and grocery supply chains. Business and strategy planning must continue. The best strategies will still be those you create by involving others to ensure diversity of thought, conversation, challenge and collaboration. The strategies you develop now should be as strong, if not stronger, than ever.

IGD Solutions can help you plan for the new normal

Our IGD Solutions team are experts in remote facilitation and use a range of agile techniques. So, we can still help you plan for a post-pandemic world although it’s difficult to engage in person right now.

Find out how we can address your strategic questions and help you create robust post-COVID-19 plans.

Find out how we can address your strategic questions and help you create robust post-COVID-19 plans.

Our team's approach is flexible to suit your needs, budget and business culture. We ensure that all programmes focus not only on delivery, but also on engaging, embedding and evaluating, every step of the way.