The NHS supply chain was tested in recent weeks (May 2020) following the outbreak of COVID-19. Can businesses learn from how the NHS supply chain managed their suppliers and logistics?
Supply chains are deeply reliant on efficient and reliable logistics, with continually available suppliers. As the NHS has found out – redesigning of supply chains to respond to a different operating model is particularly hard in the current crisis and any real innovation in the NHS supply chain is difficult given that all of the supply chain experts are essentially focused on the delivery and optimization using the Japanese supply chain methodology – Just In Time (JIT).
The NHS is the tip of the iceberg – industry needs to start the same journey the NHS has commenced.
COVID-19 has been a particularly evident disruptor and its impact both in terms of health and economics is far from played out. From the perspective of the ‘real economy’ the effects of this pandemic are likely to be far reaching and persistent. Offering both a threat and potentially an opportunity to organisations.
Industry supply chains will need to be re-designed/adapted for sustainability, reliability and responsiveness to on-going business change. The supply chain need to from ‘flexibility in the supply chain’ to ‘flexibility of the supply chain’.
Warren Buffet famously stated ‘It’s only when the tide goes out that you find out who was swimming naked’. Given that the ‘Sage of Omaha’ has just completely divested all of his significant holdings in the airline industry, one could conclude that the current situation is not so much the ‘tide going out’ as the complete absence of sea before a tsunami for the air industries. The analogy for supply chain is clear – the NHS is representative of industry and the tide is about to go out to reveal the state of industry supply chain.
The approach to supply chain implementation, largely driven from the immensely successful JIT model, has been to optimise for cost and volume flexibility. Usually this has been achieved by JIT methodologies which reduce cost by removing static stock and flex volume by change quantities as required whilst minimise the time taken to reach the end of the chain. Often ‘hiding’ long range delivery time latency with sophisticated, and delicate, timing models.
It is hard to underestimate both how successful and dominant this approach has been. This dominant approach has then been ‘digitised’ as industry best practice as major business applications such SAP and Oracle Solutions – the digitising has hard coded the business process. And, as in many human activities there are ‘dominant designs’, but within supply chains the dominance of this approach is essentially total.
To take full advantage of the hopefully fast recovery after the period of essentially world-wide lock down, organisations are going to need supply chains that can function in the presence of significant and persistent flux.
Three key aspects that need to be addressed are:
Sustainability – The degree, and sophistication, of integration within a JIT style supply chain is key to its sustained successes, but is based on relationships and modes of operation that are evolved from co-operation over many years – often decades, in some cases a century or more. It is fundamental sustaining principle in this approach that suppliers are not changed rapidly, they are chosen for their deep skill at a particular provision, and ability to work with the ultimate integrator of the supply system.
A further optimisation within this approach is to exploit co-location of suppliers to enable, or encourage, the emergence of a high skill ‘hub’. In this circumstance, a ‘lock down’ in a particular country or region can potentially completely remove the supply of a key component from the supply chain. This is not a theoretical risk, flooding in Malaysia and Thailand in 2011 removed a significant proportion of the world’s hard disk manufacturing capacity for an extended period.
Future sustainability will require the supply chain, as a whole to sustain operation throughout potentially arbitrary change in both the properties of the logistic systems which sustain it, and the suppliers that participate in it.
Reliability – Currently the general view of the impact on airlines is a seat on an aircraft for a holiday, or business trip, is going to be much harder and more expensive to obtain. And with the addition of quarantine requirements, possibly at both ends, the trip much more time consuming. Unfortunately for businesses passenger aircraft do much more than reliably transport people. As we took advantage of cheap flights, freight was taking advantage of spare hold space to be cheaply, predictably, rapidly and widely transported.
One of the drivers of the ‘low cost’ airlines charging for hold baggage was to liberate the space for sale as freight transport. Although by weight air freight is not a significant volume of UK exports, by value it is nearly half of the total. Of that 50% more than half went as hold baggage on passenger aircraft – not in specialised freight planes but as a ‘side-effect’ of mass air transport for people.
Responsiveness – Suppliers and logistic approaches need to have sensitivities to changes that may arise. Suppliers and logisitics are likely be severely impacted at short notice, ability to access key staff from other regions will be significantly reduced, and with a massively increased lead time. The key principles of supply chain design that have dominated the market for the last 70 years need to be re-assessed and approaches based on supplier flexibility and supply chain resilience may become more critical elements of supply chain design and deployment.
It is currently difficult to imagine the scale and duration of the disruption to supply chains that the sharp reduction in flights will cause. Cheap, frequent and reliable air freight has enabled incredibly ‘tight’ just in time supply chains, that have become a critical factor in almost all aspects of provision in the modern economy. It is far from clear that our default, but incredibly successful, approach to supply chain construction can survive the encounter with the disruption to a key element of its provision that has been delivered by COVID-19.
In the short term the military mantra of ‘fail to plan – plan to fail’ should be on every organisation’s corporate agenda. In this ‘quiet’ period there is a significant opportunity to plan for the emerging ‘new normal’. Whilst COVID-19 has clearly taken the tide out, it is not the only disruptive force in play, climate change and BREXIT, can and will have similar disruptive effects to supply chains.
Ask yourself three questions.
1. Is your existing supply chain operating model sustainable in the new world operating model?
2. Is your existing supply chain operating model reliable in the new world operating model?
3. Is your existing supply chain operating model responsive in the new world operating model?
If the answer to any of this is ‘no’, then, look for the next paper in this series – “Methods to Assess and Improve Supply Chains”.
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