The basic tenets of running efficient operations have never been more evident to the business owners than the last 45 days of Covid-19 across the world. The fixed costs, under utilized assets and resources have stared squarely in the face and costs hurting. As the economy will limp back to normalcy these troubles will sure to continue for sometime.
“U” or “W” shaped recovery more likely than a “V” shaped one.
Demand will take time to recover – The impact of the economic shutdown is yet to be established. It will take sometime for the companies to establish the demand recovery and hence the uncertainty in the environment will continue. Though once the clarity comes in the economy should rush to normalcy.
Broken international supply chains will get re-defined not only re-established – Risk mitigation will play a much bigger part in the decision making and defining the supply chain strategy. Different countries have taken up varied approaches in response to Covid-19. These will reach normal operations at different points of time. Also companies would want to spread their international supply bases and / or localize a larger part of the sourcing base. So the transition is here to stay.
Political environment will play a bigger role in policy definition – Country policies will be influenced by international politics to a greater extent than it used to be. Pure economics might not be sole deciding criteria for the companies or countries.
What are the decision points for the companies today :-
1. How to pace the ramp up? – Uncertainty in demand and lack of resources will make the companies decisions to get back to normal operations a difficult one. Companies will have to learn live with the Covid-19 environment and run operations with-in those constraints. It will not be a “Covid-19 free world” for the next few months if not years. Operational areas and processes will have to be re-designed before you run the operations.
2. What kind of resources to commit to? – Any kind of fixed costs are going to be difficult to commit to. So, companies with high fixed commitments with take more time to adjust to the modified demand conditions.
3. Stay ahead or follow the demand curve? – Higher uncertainty means more companies will choose to stay behind the demand curve.
So the Mantra could be Stay lean, Go slow and Learn and establish the tenets of operations before you commit.
1. Flexibility/ Focus on the Core Business – Not just a concept. Everyone has been caught in the middle of this unprecedented scenario. Not many would be prepared and of course none anticipated. Now the companies will plan for Black swan events more diligently into their operations and pick and choose building assets and competencies.
2. Asset Utilizations and Importance of Liquidity – Can’t build buffers. One of the banes of the operational team has been to build buffers. As a strategy the companies would be forced to look at commitments more critically.
3. Harness Technology – The companies will view this as a necessity than an option. There are a lot of options for converting manual decision making into systemic in the logistics space. The technological possibilities are much more than currently utilized. Though it will be a challenge to take this to the large mass of the service consumers. The 3PL companies will have to solve that part of the problem and take it to market.
The industry verticals and support sector have got challenging times ahead and a lot of repair work for the short run and fresh thinking is going to happen. Let us hope for the best and keep ourselves motivated.