Article written by Wayne Rash
eWEEK TREND ANALYSIS: The COVID-19 coronavirus has thrown the supply chains for some industries into disarray, but when you add the oil price war into the mix, the result is near chaos. A good analytics program can offer predictive help in situations like this.
All three major parts of a supply chain must be operating normally for products to be delivered in the quantity needed when they’re needed. This is especially crucial for just-in-time supply chains in which raw materials or components arrive just when they’re needed—a practice that has grown in popularity over the years and that ensures that companies don’t have to stock large inventories of supplies, which is expensive. But the lack of such inventories means that a disruption in the supply chain can create further disruptions down the line.
“We’ve seen a product mix impact,” explained David Cahn, director of global marketing at Elemica, operator of a global digital supply network for manufacturers. Cahn said he’s seeing spikes in demand specifically due to the coronavirus. “We’re seeing spikes in certain products and chemicals that are going into protective masks and equipment.”
Excess Oil Inventory Being Held Aboard Ships
But that’s only part of the problem. Cahn said that excess oil inventory is being held on ships that would otherwise be used for other types of petroleum cargo. Other excess oil products are being held on container ships that would otherwise be used for other ocean freight.
“Many of our raw material ingredients are being impacted because many of those raw materials come out of China, and they’re stuck in China,” he said. While the coronavirus impact is lessening in China, it will be awhile before suppliers get back to full capacity. Worse, because of the current trade war between the U.S. and China, some badly needed supplies, such as the cotton for nasal and throat swabs, cannot be sourced from there, disrupting that part of the supply chain.
“We’ve never seen anything like this in terms of threats to the supply chains,” said Jim Yarbrough, global intelligence program manager for the British Standards Institution. “Problems vary depending on the business. In the earlier weeks it was along the lines of which factories are open and available, mostly in China and neighboring countries.”
Then the problem became one of transportation. “All of a sudden there are long lines of trucks at borders,” Yarbrough said. “There’s so much scrutiny that lines are 4 to 5 kilometers long.”
Manufacturers May Need to Switch to Other Products
Adding to the issues are new types of cargo theft. Yarbrough said that items such as hand sanitizer and toilet paper are now hot items for criminal activity. This produces new issues for the supply chain, both in terms of lost products and in terms of extra personnel needed to protect the supply chain.
At the end of the supply chain there’s demand. Under normal circumstances, there are ways to manage demand to make the supply chain perform as it should. During a pandemic, however, demand can change unpredictably. For example, it was certainly predictable to have a huge increase in demand for medical supplies, but only after the existence of the pandemic was known. But other high-demand items, such as toilet paper, were not something that you could predict. And while demand for hand sanitizer was predictable once guidelines suggested its use, hoarding and the impact of organized crime were not.
“The fact that prices can’t adjust to the market demand is bizarre,” said Dr. Kurt Jetta, chief CPG analyst at Tabs Analytics, which is an analytics firm for the consumer packaged goods (CPG) industry. “If they could price what the market demands, there wouldn’t be shortages,” he said.
Unfortunately, raising prices can lead to complaints of price gouging, even though Jetta suggests that the demand for some items could easily handle a 50% price increase. He said that even a modest price increase could moderate demand. But he also added that another solution is to introduce new product lines.
Need to Identify Other Suppliers, Products
“Introduce new products at a premium,” Jetta suggested. “Make a whole new product at a new price.” This would work because the product hadn’t been available previously, so the new price couldn’t be considered price gouging.
Businesses can also find alternate products and suppliers. “Shortages are the signs and symptoms of a stressed supply chain,” said Alan Jacobson, chief data and analytics officer at Alteryx. He suggests using analytics to help adjust to what’s happening with the supply chain on the demand end.
“You might be able to make a different product if the facility that makes the supply might be shut down,” he suggests. This also works when your standard suppliers are overwhelmed and simply can’t provide enough of their product to meet demand. For example, if you’re trying to sell hand sanitizer, you can look for companies that have just started making it so you don’t have to depend on your traditional suppliers.
Of course, the supply chain issues caused by the COVID-19 pandemic go far beyond hand sanitizer and toilet paper. “There are many shortages in areas you might not notice, such as in an unrelated company that uses the same supplies,” Jacobson pointed out. This means that if you need to keep your supply chain moving, you need to find new sources of supply.
Seek a Broader View of Chain
To be effective at managing your supply chain, you need a broader view of what is going to happen to your supply chain in addition to a view of what’s actually happening in the present day. To accomplish that, you’ll need to take advantage of both real-time and predictive analytics. This will allow you to make the adjustment you need in time for them to be effective when you need them.
This is more work than you’ve done in the past when you simply carried on as always, but the new world of the pandemic supply chain requires new methods.
Wayne Rash, a former executive editor of eWEEK, is a longtime contributor to our publication and a frequent speaker on business, technology issues and enterprise computing.