The unprecedented COVID-19 crisis has brought a significant disruption in the manufacturing sector since FY’2020. As a result, the global economy is going through a severe supply shock phase. In the last three months, the federal and state governments in most major economies have started relaxing the lock-down and released billions of dollars in the stimulus package to revive the manufacturing sector and control bankruptcies among the SMB segment.
A significant % of the global workforce is still operating from their home office and keeping themselves quarantined. Since April’20, the eCommerce penetration has accelerated in most parts of Western Europe and North America, and there is a significant amount of demand volatility in the market. In current circumstances, it’s challenging for the manufacturers to have a better handle on their inbound and outbound order management, and control the order lead time for their marketplace, retail, and end consumers due to persistent disruption in the downstream supply from the Tier-1 suppliers, and consistent challenges with the owned and 3PL carriers.
Currently, we are working with multiple clients in the CPG, FMCG and Technology verticals to optimize the Order Lead Time for their MTS, MTO and CTO products. The objective is to control the Fill Rate, Safety Stock Levels, Service Levels and CSAT across different product categories and customer segments for their Retail and D2C customers.
Below mentioned are some of the tactics we have deployed in the last 4 months for one of our large technology customers, and were able to meet their desired service levels for the Retail and D2C customers:
1. Demand Sensing
The client have been producing a daily statistical forecast at the item-location level for the their MTS products measured on a 7-day lag period, and aligning their available supply to an improved demand signal by leveraging our Demand Sensing model powered by Course5 Discovery. In addition, the S&OP Manager reviews the S&OP plan every week and uses the demand sensing forecast during team meetings to make mid- to long-term capacity decisions. The group reviews market deviations and makes decisions on demand shaping (an operational supply chain management (SCM) strategy where a company uses tactics such as price incentives, cost modifications and product substitutions to entice customers to purchase specific items.) based on the supply chain strategy and compares the demand sensing forecast with the mid-to-long term strategic forecasts coming from their APO (Advanced Planner and Optimizer) system. This process enables them to make optimal near-term production line schedules and near-term load-capacity decisions.
Here are some of the benefits our clients have experienced using Demand Sensing:
- A significant (>35%) reduction in forecast error at the weekly item location level
- Reduction in demand latency (the period of time to understand demand changes) from monthly to weekly; this helped their Logistics team reduce safety stocks and improve responsiveness to demand
- Resolution of past inventory problems as a result of better plant scheduling
- Reduced customer service issues
2. Increased Safety Stock Levels
CTO products usually have a lot of variability regarding their order lead times, which is generally caused by inaccuracies in the demand forecast, lower than optimal safety stock levels, challenges with Tier-1 suppliers, and longer distance between the Plants and DCs. Considering the consistent challenges with the Inbound and Outbound Logistics, and shortage of supplies from the Tier-1 suppliers, the client decided to maintain 15-20% higher Safety Stock Levels for the critical components (Processors, Flash Based Memory, SDDs, and VGA Cards) that go into CTO products. To determine the optimal safety stock levels considering the current demand volatility, we leveraged the Safety Stock Simulation in the Course5 Discovery Model Factory. This strategy caused an increase in the inventory carrying cost but avoided the service level and lost customer issues in this volatile time.
3. Increased Warehouse Capacity through Leasing
Due to consistent challenges with the Motor-Truck and Air-Cargo capacity, and the rising transportation cost for the last mile delivery, the client invested in the leased regional warehouses closer to the cities with higher demand so that, the order lead time could be controlled and the desired service levels and CSAT targets are met. To identify the additional capacity, we worked closely with the Demand & Supply Planning lead and the head of logistics & customer service to optimize the current network design, and identify new warehouse locations in the high demand cities.
4. Leveraging Retail Partners as Fulfillment Centers
As an experiment, the client also started leveraging the local retailer partners as fulfillment centers for their MTS orders placed online in select cities. So far, the results are satisfactory, and it has positively impacted customer satisfaction levels. This strategy is a wonderful opportunity for scale-up but would require a much tighter collaboration among different echelons in this integrated supply chain.
According to experts, the global trade recovery has started in the Q3’2020, and it’s happening faster than the expectations. According to Fortune, the recovery is faster than the 2008 GFC.
The Shipping volumes are already back at levels that took more than a year to reach following the collapse of Lehman Brothers, hinting at a V-shaped recovery, Germany’s Kiel institution’s President Gabriel Felbermayr said.
In the end, we are expecting that these positive signals of recovery will impact the lead time for both inbound and outbound logistics in the coming quarters, and deliver better service levels and customer satisfaction to both Retail and D2C consumers.