How to strengthen the operation: key capacities beyond the pandemic shock
In times of pandemic, we have seen supply chains severely affected by global isolation protocols, frozen logistics operations, emergency regulations, and a lot of uncertainty. In this context, it has been common to find managers and directors attending emergencies, facing the unexpected on a daily basis, and seeking to mitigate the short-term shock effect by all possible means.
Some companies, the ones most prepared, activated their contingency plans, crisis committees, command rooms, scenario management and other tools to diagnose impacts and quickly adjust their processes and operating costs. These reactions, applied with greater or lesser success, proposed containment actions with a horizon of months.
After the time of shock, with the mountain of contingency measures and innumerable lessons learned, a new question arises in the face of the new normality: how to capitalize on the lessons learned in new capabilities, so the operation is sustainable and superior in the medium and long term?
Currently, with the world speaking about inflation, changes in financial conditions, and with a scenario of recession that is not ruled out, companies make their readings of the macroeconomic context and translate it into their projections as a possible reduction in their potential income. Therefore, in a scenario of commercial retraction, cost efficiency is positioned as the best tool to minimize, or even avoid, the drop in profit margins at the end of the economic period.
However, this new strategic focus will not show results unless profound adjustments are made to the operating models in order to capture structural efficiencies throughout the value chain that allow increasing the capacity to generate income with fewer resources, with the fundamental and non-negotiable condition of not putting the value proposal to the client at risk.
Based on our experience working with companies from different industries, we would like to share some capabilities we believe are key to capturing sustainable efficiencies.
Zero-based mindset. In operations, we often maintain habits and ways of doing things “because it’s always been done this way”. These habits are accompanied by costs, that in many cases, do not generate value for the business and that, if they were thought “from scratch”, they would surely not be in the design. Applying this zero-based mindset to all elements of the supply chain, both in the budgeting and execution stages, allows us to operate with a strong discipline of cost control and use of resources. This way, it is possible to focus on what is essential for operational continuity and the prioritization of what is valued by the customer.
Flexibility. New regulations, and safety and hygiene protocols in the workplace, in addition to new trends in the digitalization of work and remote work, are aspects to incorporate into planning. One way to quickly adapt is to create alliances with strategic partners that cover these needs.
Simplicity. Many times, when faced with new needs or requirements, we respond with solutions that make the way of operating more complex. It is critical to have a constant challenge mindset regarding the complexity we are managing in our operations and to recognize when it creates value and when it doesn’t.
One source of complexity that we frequently see is the portfolio of products and services. Companies often have more products than are valued by customers, and this portfolio diversity generates a very large operational complexity. Making a detailed analysis of the real marginal contribution of each one, it is possible to evaluate its continuity and make decisions to liquidate stocks and remnants on those that are not convenient to maintain.
Agility to reach the customer. The challenge of maintaining the level of customer service in times of greater restriction in physical channels has led to a compulsive shift towards online sales, exposing the fragility of companies that are not digital natives. Difficulties were observed in effectively executing the technological capabilities, as well as the commercial and logistics capabilities, and thereby addressing the challenge of the omnichannel approach. To mitigate these difficulties, it is essential to have greater agility in developing alliances with third parties that can complement existing strengths.
New ways of reaching customers with value proposals that sacrifice some aspects, while prioritizing other more important ones, have also emerged. For example, Walmart in Chile implemented the “List box”, a box with a fixed assortment of essential grocery and cleaning products ready to be delivered to homes or picked up at stores. This enabled them to better control stock and maintain service levels.
Data intelligence. It is very difficult to provide these qualities to operations in organizations without good models and sources of information. For this, it is not necessary to implement large estimation software packages, which are expensive and inflexible. The key is to have much more clarity about the decisions we need to make and thus design agile and specific models.
One of the clearest examples of this is the commercial Forecasting process. This is the first step in the supply chain and perhaps the most affected by uncertainty in business projections. In this case, models such as nowcasting can be incorporated to include much more current data that allow us to keep the level of precision of the estimate more controlled.
The same applies to data intelligence in distribution, storage, and processes such as corrective maintenance.
Information visibility. We see the need to make decisions much more frequently, even if they are of a smaller scope. For this process to be effective and agile, it is essential that the main reference points in the chain have immediate, integrated, and transversal access to the most relevant operational information. In the planning procedures contained in the Sales & Operations Planning cycles, having visibility of sales, inventory, production and purchasing information online will allow decisions to be made on operating restrictions on a weekly basis. This fluidity makes it possible to reduce uncertainty levels by keeping inventory levels low, improving industrial productivity, and reducing supply costs.
Collaboration. These are not times to maintain unnecessary barriers between suppliers, partners and our operations, much less between internal areas of our organizations. In this sense, it is very necessary to think of new alternatives for collaboration between all the participants in the extended value chain.
This applies both to sharing planning and inventory information with suppliers, as well as to some non-strategic resources or processes, between companies in the same sector. These changes will require an effort from many parties, but they will give us the opportunity to go down the road to recovery much better prepared and will generate a key operating discipline to maintain good levels of effectiveness and efficiency that are sustainable over time. The art will be in achieving changes with speed and in knowing how to combine these capacities with current ones and getting them to work harmoniously.
Director at Tandem.