Jun

Phew, salons and barbershops are finally open… I bet we have all been longing for a new haircut or fresh manicure

It has been approximately three months since our country went into lockdown. It has indeed been an extraordinary time. With a panicky start when a lot of people began hoarding supplies. After that, a period of accustoming and acceptance followed and more recently unrest is flaming up again. We all want to move on. Luckily, since June 1^st  we are allowed a bit more freedoms, like visiting the hairdresser to get rid of our Corona-hairstyle.

Many companies showed a greater adaptability. Within no-time, production facilities were adjusted and accelerated, and inventories were reinforced to higher levels than is normally the case. Many good measures, without having any insight what the ‘new normal’ is going to be.

Companies gain insight into business impact

Now some time has passed and we might not know everything yet, but much more. After a tour of our clients and relations, we found that the business impact appears to be severe, but at the same time very different between industries. An impression:

Among Original Equipment Manufacturers (OEM’s), we see strong dissimilar situations. For some, the entire demand has collapsed, for example in the quarry and construction industries. However, the effects of governmental intervention are evident in many industries where we have seen the Relief Fund being offered to help overcome challenges created by this health crisis.

Compared to other industries, OEM’s are relatively well off. Especially so in the high-tech sectors. Nevertheless, there are large differences between countries and even machines. Some companies are hoarding machines, worth tens of millions of Rands, while others have completely stopped all spending.

We see Asset Owners are getting creative with maintenance now that assets are used less or not at all. They are using this time to perform larger maintenance tasks and modifications. Of course, you can only do so for a limited amount of time. You want to be ready when demand picks up again. It seems that most Asset Owners seem to gamble on a stable operation this September. This means: no production at the old level yet, but at a level where companies have the potential to be profitable again. Similar expectations are shared by OEM’s.

Adjustments to spares supply chain strategies need to be tailor-made

What is the impact on the spares supply chain? The annoying answer is “it depends”. For the previously mentioned Asset Owners, we see peak demands for existing parts and an increase in the introduction of new parts. Undoubtably driven by the expediting of large maintenance tasks and modifications.

At OEM’s we see – as mentioned – large differences between countries and machines. This requires quick adjustments in the supply chain in terms of inventories, inventory locations, and the routing of material flows. Therefore, we know globally how business is going to develop. Nevertheless, adjusting the supply chain in these disrupting circumstances is not straightforward.

A difficult point is, for example, on which data and facts should we base our decision making? To get technical for a minute: many forecasting and inventory systems use transactional data as a basis for their calculations. This is justified in a steady state situation, but how representative is the data gathered between March and June? Simply substituting that data with data from earlier months is also inadequate. However, we find that it is still possible to find representative data, although it requires a bit of research. An example is to recognize and separate recurring demand and incidental demand, that is for example caused by earlier large maintenance operations.

Back to the behavioral change of our clients and relations. Logically, suppliers are confronted with totally different orders from their customers, with which they are currently struggling. Or even worse: we see that a lot of existing contracts with suppliers are being renegotiated as the current disruptions are considered a ‘force majeure’. All completely understandable, but is this not the perfect opportunity to enter contracts that are based on cooperation? Suppliers are currently charging substantial margins on spare parts and customers try to diversify their supplier portfolio as much as possible. As a result, nobody in the supply chain is truly happy. Perhaps it is time for slightly less margins for the suppliers and more loyalty from the customers?

Besides these, there are a lot of other factors that influence the required changes in spares supply chain strategies, all strongly company dependent.

Keen on a virtual coffee?

We can look forward to that and anticipate a good future. Despite all the misery, it is a challenging (and fun) job for supply chain experts to develop tailored supply chain strategies in these times.

We like to engage with our fellow professionals and simply love to pick our brains on complex supply chain scenarios. So, if you are interested to discuss your issues with one of our experts, you are very welcome to contact us at info@gordian.nl.

Good luck!