May 06, 2020
May 06, 2020
Contributor: Tina Hu
As Chinese businesses exit the coronavirus lockdown, Western CSCOs can learn from their experiences and insights.
The Western world is just starting to come out of lockdown. COVID-19 has grounded planes, closed stores and moved most shopping to the virtual space. This unprecedented business disruption emerged out of nowhere and took the world by surprise. Chief supply chain officers (CSCOs) have to rethink their operations as they try to figure out what the “new normal” will look like as lockdowns are lifted.
For this, the Western world should be watching China carefully as it steadily reopens its economy. Over the past weeks, we have spoken to manufacturers and retailers either based in China or with significant operations in the country.
What we’ve found is that businesses have already pivoted to adapt to the changes that COVID-19 has caused along the supply chain and in consumer behavior. Western businesses that will come out of lockdown in the upcoming weeks or months can leverage those best practices to adapt more quickly to whatever their new normal looks like.
Even as economies open up, a business-as-usual environment is still months away (if not more), and it’s likely that it will never return to what it looked like before COVID-19. CSCOs need to adjust their business plans to account for potential demand shifts and uncertainty. The planning function must rise to the occasion and Chinese businesses have already started to redo and innovate.
For example, one interviewed business acknowledged that demand at the moment can change significantly and abruptly from one period to the next. That’s why its leaders work with a zero-based forecast — at least until demand starts to normalize.
Learn more: Building an Agile Supply Chain
Another best practice we see is the emerging role of the COVID-19 intelligence agent. CSCOs are transitioning their most experienced demand planners away from traditional planning operations and into this new role. This enables them to focus on gathering key indicators and insights to better inform assumptions and scenario planning. Sometimes, this role also includes managing the recovery scorecard.
A recovery scorecard is a great way to determine when operations can start to establish a new business-as-usual approach. For example, a consumer products business might determine that it will reestablish its demand plan once 90% of field agents — employees who work closely with retail customers — have returned to work and provide localized forecasts. Other indicators that might be included in the recovery scorecard are the growth rate of COVID-19 cases, consumer spending, supplier material availability or factory output.
The COVID-19 pandemic forced organizations to start operating in manners they had never imagined. CSCOs must identify which of these new ways of operating can be continued, which must be stopped and where new opportunities to create strategic value have emerged.
Read more: Key Actions for Retail CSCOs During the Coronavirus Outbreak
For example, a food and beverage manufacturer that traditionally sold the majority of its products to customers via a distributor recognized during the lockdown that this way of doing business was constraining its ability to get products to customers. Therefore, its leaders decided to skip the distributor and sell directly to retail customers to ensure that sales were not missed. The future could hold a hybrid model of direct and indirect sales.
Another example from the Chinese retail sector: This business noticed an increase in online sales during the lockdown, as many consumers could no longer shop in its physical stores. However, existing distribution and fulfillment capabilities had been designed to primarily support sales through physical locations.
The organization took the opportunity to invest in moving from a multichannel operation — with entire teams and inventories separated between the physical and online stores — toward a unified commerce approach and a single pool of inventory. With this approach, the organization ensures that it can most effectively sell to consumers whether or not this shift toward increased online sales is temporary or permanent.
Read more: Coronavirus: How to Secure Your Supply Chain
These examples are only a few of many that show the agility and creativity of organizations during this once-in-a-lifetime disruption. Some changes will be permanent, and others will be revoked when the new normal sets in. For Western businesses looking for insights on what this new normal could look like, China is definitely a good starting point.
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Tina Hu is a Senior Research Director in the Gartner Supply Chain Research group. In her research, she focuses on helping supply chain leaders improve their planning and demand management processes.
Gartner for Supply Chain leaders clients can read more in “What Western Businesses Can Learn as China Comes Out of COVID-19 Lockdown” by Tina Hu and Thomas O’Connor.
Gartner clients can visit the Gartner COVID-19 Resource Center to learn more about how to learn more about how to lead through the disruption of coronavirus.
*Note that some documents may not be available to all Gartner clients.