The crisis we are currently experiencing is unprecedented in its scale as well as the measures taken to fight it. Although it is essential to contain the spread of the virus, the containment measures imposed by a majority of national governments are having a severe impact on the economy.
The economy is experiencing a historic slowdown. Almost all supply chains are affected, thus many industrial sectors are severely slowing down, or worse, shutting down. Ones not directly affected by containment measures included.
Furthermore, to address the health and financial emergency, governments are injecting trillions of dollars and euros into economic channels. Here too, the measures appear indispensable. However, the macroeconomic consequences of such responses are likely to be negatively endured in the long term. This is due to the deterioration of national budget deficits and the runaway sovereign debt.
On the basis of these two observations, we can reasonably assume that the post-COVID-19 period will take place in two distinct phases:
- In the first phase, the "economic phase", companies will have to focus their efforts on reviving their production facilities.
- In the second phase, the "structural phase", companies will have to concentrate their efforts on improving their performance.
- Each of these phases is a source of financial, commercial and human risk. They therefore require clear thinking followed by preparing for all eventualities in order to stay in control of the situation, no matter how things turn out.
This period can be seen as a source of opportunities as much as it can be a source of risks. This is due to the fact that it reveals within each company, room for maneuver and at times, unexpected human and organizational competencies.
The article that I am submitting is therefore intended to be lucid about the scale of the problems that await us. But it is also intended to be resolutely constructive, as there is no problem that cannot be solved!
Economic phase: The relaunch of the production tool
The period of containment we are currently experiencing cannot be compared to a period of vacation that would see business return to normal at the end of it.
Unlike a holiday period, the unplanned partial or total stoppage of production across a large number of industries in Belgium and abroad, will have a cascading impact on supply and demand during the recovery period. This will be the case for both manufacturing and service firms.
In terms of demand, contrarily to the pre-COVID-19 situation, we will see downward fluctuations through postponements or cancellations of orders, as well as upward fluctuations particularly for products and materials which will have seen their strategic stock diminish during the crisis.
In terms of supply, we will observe disruptions in the supply chain of raw materials and intermediate components. Additionally, multiple problems related to the company's internal resources, such as the breakdown of machines or the absence of certain key people, will arise.
This will therefore heavily disrupt planning during the restart period, as companies move from dealing with problems as they arise, to dealing with an avalanche of problems all at once.
Unless a strategy is put into place to deal with this unprecedented planning situation, production will be held back and stoppages may even occur as a result of interruptions in the supply chain of raw materials and intermediate products, or because some machines will remain idle due to the lack of spare parts.
In such a scenario, delivery delays will accumulate and resources will either be over- or under-utilized, resulting in a loss of overall performance hence, an increasing strain on the company's finances.
The solution that I detail below is made up of a set of measures and techniques that aim to control the process of reviving production facilities and, by doing so, to contain the deterioration of the performance and finances.
- Finite capacity planning
The schedule within which each new order was incrementally added is no longer valid. The first task to be tackled is therefore to draw up a new operational planning strategy. The planning in question will simultaneously take into account the totality of production (ongoing and to be started), the available resources and the delivery dates of the raw materials. This schedule will also have to bear finite capacity in order to calculate realistic execution times, bearing in mind that many productions will be "on the starting line" at the same time.
- Scenario making
"He who foresees the worst will never be caught unaware." More than ever, this wisdom must guide the creation of this operational planning. Therefore creating a single schedule is not enough. This initial schedule must have the capacity to be transformed quickly and effectively, according to the multiple scenarios that will be developed. Each scenario resulting from taking into account a combination of different identifiable and quantifiable risk factors (material delays, machine breakdowns, order postponements, price variations, etc.).
- Gradual recovery
The recovery must be gradual to avoid overuse of certain critical resources in the production line (expect difficulty to obtain spare parts for some machines and that burn-outs could occur after this period of great stress). Conversely, it would be costly and counterproductive to restart all staff simultaneously while the supply chain is still erratic and bottlenecks will de facto put some staff out of work.
- Prioritization of productions
The consideration of the different scenarios coupled with a gradual recovery should lead to the prioritization of productions according to operational, financial and commercial criteria. Thus, regardless of postponing lower priority productions by several weeks or months and/or distributing productions among the different clients on the basis of weighting rules.
- Bonus for meeting deadlines
The effectiveness of the takeover phase will also depend, to a large extent, on subcontractors and suppliers. Let us encourage the latter to give us priority (see above) by granting them a bonus for meeting delivery deadlines. The use of late penalties (if force majeure cannot be invoked by the subcontractor) may remain in parallel, but it is unlikely that the penalties will compensate for the losses that delays will cause.
As the company is itself a supplier to customers who could apply penalties for late delivery. Transparent communication regarding the current production situation is therefore always preferable to making promises that are not kept. Such a failure can cause frustration and disorganization for the customer. During the takeover phase, disorganization and loss of income in the production environment will not so much be due to longer than usual lead times (because if these are communicated transparently early enough, the planning will have been re-optimized accordingly), but rather due to last-minute announced delivery delays.
Author : Immersed in the problems of industry (S&OP, IBP, Demand Planning, Production Planning & Scheduling) planning and resource allocation up to 24 hours a day, Frédéric Dufour, CEO of Planningforce, wanted to share with us some thoughts on how best to prepare for the post-COVID-19 era.
- Read the rest of this article tomorrow in AOL : Starting to think about post-COVID-19 (2) : structural phase