COVID-19: “Hard work to keep supply chains running”

Different companies’ supply chains have been affected by the COVID-19 pandemic in different ways. Grocery retailer Auchan mainly felt the impact in the inbound supply chain, while white goods manufacturer Haier struggled to gain demand visibility. Both companies spoke openly about their challenges during a webinar in conjunction with software vendor Tesisquare. “We now have more shared goals in our supply chain than before,” concluded Sidney Pinzani, Supply Chain Director at Haier Europe.

By Marcel te Lindert

French grocery chain Auchan has 48 stores in Romania, ranging from small convenience stores to huge hypermarkets. Franck Descamps is responsible for the retailer’s IT and logistics activities there: “From mid-March onwards, we saw a significant increase in the demand for food products, including pasta and flour. We were almost as busy that month as we would normally be in December. The result was a classic example of the bullwhip effect. Volumes started to stabilize again around mid-April.”

Auchan had to pull out all the stops to meet the increased demand for pasta and flour, since the disruption affected the entire supply chain. “It’s not simply a matter of ‘plug and play’. It takes time to scale up production and meet the growing demand. The product shortages continued for some time. Simultaneously, there has been a huge rise in online sales. We already had an e-commerce roadmap for Romania, but we’re now having to accelerate its implementation,” Descamps added.

Drop in demand

Haier is a white goods manufacturer from China that significantly strengthened its physical network in Europe at the beginning of last year with the acquisition of the Italian brand Candy. There are now a total of six Haier factories in Europe, each specializing in one product line. Two more factories – in Romania and Turkey – will be added next year. Sidney Pinzani of Haier Europe: “For us, the crisis started in January with the Chinese lockdown. That caused production problems in China and distribution problems to Europe. Just as the supply from China was improving again at the end of February, the virus broke out in Europe and we saw a drop in demand.”

Pinzani had to reduce the supply flow from China in order to balance supply and demand, which took two or three months. “Then in June we suddenly saw the demand rise very steeply again – so steeply that we’re still struggling to keep up with it to this day. The upstream supply chain impact is significant and extends as far as the tier one and tier two suppliers. It’s hard work to keep the supply chain running smoothly.”

Out of sync

Tesisquare provides a range of cloud-based solutions, including for supply chain control towers. The Auchan and Haier examples are not unusual, according to Business Unit Manager Sebastien Morillon: “We have customers in various sectors. Customers in the fashion and automotive sectors suffered a substantial drop in demand, while the food and healthcare industries saw a huge increase in volumes. Companies in those industries had great difficulty in meeting the unexpected rise in demand.”

In the spring, supply chain synchronization was virtually impossible; companies were unable to align supply and demand. “To further complicate the situation, there were substantial regional differences. In Italy, for example, some regions were in full lockdown and demand was almost non-existent, while other regions were much less severely impacted.”

The visibility bottleneck

One particularly big challenge was visibility, explained Morillon: “First of all, there was a shortage of staff, such as planners. In addition, a lack of information about the operational situation was compounded by a lack of communication between the various supply chain partners. We put a lot of time and effort into digitizing and automating communication processes.”

Research by Supply Chain Media into the impact of the pandemic shows that two of the top five biggest bottlenecks are linked to visibility: a lack of demand-side visibility is ranked second, and a lack of visibility regarding supplier capacity is in fifth place. At Auchan, gaining inbound supply chain visibility was particularly challenging. “We saw a huge increase in volumes, but also had capacity problems due to employees who were off sick. We had to take extra measures to handle the growing volumes of incoming goods,” said Descamps.

New factor: legislation

At Haier, inbound visibility wasn’t the major issue: “We were able to establish the capacity of our most crucial tier one and tier two suppliers fairly easily, so we soon had a clear picture of the state of play at suppliers. The outbound situation was a lot more complicated. We have good relationships with our most important customers and normally have good demand visibility. But this crisis presented us with another new factor: legislation at country level. Customers couldn’t give us a reliable forecast of the demand because the key decisions were being made elsewhere.”

Fortunately, Haier succeeded in intensifying the collaboration with its key customers and they worked together to find the best response to governmental measures. Pinzani: “We were pretty much all in the same boat. We now have more shared goals than before. It’s in our mutual interest to ensure that the right products are available in the right places. We’re now more aware of that than ever.”