What does my post-covid supply chain look like?

The ‘green shoots’ of lockdown release are beginning to be seen in mainland Europe, and while we in the UK are not at the point of determining ‘when’ the moment is that measures will be relaxed, there is a growing sense that it will happen in the coming weeks. Across all sectors of the economy, businesses will have to assess what their business looks like in a post-lockdown world, and what will need to change.

Our shared reality is that, economically, we are looking towards tough times. Some sectors are likely to glide through the coming months while others will be in full scale recession. However, my view is that for the majority of sectors, supply chain leaders will be being asked to identify opportunities to reduce their cost base.

In a future world of uncertainty, flexibility becomes imperative, both for human resources and infrastructure resources (warehouses and fleet). The top priority – and most proactive step – must therefore be to undertake a Service Based Budgeting (SBB) review of your supply chain.

SBB ensures that Activity, Service and Cost are fully aligned. It ensures that:

• The whole business is clear on the services provided by the supply chain function (no grey areas)
• Services are linked to their costs
• Each service is reviewed for ways that the service can be delivered at a lower cost
• Services are prioritised by importance
• The wider business is clear on how cost reduction will impact service.

Each service is categorised in the SBB process to either:

• Survival. Is there no choice in undertaking this service?  If so, commit to it.
• Partial. The business could survive if this service were stopped, but there would be issues.
• As-Is. All efforts should be focused on re-engineering these activities where possible.
• Improvement. New services that will potentially enhance the business operation.

Where this approach differs from other cost reduction activities is that it does not only look with a view to stop ‘improvement activities’, but across all services that are not ‘Survival’. Reviewing what can be done to deliver cost reduction and what the associated impact on service would be.

What does the process look like?

Take a very simple example of the activities of a depot:

Service	Cost (£m)	Headcount
Delivery to Major DCs	6.8	82
Picking Full Pallets	4.1	35
Picking Part Pallets	4.2	58
Stock counting	0.5	6
Performance Reporting	0.7	10
Daily account liaison	1.3	12
Transport contractor liaison	0.4	18
In-bound unloading	2.3	10
Returns Processing	0.8	10
Recruitment	0.2	2
Depot Management	0.6	2
Shift Management	1.1	6
Inter-depot trunking	1.1	20

For each service, we need to allocate one of the four service types:

Service	Cost (£m)	Headcount
Delivery to Major DCs	6.8	82	Survival
Picking Full Pallets	4.1	35	Survival
Picking Part Pallets	4.2	58	Partial
Stock counting	0.5	6	As-Is
Performance Reporting	0.7	10	As-Is
Daily account liaison	1.3	12	Partial
Transport contractor liaison	0.4	18	As-Is
In-bound unloading	2.3	10	Survival
Returns Processing	0.8	10	Partial
Recruitment	0.2	2	As-Is
Depot Management	0.6	2	As-Is
Shift Management	1.1	6	Survival
Inter-depot trunking	1.1	20	Partial
Implement new system	4.5	5	Improved

Then sort based on the service type, and calculate the total cost for each service category:

Service	Cost (£m)	Headcount
Delivery to Major DCs	6.8	82	Survival	Survival £14.3m
Picking Full Pallets	4.1	35	Survival
In-bound unloading	2.3	10	Survival
Shift Management	1.1	6	Survival
Picking Part Pallets	4.2	58	Partial	Partial £7.4m
Daily account liaison	1.3	12	Partial
Returns Processing	0.8	10	Partial
Inter-depot trunking	1.1	20	Partial
Stock counting	0.5	6	As-Is	As-is £2.4m
Performance Reporting	0.7	10	As-Is
Transport contractor liaison	0.4	18	As-Is
Recruitment	0.2	2	As-Is
Depot Management	0.6	2	As-Is
Implement new system	4.5	5	Improved	Improved £4.5m

This summary gives a supply chain leader a view of the scope of opportunities to deliver savings.

It sets out the ‘immovable’ services of the operation – Survival @ £14.3m – that simply have to be done, and the prime decisions on improvement activities – @ £4.5m – when do they envisage the savings to be realised and can they afford to continue development in the short-term?  It also sets out the reality that if significant savings are required (say, £3m), then enhancing the ‘As-Is’ @ £2.4m total will never get the required results, the only way to deliver this would be to stop offering partial services.

In summary

Times are likely to be tough for many supply chain functions over the coming weeks and months.  By applying SBB modelling, function leaders can be on the front foot when talking about cost saving opportunities, with the realities of the options available easily set out.