Industry TalkRegular Industry Development Updates, Opinions and Talking Points relating to Manufacturing, the Supply Chain and Logistics.
The three hidden drivers of 2021’s supply chain crisis
There are some ‘big-ticket’ items that have caused major issues for global supply chains this year – the pandemic, Brexit, Suez Canal blockages, to name a few. However, underpinning these headline crises, there have been subtler, more pervasive issues perpetuating the damaging effects of these ‘unforeseen’ events.
Businesses will never be able to predict the unpredictable. However, what they can do is have in place the correct processes and technologies to best deal with their impacts.
Effective supply chains, by their nature, must be resilient and adaptable. Here we reflect on three such faulty foundations, and how, without significant shifts the issues faced in 2021 may remain with us into 2022 and beyond.
1 – The scourge of static planning in the age of agility
For the last twenty years, just-in-time (JIT) has been hailed as the agile, cost-effective response of forward-thinking manufacturers keen to capitalise on fast moving supply chains. However, in the last six months it’s become clear that the traditional JIT model of predicting demand, build, ship is over.
The kind of static planning that has underpinned most supply chain models – only planning how goods will flow once or twice a year – no longer has to be the case. Supply chain managers cannot use data of the previous 12 months to make decisions about the next six months. Now, the most important decisions along the supply chain must happen at speed. This means planning in response to changing environments must occur at least monthly, if not weekly.
For example, one major fashion chain in the US used to ship everything from port to a single centralised warehouse, only to reship to store. Now, using a flexible, distributed system based on data insight, they have been able to change their supply chain so that goods at the right place at the right time ready to adjust to peaks and troughs in demand. This is done on a flexible, rolling basis, not planned months in advance.
Of course, this can only be done when supply chain leaders have the requisite visibility capabilities; access to rich data means companies can now be alerted not just to consumer demand but also to a range of supply chain delays.
As such, visibility technology is now not a ‘nice-to-have’ but an essential facet of today’s supply chain. This can mean leveraging real time data, even daily to spot a budding crisis or growing congestion. Managers can use this insight to change tack, choose a different routing or a carrier or proactively reposition inventory on the spot.
If you have the intelligence and the adaptability to put goods at the right place at the right time, you’re able to operate an evolved JIT model. With access to rich data upon which to make agile decisions, there is really no excuse for static planning in a world that never stands still.
2 – Change management beyond bricks and mortar
It’s clear that the JIT model is evolving, and that in the wake of continued uncertainty this shift cannot come too soon. Unfortunately, the reason that many organisations will suffer the supply chain hangover of 2021 well into 2022 is because executives have ignored supply chains for too long.
They’ve focused on myriad other issues that have stolen headlines, from customer expectations to sustainability, digital transformation to employee experience. What these execs have often not appreciated is that innovation in supply chain management delivers in all of these areas. It is the strategic lever that delivers across almost all objectives.
Let’s focus on a few of the sticking points.
If we think back over the last twenty years or so, the go-to solution to supply chain problems has been huge brick-and-mortar investments; bigger port infrastructure, bigger ships, more warehouse space, more store footprints. Now those infrastructure investments are a sunk cost that aren’t delivering and it’s not possible to build our way out of today’s challenges.
The impact of digital transformation has been rapidly realised in other areas – think payments or customer service. Why hasn’t the digital dial been similarly turned in supply chain management. It was only a few short years ago that digital technologies really became part of the conversation. A rapid cultural revolution is what’s now needed.
An industry which for so long operated sufficiently by using disparate spreadsheets, phone calls and even paper-based records was exposed. This has caused a digital gold rush. In the last 18 months we’ve seen the most progressive companies take iterative approaches to change supply chain strategy and culture towards technology and away from bricks and mortar, partnering with new technology companies to deploy smarter solutions quickly. In just a matter of months archaic processes were replaced with AI powered software, data driven visibility platforms and blockchain backed traceability.
Everyone knows they need digitised supply chains; they are just often stuck in a mindset that puts bricks over bytes. The rallying call for leadership right now is that change management in the supply chain is long overdue.
3 – The riddle of delivering experience differentiation alongside sustainability
With the boom in ecommerce, customer expectations are for lightning-fast delivery. As a result of this shift, executives are waking up to the fact that the supply chain is the driving force of customer experience. No matter how slick your ecommerce platform, if you can’t deliver on time that experience is shattered.
As a result of the crisis CEOs around the world have had to shine a spotlight on supply chain, which traditionally had been a back-office function, challenging their leadership teams to create supply chain differentiation as a driver of positive customer experience. They’ve seen Amazon able to deliver on its Prime promises of next, even same day and know customers expect the same from them. That means we’re seeing titles merge, with new VP’s of supply chain and customer experience emerging to capitalise on this integral relationship.
While innovation in experience is arguably a positive step, when we add in consumer demands for increased personalisation and increased transparency, huge demands are being placed on the supply chain. Not only that, but it also makes sustainability goals a lot harder to achieve. This cannot be ignored.
Here lies a dichotomy. Consumers are demanding experiences that are resource heavy, but also expecting brands to deliver on sustainability goals. Can both be achieved?
Yes, it is possible – if organisations are prepared to both work smarter. In fact, consumer interest in sustainability has the potential to ease the challenge on the supply chain. For example, Amazon’s Prime delivery day offers consumers the opportunity to have items delivered together, in one box, on one nominated day. They can make an informed choice about waiting a little longer for a delivery, knowing that it is the more sustainable option.
This is about making a strategic decision to be more transparent about the impact of consumer choices on sustainability. It means being able to offer consumers options that clearly position sustainable impact as a decision-making factor. However, it also means being able to guarantee reliability.
None of this can be achieved without the ingrained ability to measure, track and analyse environmental impact across the supply chain. Of course, this is all reliant on evolved JIT models, built on data-rich insights and agile systems that can respond to fluctuations in consumer demand alongside unpredictable events. And none of that can be achieved without a rapid shift in mindset.