ML Journal April 2022

ML Journal April 2022

Fixing Broken Supply Chains

True supply chain resilience requires more than knee-jerk reactions. It requires a paradigm shift.   

Manufacturers have learned a bitter-tasting lesson: The global supply chain is highly vulnerable to prolonged disruption.

History has proven that single incidents, or so-called black swan events, can usually be absorbed without a lasting backlash. A hurricane, for example, will force cargo ships to be rerouted, and within a few weeks, normalcy returns.

A prolonged onslaught of multiple disruptive events, however, is debilitating. The current pandemic-related lockdowns, changes in consumer behavior, spikes in fuel costs, and tensions among global trading partners have uncovered deep fissures in supply networks. As a result, rethinking supply chain strategies is now a must do.

Only a Holistic Strategy Can Stop the Rippling Effects

From empty grocery shelves and sparse car dealership lots to clogged ocean ports and shortages of truck drivers and cargo pilots, evidence of the broken supply chain is all around—and deeply felt. Now, eager to patch systems and prevent further damage, enterprises are turning to technology to help fortify their supplier networks, hoping simultaneously to be more resilient, and more agile. Unfortunately, a quick bandage of new reporting tools won’t fix the underlying, systemic issues that are at the heart of today’s supply chain crises.

An entire paradigm shift – including strategy, customer alignment, inventory, product lifecycle management, and supply chain planning – is required to build a new supply chain model for the future.

“An entire paradigm shift – including strategy, customer alignment, inventory, product lifecycle management, and supply chain planning – is required to build a new supply chain model for the future.”

The need to improve supply chain resiliency is gaining in acceptance, yet nearly half of the manufacturers are still on the fence in deploying any type of solution. IDC’s FutureScape: Worldwide Supply Chain 2022 Predictions suggest that by the end of 2022, only about 50% of manufacturing supply chains will begin to see the benefits of greater supply chain resiliency.

While this is a move in the right direction, the remaining 50% of manufacturers need to take action too.

Understanding the Landscape of the New Norm

The World Economic Forum predicts uncertainty will remain high for supply chains in 2022. Most supply chain professionals agree that geo-political, natural disaster, and regulatory issues will continue to be hot topics in the new norm.  Some experts predict the volatility may become worse, pointing to rising shipping prices, spikes in fuel costs, and secondary forms of shipping, like air cargo, are now becoming backlogged too, as more and more manufactures try to forge new strategies for obtaining raw resources.

Amid this pessimism, there is some good news. “Digital mastery of supply chain technologies has been an important discussion point over the years but is now a mainstream requirement,” writes Tarek Sultan, Governor of the World Economic Forum’s Supply Chain and Transport Industry Community. “Supply chains have finally got C-suite attention and are now recognized as a critical driver for growth. The existential crisis brought on by the pandemic forced companies to shift the focus of innovation and restructuring efforts to ensuring business continuity by building resiliency and flexibility,” he adds.

Creative Thinking Helps

Other bold tactics for circumventing supply chain disruption are coming into play as companies refuse to let supply chain issues totally debilitate revenue and growth. Frustrated with the shortage of semiconductors impacting the ability to complete cars, Ford and General Motors have formed strategic agreements with chipmakers, and Tesla is going into the foundry business and making its own.

Retailers short on storage space are buying warehouses. The 25 largest retailers snapped up roughly 38 million square feet of new industrial space last year, The Wall Street Journal reported. That’s up from 18.8 million square feet acquired in 2019.

“It’s no longer enough to be familiar with just tier-one suppliers and any potential risk they may carry. According to a recent Bain survey, fewer than 15% of executives feel their current capabilities allow them to deliver traceability consistently.”

Shippers that can’t find containers are making their own, reports the Washington Post. Nearly 26 million 20-foot containers’ worth of goods are now expected to arrive in the United States this year, up 18% from a year ago, according to the National Retail Federation.

Fortifying the Supply Chain

Most manufacturing executives agree that they need to fortify their supply chain. The following seven suggestions should provide some clarification on actions to improve supply chain resiliency and protect against prolonged disruption.

  1. Prioritize business continuity and cashflow. Prior to the pandemic, few would have anticipated supply chain disruptions could be so devastating to the global economy, or that a shipping container shortage could cause a cascading domino effect spanning the globe. Now CEOs and their executive leadership teams are obligated to reexamine and prioritize business continuity strategies. Reliable financial analytics across the entire enterprise – including branches, plant assets, fleets, and inventory – are required. Disparate or siloed systems will make consolidating capital harder.
  2. Understand risks. Continuity plans should cover potential issues from employee safety and workforce accessibility to managing inventory of raw materials and the ability to deliver goods and services to customers. Communications and connectivity are two cornerstone elements to protect. Making such plans requires an integrated ERP solution for full visibility. Also, advanced analytics with artificial intelligence (AI) and machine learning (ML) built in provide valuable predictive capabilities. Such advanced tools, along with a supply chain digital twin, will help leaders explore “what if” scenarios and determine risk and potential impact, necessary for planning courses of action in the face of an emergency.
  3. Know your suppliers’ suppliers. It’s no longer enough to be familiar with just tier-one suppliers and any potential risk they may carry. Purchasing agents should have a complete picture of where and how resources originate and routes associated with each step in the progression. Less than 50% of the companies in a recent McKinsey survey say they understand the location of their tier-one suppliers and the key risks those suppliers face. Only 2% of those surveyed have visibility into the third tier and beyond. Sub tier supply visibility matters because many of today’s most pressing supply shortages, such as semiconductors, happen in these deeper supply-chain tiers. A modern digitally empowered supply chain solution helps track details multi-tier deep. A control tower which helps geo-track shipments and routes helps visualize movement of goods in real time.
  4. Traceability and accountability. Manufacturers should insist on relationships with shared information and accountability. According to a recent Bain survey, fewer than 15% of executives feel their current capabilities allow them to deliver traceability consistently. A majority of companies has started to build some traceability capabilities but struggle to integrate them or consistently create value. Resiliency is impossible unless buyers, suppliers, and other parties along a value chain are willing to share data and collaborate. Reuters report Where’s My Stuff?suggests businesses could share sensitive data with partners by creating safe rooms where joint teams can analyze data without the fear that competitive information can be accessed.
  5. Multiple suppliers or one? “Don’t put all of your eggs in one basket” is an old wives’ tale that has some parallels to today’s supply chain. A single supplier strategy provides opportunities to influence direction and receive preferential treatment. But sometimes, a single source can be disastrous if that relationship is interrupted. A more diverse and extended network of suppliers offers safety. Some experts advocate for building relationships with multiple suppliers, in various geographies. The disrupted supply chain has rekindled the interest in bringing suppliers, plants, and warehouses closer to the end consumer, investing in hometown economies. For many industry verticals this is a challenge that will play out over years with manufacturers needing to balance costs and reliability. When the supply chain planning tool is tightly integrated to the ERP and backend financials, understanding the financial impact of moving operations closer to the customer becomes easier to grasp.
  6. Throw out just-in-time delivery as the default strategy. This common lean concept has worked for decades. Unfortunately, the current disruption has proven that a just-in-time strategy for stocking the warehouse can leave manufacturers vulnerable. Safety stock that is set very low doesn’t consider the mass interruptions that can occur. Some auto makers, like Toyota, Volkswagen, Tesla, and others, are stockpiling batteries, chips and other key parts. This also ties up capital, though, and consumes warehouse space, creating other challenges. The ideal solution is yet to be determined. Manufacturers will need to evaluate each part and component for its availability, risk, and alternatives. This isn’t just a supply chain issue but is a C-level strategy issue. Like most top-level strategies, this one requires reliable analytics, easy-to-use reporting tools, and data-driven predictive insights.
  7. Back to the drawing board. In some extreme cases, manufacturers may need to look to engineering to alter designs, specifying parts which are more readily available and from multiple sources. Again, integrated software solutions make this type of strategic planning easier and more productive. Collaborative tools for communication between teams and advanced Product Lifecycle Management (PLM) solutions help manage this type of product development, tracking milestones and testing, while documenting decisions and the driving factor.

Final takeaways

The supply chain will continue to be in the spotlight as consumers, manufacturers, and suppliers continue to make compromises and adjust to disruptive times. The ideal answers may be slow to crystalize, and it’s clear that manufacturers must take action or risk being caught with stock-outs and cancelled shipments. While short term solutions may help with some immediate, dire needs, knee-jerk responses, like stockpiling, can be more detrimental than helpful. Thinking through a holistic strategy than analyzes customer retention risks, as well as the financial impact, will need to take place. C-level officers need to become engaged, helping to evaluate options, devise creative solutions, and plan long-term strategies.

The supply chain cannot be repaired overnight. Getting started is essential.  M


About the author:
Andrew Kinder
is Senior Vice President of Industry & Solution Strategy at Infor.

 

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