What do you need to help you build a more resilient supply chain?

By

Glenn Steinberg

免费黄色大片Global and 免费黄色大片Americas Supply Chain Leader

Helping companies transform, create value and optimize business performance. Thirsty for knowledge. Ski enthusiast. Husband and father of two Michigan Wolverines.

4 minute read 27 May 2020
Related topics COVID-19 Supply chain

COVID-19 has revealed major weaknesses in traditional supply chains. Is it time for a new model, focused on resilience and fueled by data?

This article is part of a series about COVID-19 enterprise resilience.

Traditionally, supply chains have been tuned for cost and speed. This approach works when there are few interruptions in the system. However, COVID-19 and the accompanying global lockdowns have seriously disrupted supply chains across the globe. Companies must elevate supply chain resilience to survive.

Adapting operations

One of the key challenges for supply chain leaders during this crisis has been the erratic demand for goods. For example, demand for clothing has slipped, while demand for cleaning supplies has surged.

With traditional modeling less useful to predict such unusual spikes and slumps, businesses must quickly learn how to discern new demand signals and forecast accordingly to avoid overstocks and stockouts. Visibility across the supply chain is critical to making decisions around how to restart lines, prioritize products and manage relationships with suppliers. Companies tend to focus on their own operations, and potentially risks with tier one suppliers. This is no longer enough.

The ongoing volatility of supply, demand and financial markets also makes it even more important to optimize the cost performance of supply chains, which typically represent about 70% of a company’s costs. The challenge will be embedding new capabilities that enable flexibility while keeping an eye on cost efficiency. Three actions can help:

1. Improve your supply chain planning function to better forecast supply and demand

Erratic demand signals are likely to persist for some time. Adapting forecasts will require companies to develop a newly integrated digital planning capability that includes strategic, tactical and operational planning horizons. Forecasting should also consider input from a wide range of internal sources, including the C-suite, as well as those in sourcing, planning and fulfillment, and external sources such as suppliers and customers.

Companies will also need to carefully monitor market and economic indicators as well as other external data sources, such as financial and commodity indexes and government databases. Social media feeds can offer rich “ahead-of-the-curve” insights into the demand picture.

Of course, companies will need to have trust in the data they use for this planning. Ensuring internal data is always accurate and up-to-date may require extra attention to data management and investment in new technology, such as digital twins, sensors and control towers.

COVID-19 impact

6%

of companies are very confident in their systems and capabilities for end-to-end supply chain visibility, including cross-border trade. (Source: EY.com webcast poll, “Responding to COVID-19: What’s next for supply chains,” April 2020.)

2. Collaborate with internal stakeholders, suppliers and customers for better visibility

COVID-19 and other significant disruptions have revealed the interconnectedness of supply chains – one decision can affect many others. Companies will need to invest in trade analytics and supply chain intelligence tools to improve visibility from end to end.

Control towers that leverage Artificial Intelligence (AI) and machine learning can help drive collaboration across the supply chain by identifying potential disruptions early, and allowing for supply chain resources to come together to respond. A digital twin, or virtual model of the physical supply chain, makes use of connected data streams from connected devices to help supply chain leaders make real-time decisions and design what-if scenarios.

3. Improve your data foundation to drive sustainable cost reduction

Cost reduction will remain a priority in a low-growth environment, and it’s important for companies to target those areas that will yield the biggest benefits. Data and analytics are essential for understanding baselines in operational performance, conducting simulations, and collaborating across the business and with third-party partners. Data can be used to drill into areas of cost takeout opportunity. Building out an analytics function, with a foundation of trusted data, is core to enabling these capabilities.

Building resilience

Enterprises are relatively used to dealing with disruption, but most were unprepared for the sheer size and scale inflicted by COVID-19. Global lockdowns have altered demand in ways no one could have predicted, disrupted supply networks and created economic hardship not seen for generations. Most supply chain leaders have been taught to strive for visibility with tier one suppliers, but issues could be further down the chain. Traditional global supply chain structures are not equipped to effectively cope with these increasing disruptions.

Even as the world begins to move towards planning for recovery, uncertainty is likely to remain part of life for the foreseeable future. Building supply chains able to withstand this volatility is critical. Three actions can help:

1. Transition your supply chain to a networked ecosystem

Think beyond your four walls to how you can better collaborate and innovate with your suppliers. The next-gen supply chain model is a networked ecosystem – suppliers, partners, manufacturers, distributors and retailers will all have access to relevant cloud-based data to make the best decisions based on real-time signals.

2. Build out your supply chain visibility to predict situations and respond quickly

Based on an improved supply chain resilience strategy, invest in key supply chain capabilities, such as: 

  • Visibility and monitoring 
  • Adoption of alternative bill of materials or different ways to make a product
  • Alternative supplier sourcing strategies
  • Embedded network flexibility – either through owning inhouse or outsourcing manufacturing capabilities
  • Standardized planning processes in shared service centers to flex where work is performed
  • Technologies such as AI/analytics, control towers and digital twins
  • Systems to identify environmental risks and supplier sustainability compliance
3. Develop an agile crisis management framework to mitigate future risks and disruptions

COVID-19 has shown us that crises seldom unfold in a predictable manner. Developing an agile crisis management framework for major events will allow companies to respond quickly to disruption where traditional and predefined plans are inadequate. To be effective, these frameworks should include governance procedures, a desired operating model and standard ways of working.

As supply chain leaders help their organizations transition into the next phase of this pandemic, they’ll need to think beyond its immediate implications and plan for wider transformation, with resilience in mind. Key decisions will need to be made around whether supply chains should be optimized for cost, speed, agility, variety, or innovation. These decisions will have implications including tax, trade, technology adoption, and talent. To reframe their future, supply chain leaders must learn to thrive in the midst of disruption.

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Summary

Supply chains are feeling the strain of disruption due to the COVID-19 pandemic. Optimized for cost-effectiveness, the shortcomings of the lean and linear just-in-time models have been brought into full focus. Though speed and cost will always be important, the supply chain of the future will be focused on risks, resiliency and reinvention.

About this article

By

Glenn Steinberg

免费黄色大片Global and 免费黄色大片Americas Supply Chain Leader

Helping companies transform, create value and optimize business performance. Thirsty for knowledge. Ski enthusiast. Husband and father of two Michigan Wolverines.

Related topics COVID-19 Supply chain