How to Future-proof Your Supply Chain
Over the course of the global pandemic, we’ve seen just how important a well-run global supply chain is to an organisation’s operations. A company’s ability to navigate day-to-day operations is often challenged by high levels of volatility – the pace of which is unrelenting in today’s environment. And as consumers worry about whether they’ll be having turkeys for Christmas or chicken bakes from Greggs, the need for organisations to react quickly continues to increase.
Traditionally, agility in the supply chain has meant managing operations with a just-in-time mindset focused on minimising inventory to optimise profit. That agility was dependent upon a critical, unspoken assumption – that overall demand and variability in operations was within “reasonable” bounds. The idea of an agile supply chain is a double-edged sword – something most organisations have learned over the last several quarters, as businesses grapple with container, labour, and materials shortages globally. Instead, business leaders need to realise that supply chain value relates directly to availability and responsiveness, meaning agility in analysis, planning, and execution is critical to success, and capacity – while expensive – is a potent antidote for volatility and disruption.
Failing to prepare, is preparing to fail
Historically supply chain has often been seen as a cost centre, but as we have experienced over the last 18+ months, agility can’t just be aimed at costs. Now there is broad realisation that supply chain influences anywhere from 60% to 80% of the income statement, and in a goods-oriented economy, where revenues can’t be realised until goods are shipped, supply chain as a function is truly necessary to physically deliver 100% of revenue, so it can be recognised.
What’s clear now more than ever is that business leaders need to flip the script on old, cost-driven thinking and instead focus on the cross-connected, financial implications of their supply chain operations. Greater visibility, and associated data, across the entire supply chain can help leaders think further into the future when it comes to critical operational decisions, like predicting demand, for instance, and aligning those decisions with the resources needed to shape and meet that demand. Looking forward gives those leaders more time to think and analyse the problem, and ultimately the business response will be better.
One of our customers, Tata Steel, has leveraged data and advanced modelling capabilities to do just that in recent years. The company, which produces 10 million tons of steel annually, uses connected planning to match projected demand over future quarters with the ability of their organisation to produce products that meet that demand. Taking a more active role in shaping their demand in advance has enabled the company to carry 20% less inventory – and less working capital – while still meeting projected demand.
1. Achieving a truly connected supply chain
In today’s constantly changing market, supply chain operations must be agile enough to effectively shape and meet demand, drive performance, and reduce risk – but achieving that level of resilience can feel daunting. My advice to leaders? Start by prioritising the following steps and you’ll help ensure supply chain is a core operating system that can drive impact to the bottom line.
2 .Your supply chain leader is a critical hire
C-suite leaders are now realising how important a head of supply chain is to an organisation. Supply chain leaders must have background and experience in driving change, and an understanding of the business of supply chain. Beyond this expertise, they must also have a strong digital acumen – and an appetite for doing more with data. Finally, but probably most importantly, they need to have dynamic, cross-functional skills so that they can think about the cross-functional impact of supply chain decisions and help the business break down silos to drive more visibility.
3. Shape demand don’t just react to it
During the pandemic, consumers became used to shortages of retail goods like toilet paper and hand sanitiser and are now accustomed to delays on certain items or higher costs if they want to get a product or service sooner. Supply chain leaders can leverage this to their advantage and work with their partners in sales and marketing to take a more active role in shaping demand and driving customer and supply chain segmentation to meet price- and availability-sensitive segments of their customer base. Amazon has taken this approach, starting their Black Friday deals in October to account for port congestion and labour shortages causing massive holiday delays – which in turn, means lower availability of goods - in the November and December months. This approach can also give companies of all sizes a bit of breathing room to for supply chain and logistics execution, spreading out the traditional holiday demand spike into a more manageable “swell”. This demand shaping effort in turns becomes a “capacity shaping” effort as well, improving
Prioritise the three essential tiers to achieve business focus: agility, resiliency, and adaptability
Agility is the number one priority. You can’t accurately predict everything 100% of the time, so it is vital to be able to react quickly when the unforeseen does happen. Once you’ve mastered agility, developing resiliency will enable you to stay above water in a chaotic environment. Resilience is like asking yourself how long you can hold your breath while occasionally having to operate under water. It requires visibility forward – how long is the pool? Plus, that agility to make sure you get there. Lastly, adaptability means asking yourself how you can change the bounds you’re playing in – either by lengthening the pool or increasing the margins of performance. It might even be time to think about changing your whole business, adapting it so you are positioned and ready for anything that may come your way.
The majority (57%) of supply chain professionals believe there is room for improvement in supply chain visibility, indicating a clear need for more direction and strategic thinking. From McDonald’s running out of milkshakes to a potential Christmas tree shortage, it’s clear that disruption is not specific to any one industry and can impact even businesses large and small. Thankfully, with a more data-driven, connected, and resilient approach to supply chain operation – and with a dedicated supply chain leader on the team – organisations can not only withstand volatility but adapt and pivot strategies in real-time to turn disruption into opportunity.