Six challenges that could break the supply chain
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You don’t need to be a supply chain expert to know that the sector has undergone some radical changes over the past decade. These have ranged from the onslaught of cheaper manufacturing bases in the East and the lengthening of the supply chain, to the rise once more of traditional manufacturing bases in the West as costs rise in China.
The advent of new technology has further propelled the sector’s evolution. It has enabled the supply chain to become more collaborative, support new specialisms and respond to changing demands. Against this backdrop of continuous change the sector faces the following six challenges which, if not addressed, have the potential to break the supply chain:
- The ‘March of consumerism’ challenge: Consumerism is on the march. Its spread into the far reaches of the world from the BRICS to the MINTS to the CIVETS. The world has become one big marketplace with consumers calling the shots, and so it needs ‘one big supply chain’ to underpin it. You only have to look to the online retail market as an example. While not exactly new, online shopping has reached a point of extreme scale and maturity, with competition constantly increasing. The scene is the same for business to business trading. Supply chains stretch further across the globe than ever before, and the volume of online B2B trading is steadily increasing, leading to some serious operational challenges. Companies that are not ready to tackle these challenges will be left behind.
- The ‘where to source from?’ challenge: Constantly diverging supply chain options are creating more complex sourcing decisions for supply chain professionals. For example, changing factors such as risk, cost, logistics and sustainability all impact the ability to accurately measure the total supply cost of products and services across a global market.
- The big data challenge: Everyone is talking about ‘big data’ and its impact on the supply chain but be aware: it won’t solve all your problems! It is easy to be swept along by the promise that big data is going to answer all of your questions about supply chain performance (and even those you didn’t think you needed to ask) but the reality is that big data, to a degree, is a misnomer. The challenge isn’t managing the data, the challenge lies in realising the insight that the data offers. With the right tools in place organisations can gain visibility into the supply chains to identify areas of concern as well as areas of potential growth in order to make them more streamlined.
- The risks of ‘app-isation’ challenge: The lure of enterprise apps promising to make supply chain operations more intuitive and agile can be attractive, but professionals should also be aware of the risks. Apps for the supply chain need to offer stability, be rigorously tested, undergo stringent security and error testing and integrate with legacy IT systems if they’re to offer value. While apps will help supply chains enormously, supply chain professionals need to weigh up the risk. Apps should not be seen as a replacement for core enterprise supply chain management systems.
- The ‘supply chain inequality’ challenge: While demand planning isn’t getting easier or harder, it does remain challenging. The ability to manage demand as dynamically as possible depends on how strong customer relationships are and how willing those customers are to share their own forecasts with the supply chain. We’ve seen recent, high profile examples of retailers such as Tesco, Premier Foods and Heinz, criticised for holding their suppliers at arms-length. Supply chain professionals should try to spend as much time with their customers as they do with suppliers for this reason. It must be a two-way relationship and customers must appreciate that an arms-length, David and Goliath-style relationship with key suppliers will not pay in the long term.
- The ‘we’re not out the woods yet’ challenge: The downturn caught many organisations out and in general made people more cautious. That risk-adverse attitude and legacy lives on and will continue to do so despite the ongoing signs of recovery. While banks are starting to lend again, it’s with much closer scrutiny of the borrower and their requirements. This means that organisations need to be more innovative in finding ways to fund their supply chain innovations. Equally, supply chain professionals and their customers have learned much from the downturn. They are subsequently asking far tougher questions of their supply chain partners, setting them in good stead for the future.
Craig Stephens is vice president international consulting at Epicor Software Corporation, an ERP software vendor that is focused on supply chain and manufacturing companies. Epicor has approx. 30,000 customers across 150 countries worldwide, most of which are manufacturing and supply chain focused.