Supply chain strategy
Building resiliency in a post-pandemic world
INSIGHT ARTICLE |
Authored by RSM US LLP
The COVID-19 pandemic and other recent unexpected disruptions have exposed systemic vulnerabilities in supply chain strategy, resulting in global materials shortages, assembly-line slowdowns and delays in getting goods to market. As a result, many companies are refocusing their supply chain strategy to become more resilient during times of stress—no matter the cause.
Midmarket companies tend to be especially vulnerable to supply chain disruptions because many still lack the digital strategy and technology required to design resilient systems. In order to compete effectively going forward, modernization is essential for these companies.
The efficiency-resiliency pendulum
Widespread supply chain practices such as lean inventory and vendor consolidation—which have made it possible to control costs, free up working capital and increase efficiency—are under examination for their shortcomings in a global or regional supply emergency.
Just-in-time inventory and manufacturing, a cornerstone of industrial efficiency for decades, failed companies when COVID-19 struck because they quickly exhausted their lean inventories and had a hard time restocking. The lack of even a single component could shut down entire assembly lines, resulting in huge losses. That’s exactly what happened to automakers around the world in early 2021, when a global semiconductor shortage idled factories, workers and dealerships, just as demand was starting to recover.
Another concern is that in recent history, companies have gravitated towards global sourcing strategies, negotiating with a handful of vendors to get the best pricing possible. However, disruptions from Texas weather to the Suez Canal blockage have many companies wondering if they’ve over-emphasized efficiency at the expense of resiliency. They are now exploring more regional sourcing strategies to better balance efficiency with resiliency.
While cost and efficiency remain important factors, companies now recognize that they need to adjust their supply chain strategy because there are new types of risks. At the same time, customers are demanding greater levels of on-time delivery, product quality, process efficiency and buying convenience. Given the need to minimize inventory-carrying costs, the middle market’s challenge is to find ways to increase resiliency and improve customer experience without building too much excess inventory.
To achieve this balance, organizations need a comprehensive view of the overall demand and supply environment, including not only traditional inputs such as piece price, transportation and logistics, but also broader factors such as global trade (i.e., customs, duties, taxes and tariffs) and environmental risk.
How can organizations make such investments with assurance and minimize the risk the change in operating model? The answer is largely in the data.
How to strengthen your supply chain
Now is the time to strategically assess and improve your supply chain to strike the balance needed among cost, efficiency and resiliency. Here’s where you can start:
Optimize your network. Network optimization means taking a holistic approach to supply chain, including supply, distribution and demand. For example, companies must optimize which customers are served from which factories, distribution centers or 3PL facilities. When taking stock of your supply chain, ask yourself these questions:
- Do we have the optimal number of sites?
- Do we need more or fewer sites? More or less inventory?
- Are there savings opportunities?
- Should we outsource warehousing and logistics functions?
- What risks are we taking on by consolidating sites?
- How do we insulate our supply chains from disruption?
The goal of this exercise is to quantify the risks vs. rewards—such as savings and greater cash flow—of various approaches. This risk management perspective is only possible, however, if you can proactively leverage advanced analytics of multiple data streams.
Take the example of the re-shoring/near-shoring discussion now taking place in many boardrooms. We’ve been hearing about these trends for a long time, but now we're starting to see actual movement among middle market leaders who are thinking about re-shoring some of their manufacturing operations. That doesn't necessarily mean they're coming back to the United States, but it does suggest that companies are looking for ways to ensure shorter lead times, which gives them more flexibility to make changes.
These are complex decisions, incorporating multiple moving parts. How can organizations make such investments with assurance and minimize the risk the change in operating model? The answer is largely in the data.
Leverage data across the globe. Even organizations on the smaller end of the midmarket spectrum generate millions of data points: sales, logistics, production, inventory and many more. Smart companies are seeking opportunities to leverage this and other data using predictive analytics to monitor supplier risk. Proactively monitoring the location of parts, on-time delivery, quality, capacity, financial health and relevant geopolitical data can inform smart decisions to ensure your product is ready for your customer when they want it, without long stopovers in the warehouse.
Companies are also becoming more disciplined about inventory management, developing a plan for every part and optimizing system parameters to align supply more closely with demand. Of course, these efforts are only as good as the demand forecast. Therefore, many organizations are also aggressively working to improve their demand planning capabilities.
Use cloud-based analytics for scenario planning. Efficient data ingestion is only half of the equation. The other piece of the data analytics puzzle is scenario planning: analyzing data to predict, plan and make informed decisions. Companies are putting more robust sales and operations planning processes in place to better align the organization cross-functionally and leverage data and analytics. This requires collecting data across the supply chain. You may need to monitor data from the shop floor or from transportation providers via IoT sensors. And even though it may not be your goal today, look ahead to using AI- and ML-driven automation to take steps toward lights-out warehouses with automated picking, cycle counts and other tasks, which can further drive data for scenario planning.
Cloud applications are what make it possible to ingest and analyze data from different sources to effectively balance supply chain resiliency with efficiency, speed and cost-effectiveness. SaaS applications and their back-end infrastructure can merge data from multiple sources like IoT, suppliers and demand data to inform forecasts and decision-making. Advanced automation using AI and ML streamlines processes and lets people focus on more value-added work.
Find a trusted supply chain strategy partner
The bold new world of supply chain optimization and sophisticated analytics can be bewildering. Look for a consulting partner that has experience not only in business strategy but also business technology. Equally important, your partner should understand how people, processes, facilities and technology work together to increase supply chain visibility.
Look for these criteria when choosing a partner:
- Industry knowledge: Does your partner have extensive experience with and knowledge of your industry? Can they quickly identify the right levers to evaluate to drive profit and reduce risk?
- Experience with best practices: Has your partner performed similar transformations in the past? Are they familiar with the broad ecosystem of available applications surrounding your enterprise platform of choice?
- Technological know-how. Does your partner have the knowledge and experience you need, from digital transformation vendor selection to deployment to ongoing management?
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This article was written by RSM US LLP and originally appeared on 2021-06-15.
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