Problem with Modern Supply Chains
- Modern Supply Chain Design is based on centralizing inventory which may indeed save costs and make Supply Chains more efficient and leaner, but this only makes them more prone to disruptions. Tradeoff between Supply Chain Efficiency and Risk must be attained. Achieving the sweet spot between Efficiency and risk is the biggest dilemma in the minds of stakeholders.
- Segmenting and increasing flexibility in supply of products can make SC prepared for ‘acts of God’. In the efforts of making Supply Chain lean, the global supply chains are becoming vulnerable to disruptions and risk the prospect of losing millions of Euros.
- Day to day optimization and decisions taken by stakeholders these days revolves around predicting the future. But the problem is clearly, the future is unpredictable. The world is uncertain only due to its unpredictability and no one true method so far, has managed to predict the future consistently.
How do you prepare for disruptions with the current knowledge of Supply Chain Management and Technology?
- One of the famous methods of dealing with disruptions is by incorporating flexibility. This could be brought about by incorporating effective Supply Chain Design, Flexibility Principles and appropriate use of technology. For example, a large garment manufacturer from Europe did not run their factories at full capacity during its early years in Spain. This allowed the company to deal with unprecedented demand in due course of time and while this is not an example of a company being lean, it is an efficient way to prepare and deal with disruptions. Allowing flexibility within production lines/system is an effective strategy when it boils down to the tradeoff between efficiency and risk.
- The baffling aspect of dealing with Supply Chain Disruptions using technology is the poor return on investments after implementing the same. Use of latest technologies such as Big Data Analytics and Automation only results in faster and agile Supply Chains and not flexible ones, that can deal with unprecedented disruptions such as Natural Disasters and Pandemics. Therefore, companies must focus on redesigning Supply Chains using tech to transform them to be better prepared for disruptions.
- Investments in Forecast Tech is a great example of companies failing to realize the potential of technology in handling disruptions. Supply Chain Risks are largely dependent on the forecast accuracy for various parameters. This has put large emphasis on incorporating data heavy Forecasting models to forecast SKU level numbers for the future. Failure to use point of sales data in forecasting SKU level predictions often blindfolds stakeholders in bracing for disruptions. Managers closest to operations must be making cost versus efficiency tradeoffs, which will result in lower losses while dealing with unpredictable events.
- In the past year, data shows that 57% of the businesses in America believe that they have poor visibility across their value chain. Increasing Visibility with the use of real time sensors and other visibility technologies can prevent losses running into millions of Euros.
Percentage of Businesses that use a Credible Supply Chain Mapping System
Source: Jigsaw Business
- For example, a pharmaceutical company handling a cold chain can make use of time temperature monitors that could transmit data instantaneously, to get real time information regarding disruption in shipments due to disasters or political interventions. This will in turn allow enough time for Supply Chains to react without failing.
- Innovation in the development of Blockchain technologies have enabled reducing the Bullwhip effect, which in turn can provide better end to end encrypted communication technologies making the modern Supply Chains less vulnerable to Cyber-attacks.
Technology is a powerful tool which hasn’t been applied in Supply Chains as much as it should have been, and the ‘Fear of the Unknown’ must be conquered to achieve resilient Supply Chains. In a nutshell, by incorporating Flexibility and Technology the modern Supply Chains could turn vulnerabilities due to disruptions into competitive advantage by increasing preparedness and reducing the reaction time.
Relevant information can be found at: MIT Sloan Management Review
Web Content Manager at SupplyTech Insights