Navigating Commercial Supply Chain Challenges
The supply chain ripple effects that began in 2020 have continued, and the ups and downs aren’t expected to ease up until at least 2024. The Economist said it bluntly: “the era of predictable unpredictability is not going away.” It’s no use debating how we got into this mess in the first place, as what really counts is how we get out of it, permanently if possible.
Like an interminable Groundhog Day loop, the prolonged outlook comes after three years of unprecedented global supply chain calamities. Raw materials shortages have given way to over-ordering and now overstuffed warehouses, and transportation shortages can’t move product around fast enough.
Triple digit increases in warehouse prices are coupled with inflationary transportation and logistics price hikes, and customer cash flows are constrained. The whole system, and the underlying margins, are suffocating under the pressure.
There are numerous lists that recount the challenges, but most agree that the shortage of labor and materials is at the heart of the problem. Beyond these overwhelming concerns, there is hope on the horizon for improvements in areas that can be a bit more manageable.
Top of the list to look at should be processes and product offerings. Optimizing and rationalizing both can lead to breakthrough results. Is there waste or inefficiencies in processes that can be eliminated? Do you really need to keep the full complement of SKUs that you have, when some haven’t been profitable for a while? How are your planning and forecasting models working to maximize inventory turnover?
Asking yourself a series of tough questions can unleash both resources (sometimes people, time, or even cash) and profits. Every angle both inside the company and outside (i.e. working with vendors to adjust timing and management of inventory) can be explored. If there’s imbalance or waste, it’s an opportunity to get costs out of the business.
Most commentators on the supply chain debacle combine sour premonitions for continuing supply chain struggles with a strong dash of hope, offering that “In spite of 2023’s fragile supply chain network, companies are acclimating to these changes by addressing inefficiencies head on and seeking to work smarter, not harder.” Read more>
Strategic sourcing initiatives are center stage for companies that are investing today in ways to help avoid future challenges – critically reviewing spending patterns to improve purchasing power and performance. Taking a long hard look at supply chain visibility is also critical – making sure that demand forecasting is on point, supply chain diversity is increased where it can be, and that congestion at critical points of failure can be eased.
Another ripe area for analysis is technology – specifically digital technology solutions that are designed to help procurement operations and supply chains run smoothly. Do they really? COVID threw many technology systems into disarray just like it did everything else, but it’s interesting to note that the supply chain solution doesn’t necessarily lie in creating something new, but in using the tools we have in new ways.
According to a study done by the Institute for Supply Management, companies admitted that “the main blockers to getting things done aren’t only the systems, the data, or the networks of suppliers, but the means to effectively use them and put them to work.” Companies might need to take a different look at the tools and platforms they’ve already invested in and pivot – like we all did to accommodate remote workforce tools. The ISM study suggests that “The limitations we thought we had can be overcome.”
Using the remote workforce transition as an example, the incentive for change was a crisis, and the change was an emergency. Most companies had the capability and capacity to enact these changes sooner, and easier, but they didn’t do it until forced by dire circumstances. In the carrot-vs-stick analogy, only the stick worked.
As it applies to supply chain issues, the ISM study suggests that “most business managers in recent years may have expected digital transformation to unfold through a methodical evolution rather than abrupt steps. It remains to be seen if more disruptions lie ahead, and to what degree. But given that COVID-19 may have changed supply chain management and the commercial office landscape for years to come…perhaps a feature of digital transformation that we didn’t anticipate is that change will come as a series of transformative events, rather than as a steady flow.”
There is evidence in the data that digital transformation is taking hold and delivering benefits, not just in terms of early signs of improvements to efficiency, speed, accuracy, and customer experience, but in sustaining operations in the face of global challenges. The study concluded by offering an obvious recommendation that “New digital technology can really help organizations become more resilient and cope with the disruptions of a never normal world.”
Companies seeking to ease the supply chain seizure cycle are looking for agility above all – making sure that they’re not locked in to a single pathway, “where the systems and applications can change according to what we need without disrupting what we have to do.” The combination is the key – visibility of infrastructure, efficiency of process, agility of action and resiliency of approach.
It’s not easy, and it won’t be smooth sailing, but the best sailors will find their way through the toughest waves.
