COVID rocked the supply chain world. The Institute for Supply Management found that 75 percent of US businesses experienced supply chain disruptions during COVID. Lack of operational flexibility and resiliency led to the inability to handle the fallout of the pandemic. Many manufacturers had no short-term supply alternatives, so production was cut.
The pandemic highlighted major issues within the supply chain system: Manual processes created data silos, lack of automation led to lack of transparency in inventory, and multiple sources of data from different systems left a large chasm for error.
FERMA reported that 46 percent of respondents will make changes to their supply chain as a result of the pandemic. If you’re sympathizing with that percentile, are dealing with a broken supply chain that isn’t due to the pandemic, or are looking for ways to generally improve your processes, follow these 5 steps. If you haven’t already invested in a solid supply chain management solution, that should be your first step. Use our Supply Chain Management Product Selection Tool to find a SCM tool that’s tailored to your needs.
1. Unify data
IT professionals have warned us about data silos for years, and for good reason. Data needs to flow through the supply chain quickly and accurately, but companies of all sizes find they have multiple, redundant data items between their systems. Streamlining it all seems near impossible.
To unify the data, automate your intercompany data flows. This starts with collecting and transforming multiple sources of data into a unified, real-time data layer that is synchronized amongst your different systems. Streamlining these sources, which could range from product availability to regulatory compliance, will reduce the liability of redundancy.
Using a data-centric SCM tool like Alloy makes this process much less of a headache. Not only will its architecture integrate and harmonize internal data, but it will also ingest distribution partner data such as SKU identifiers and units of measure. Breaking down the walls between these data sources will unify your data and prevent data silos.
2. Shorten flow
Shortening your supply chain flow means reducing the process time required for activities. This could include anything from logistics and cash flow to design processes. Many global companies source, produce, and distribute products in the lowest-cost locations around the world, however far away those distances may be.
For example, a dress from Zara starts in Europe where the material is sourced. It then travels to Egypt to spin the fibers into yarn. From Egypt it goes to China to weave the yarn into fabric.
It then goes to Spain to dye the fabric, Morocco to cut and sew the fabric into a dress, back to Spain to be packaged, and then finally lands in the UK to be sold.
Not only does this long supply chain have a negative impact on the environment, it becomes incredibly difficult to manage. While this supply chain model (known as the just-in-time model) seems the most cost-effective route, it leaves companies vulnerable to global shocks. If interruption occurred — be it a devastating pandemic whose longevity is more than originally imagined — manufacturers have no material stockpile available.
Localizing the flow
The lowest cost possible should no longer be the sole variable when considering your supply chain model. The KPMG, a glocal network of firms that provide audit, tax, and advisory services, say that companies are moving away from the global-first view.
Consider obtaining onshore facilities. They will likely have lower transportation costs, and sourcing material locally means you’ll be able to respond quickly to changes in demand, cut lead times, and reduce the risk of business interruption.
Localizing and shortening your supply chain flow will allow your business to create circular systems that provide access to materials and components when needed and not be as reliant on trading partners.
3. Lean out supply chain
A lean supply chain focuses on eliminating non-value-added activities (waste) to improve efficiency and deliver better customer value. Taking steps to make your supply chain leaner can’t be half-hearted; these practices must be implemented both internally and externally and constantly monitored. Consider working toward eliminating these wastes, as outlined by GlobalTranz:
- System complexity: additional, unnecessary steps and confusing processes
- Lead time: excessive wait times (the just-in-time SC model contributes to this)
- Transport: unnecessary movement of product
- Space: holding places for unnecessary inventory
- Inventory: excessive inventory leading to cost and clutter
- Human effort: any activity that does not add value
- Packaging: containers that transport air or allow damage
- Energy: wasteful energy in the supply chain such as electricity, gas, utilities, etc.
However, we recommend taking this list with a grain of salt. Running your supply chain too lean may result in fragility between supply and demand. Finding the optimal balance between being lean and adaptable will allow for a better convergence of resiliency and efficiency.
4. Develop safety stocks
Yes, there are costs to increasing safety stock, and there is always the risk of stock spoiling, expiring, or breaking, but the long-term benefit is greater supply chain resiliency.
Traditionally, a company defines its optimum safety stock level by analyzing variations in demand history or by assessing the likelihood of a stockout based on previously set safety stock thresholds. And while this method allows your business to carry the minimal amount of safety stock and keep your capital, it makes your supply chain brittle.
Review your safety stock thresholds. As conditions change, the amount of safety stock you keep should too. To get a good baseline, review your product forecast and calculate a risk-to-cost ratio around the impact on the business if that specific product’s supply was disrupted. From there, determine the amount of safety stock needed to avoid major negative impact.
5. Plan for future disruptions
This one may seem obvious given what 2020 encompassed, but it’s tempting for some companies to consider their broken supply chain as a once-in-a-lifetime issue and neglect to learn or make improvements. Again, it’s no longer enough to be solely focused on the lowest cost.
Businesses must learn to build resilience against future shocks while mitigating the impact of the most recent one.
Planning for future disruptions looks like establishing a supply chain risk management plan. This plan should outline a strategy for as many circumstances as can be predetermined in order to minimize disruption if they were to happen. Common steps in a risk management plan include:
- Assess and understand all risks that could potentially harm your company.
- Assess the likelihood of each risk and the potential impact it would have on the supply chain.
- Build contingencies. By creating and planning for “what if” scenarios, you’ll be able to better anticipate the steps needed to mitigate issues.
Planning for future disruptions means you’ll “wing it” less and take confident steps in fixing the issue more. Because rest assured, future disruptions will come.
Repair your supply chain with a SCM tool
Many of these solutions will take lots of time and resources to implement. Investing in a supply chain management tool will help organize your efforts in repairing or improving your supply chain. Use our SCM Product Selection Tool to get a shortlist of recommendations that fit your unique needs.