As supply chain leaders face new challenges in an increasingly unpredictable world, they must also grapple with familiar challenges that have worsened due to unexpected events. Even as global trade recovers from the pandemic pause, many leaders are realizing they need to adjust their supply chain management strategy to address labor constraints, demand uncertainty, supply shortages and other problems.
With risks and opportunities everywhere, now is a good time to review your supply chain operations to make sure you are optimizing how people, processes and technology work together.
“Expect supply chain shifts to accelerate when business travel opens up again, but with most pre-pandemic trends, such as China-plus-one sourcing, continuing. With trade still flowing, companies risk falling behind competitively if they miss out on imported inputs or export sales. So, efforts to boost resilience need to fit into broader supply chain strategies addressing shifts in demand and production costs across countries, geopolitical tensions, and advances in automation and other technologies.”
— "The State of Globalization in 2021,” Harvard Business Review, March 18, 2021, Steven A. Altman and Phillip Bastian
People: Labor shortages
People are essential to successful supply chain operations, from receiving materials to making the goods to then moving the finished products to market. But labor and skills shortages are disrupting supply chains. Does your supply chain management strategy address this issue?
Manufacturing and supply chain functions were already challenged with finding and keeping skilled employees before pandemic disruption, and the problem is persisting.
Attracting and retaining a quality workforce” was cited as a top concern by 77.5% of respondents in The National Association of Manufacturers’ Manufacturers’ Outlook Survey, conducted in May and June 2021.
To replace manual labor and meet demand, companies are exploring increasing automation and considering new ideas. The labor shortage will become an even bigger concern as companies expand or adjust their operations to meet changing customer expectations. Large industrial companies, which have long manufactured close to their customers, now expect their smaller suppliers to be able to deliver in different locations across different channels.
To support a distributed manufacturing model that is both global and local, manufacturers are beginning to consider additional suppliers to support regional operations on a global scale. Although incrementally, suppliers will likely increase cost, this trend will help mitigate risk factors experienced during the pandemic. Also, suppliers will have expansion opportunities to support OEM regional sourcing objectives.
Processes: Supply chain planning
Planning remains a top challenge for supply chain leaders as they wrestle with unplanned events disrupting the supply of key materials. An effective supply chain management strategy will include proactive tactics to anticipate demand, as well as systems that are optimized to provide better visibility across the value chain.
50% of participants in GJM’s Manufacturing and Distribution Virtual Roundtable wish they had greater visibility into supply and demand. Given a choice between the two, 69% would prefer more visibility into demand.
Having a good demand-planning capability is critical. The process often looks like the following:
- It typically starts with a statistically based forecast.
- Then, that forecast is augmented with demand shaping, which overlays data from the market to help you simulate demand.
- You can further augment this information by asking customers about their perception of demand.
- This initial analysis is then supplemented and refined with human conversations.
- Finally, based on this data and refinement, you can create a consensus-based forecast for demand, around which you can build a supply plan.
Taking these steps and others to better anticipate and plan for demand could require adjustments to your existing systems and user training.
For example, when it comes to supply planning, visibility can be clouded by ERPs and other systems that are not fully optimized. If you set the same parameters for all parts within your ERP system, you can receive inaccurate information. A more granular approach with specific parameters for each part or finished good would provide better insight for more effective supply planning.
Machine learning should be a part of any supply chain management strategy because its use and benefits are only going to increase. Machine learning is being used in conjunction with robotic process automation (RPA), advanced analytics and IoT to improve supply chain management by:
- Analyzing large amounts of internal and external data for more effective demand shaping, supply planning, supplier analysis, scenario modeling and more. Machine learning and intelligent algorithms enable continual analysis of the entire supply chain, optimizing forecasting and decision making.
- Automating tasks in both digital functions (e.g., finance) and physical functions (e.g., warehousing). RPA brings intelligence to automated operations, such as lights-out warehouses. On the digital front, chatbots using natural language processing (NLP) can interact with customers, while RPA can be used to process payments without the risk of human error.
- Assessing supply chain management and operations to identify areas for improvement. Intelligent business process management can deliver insights to enhance efficiency. By collecting and analyzing data from across the supply chain—such as facility capabilities, customer needs and distribution channels—organizations can better align supply chain management with corporate strategy.
The shift toward automation in supply chain management has long been underway. Now, however, the cost of entry has dropped substantially, putting next-generation technology within the grasp of middle market companies. Investing in these advanced technologies and modernizing IT infrastructure to fully exploit their capabilities can drive efficiency, reduce risk and provide new opportunities, giving your business a competitive edge.
Managing supply chains for today’s realities
With significant hurdles like labor and skill shortages, supply shortages and unpredictable demand, it is essential to align your people, processes and technology so you can optimize supply chain management for today’s needs.
While data, analytics and technology have long been used to improve supply chain planning, many middle market firms have postponed investing and are now at risk of ending up with technology debt.
To remain competitive, companies need to have a clear strategy for investing in the capabilities they need to improve the visibility, accuracy and efficiency of supply chain management.
RSM consultants can help you assess your supply chain capabilities and determine how best to plan your future-focused strategy. Read more about our supply chain services.