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Six criteria for effective supply chain management

Marielle Howitt

Supply-chain chaos is expected to worsen as the impact on companies and consumers starts to ripple across the globe.

  • Supplies of Adidas sneakers and Bang and Olufsen speakers have been hit.
  • Automakers from Toyota to Tesla are facing ‘unprecedented’ costs and production hurdles.
  • Sony is struggling to make enough PlayStation 5s – due to a shortage of computer chips.

The economic consequences are starting to be felt by companies and consumers across the globe – with shortages, late deliveries, and empty supermarket shelves. It’s expected that the disruption will get worse.’ (1)

The global supply chain is under tremendous stress – and it’s more complex than it has ever been.

The network of trucks, ships, ports, and planes that moves goods worldwide has been strained by a ‘perfect storm’ of events:

  • severe weather
  • protectionism-related tariff
  • labour shortages
  • the rapid rise of e-commerce
  • pandemic-driven production and logistics issues, and
  • Russia’s invasion of Ukraine - cutting off critical commodities to the rest of the world.

It’s clear how vulnerable today’s globally integrated supply chains is. (2)

With ‘supply-chain disruption’ emerging as the most repeated phrase of the current U.S corporate earnings season, (338 out of the S&P 500 companies have cited supply chain issues as a major problem- well above the usual number) the impact goes way beyond large corporates. (3)

Hospitals from the US to Australia, for example, are wrestling with a shortage of chemicals used in X-rays, while real-estate and building projects are held up by delayed materials. (4)

The disruption has exposed vulnerabilities in the traditional ‘just-in-time’ (JIT) supply-chain model.

Pioneered in Japan and popularised by Toyota in the 1970s, the JIT method aims to avoid excess inventory by ordering products and raw materials only when needed to minimise costs and maximise efficiency. But now manufacturers of products, from automobiles to consumer electronics, are seeing just how tenuous the JIT model is.

For the JIT model to work, the quality and supply of raw materials, the production of goods, and the customer demand for them must remain in alignment. If any one of the links in the chain breaks, stalls, or falls out of sync, the impact on the supply chains that crisscross the world can be felt immediately.

Companies, unable to deliver on orders in a timely fashion, risk losing not only efficiency gains - but also brand credibility, market share, and revenue.

Significant changes are taking place - take the automotive industry as an example.

When the pandemic hit in early 2020, manufacturers expected sales to decrease. They reduced semiconductor orders – decreasing the supply of chips that are used in all aspects of manufacturing. The industry is still reeling from that decision. Figures for April 2022 showed car production down 11 per cent in the UK compared to two years earlier. (5)

Now, automotive companies are left to seek new ways of managing their supply chains. They need greater flexibility and transparency – and the transformation is taking place in an increasingly digitised world. Add environmental concerns – and a profound shift is taking place. Manufacturers are moving away from internal combustion engines and large-scale manufacturing to zero-emission, carbon-neutral electric, or autonomous vehicles with a focus on electric or hydrogen as energy sources.

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With technology creating ever more connected consumers, manufacturers, and suppliers across all industries- supply chains are generating a wealth of valuable data – and the management of data has become a key issue in supply chain transformation, allowing companies to:

  • Reduce business risk.
  • Become more agile by identifying potential supply issues.
  • Increase efficiencies.
  • Give customers more accurate timelines – allowing them to track products along the value chain.

Lack of visibility of supply chain issues has been a major problem.

Everything in the supply chain needs to be linked and visible – and companies want their supply chain operations to meet six criteria to be effective:

  1. Reliability – consistent performance, reduced risk, and threats to business continuity. Improved service level performance.
  2. End-to end visibility of how the supply chain is performing. Real- time data.
  3. Automated recommendations to reduce disruption - identifying issues before they happen. (AI is now helping manufacturers answer the ‘What if?’ questions and proactively reduce the impact of potential supply chain disruptions in real-time. For example, software can recognize if inventory needs moving between factories and take appropriate action, subject to approval.)
  4. Minimal complexity in dealing with suppliers – quick responses to supplier issues. Reduced time and cost of onboarding new suppliers.
  5. Easy resolution of customer queries - improved traceability and identification of reasons for delays.
  6. Cost effectiveness.

As complexity grows, automation of supply chain operations is increasing rapidly - with powerful modern technologies such as machine learning and AI are driving the changes.

But the pandemic slowed the speed of automation.

  • Sales of job automation software fell.
  • It was difficult to co-ordinate projects – with home working and travel bans part of daily life. (6)

However, research by McKinsey recently found that companies have a renewed desire to automate their processes, including supply chain. (7)

  • The Harvard Business Review reports that the amount spent on automating logistics functions, for example, will double by 2026. (8)

But there’s a note of caution.

Research by IBM finds that one third of manufacturing companies will be impacted by poor implementation of digital technology – due to an incomplete understanding of the end-to-end supply chain process. (9)

A thorough and detailed understanding of the ‘as is’ supply chain processes are a fundamental building block, to decide where automation can be most effective - identifying bottlenecks and improvement areas.

As for ‘to be’ processes, those in operation following any transformation project are equally important for staff training and development of comprehensive data and reporting.

 

1.     From Sneakers to Tesla’s, China Lockdowns Upend Global Supply Chains, Bloomberg, 14 May 2022

2.     Managing Uncertainty and Managing a Resilient Supply Chain, Royal Bank of Canada, May 2022

3.     Number of S&P companies citing supply chain issues in earnings calls, factset.com, 23 May 2022

4.     Stocks had a Rough First Quarter as Companies Struggle with Supply Chain Disruptions, CNBC, 28th May 2022

5.     Transforming the Automotive Supply Chain for the 21st Century, MIT Review,12 May 2022

6.     Robots threaten jobs less than fearmongers claim, The Economist, 10 April 202

7.     See for example, the automation imperative, McKinsey, 7 September 2021

8.     How do warehouse workers feel about automation? Harvard Business Review, 11 February 2022

9.     See, Transform your Supply Chain with AI and Automation, www.IBM.com

 

 

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