Manufacturing businesses need to accept that predictable and steady-state supply and demand are a thing of the past and harness the power of data to build resilience into the supply chain, argues Kearney’s Nigel Pekenc.
The past 18 months have exposed the fragility of global supply chains, most recently illustrated by profound supply-demand mismatches – from fuel to labour, engineering services to basic commodities. From the first days of the pandemic, we saw major disruptions and shortages as panic buying, factory closures and border constraints took hold. In early 2021, the blocking of the Suez Canal by the Ever Given cargo ship also reminded us just how vulnerable supply chains are to single choke points. Global trade is intricately linked across a few single links in the supply chain that, when they break, can lead to catastrophic implications cascading down.
Manufacturers need to be adaptable, maintain visibility in deeper tiers of supply and maintain dual sourcing options in case such of such breakages in the chain. During the pandemic, resilient manufacturers showed how, beyond protecting their business, they were able to gain share from less resilient competitors by back-filling critical path supply when others were out of stock and slowing down capacity and adjusting the cost-base when demand was down.
End-to-end supply chain visibility
As in any human organisation, communication is key. Achieving resilience in supply chains is often about getting information flows right than physical flows. And getting those information flows right rests on access to supply chain data in real time, particularly when demand and supply constraints change much more rapidly than usual planning time-buckets allow for. Encouraging information sharing between parties across the end-to-end value chain is crucial. Digital advancements have already reduced the cost of collaboration massively, allowing for immediate access to key information.
However, these advancements don’t always guarantee the sharing of critical information which might be considered sensitive by one of the parties involved. Whilst tricky to negotiate, many have shown that ensuring joint access securely is possible. Third party management of data, the kind found in supply chain ‘cleanrooms’, allows each party access to critical data without sensitive information falling into the wrong hands. Allowing third parties to manage data is not yet universally practised, despite the fact it could minimise disruption.
How can it be achieved?
In one recent example, Kearney partnered with a global ingredients manufacturer to connect through the chain with its vendors through a ‘cleanroom’. While the manufacturer supplied projected growth and plans for incremental capacity, their vendors disclosed land costs and manufacturing footprints. Neither party was compelled to share more than they were comfortable with and Kearney, acting as a communication intermediary, was able to optimise the results for each business involved. Greater communication and the coordination of data meant that the entire supply chain became more efficient, mitigating potential future disruptions.
Furthermore, true resilience comes from a lot more than just holding more stock to manage uncertainty. Decision makers now have access to a whole host of data from their systems allowing them to make smart and fast decisions. Supply chain organisations must acknowledge the need to overhaul traditional ‘time-bucket’ planning processes and can apply technology to transform, for example, using demand sensing and supply chains that are built to pivot around demand shifts in real-time.
Investment in advanced automation and robotics, particularly in warehousing, can support resilience. Artificial intelligence technologies that learn from past experience can also optimise decision-making more economically, for example, in deciding how much stock to hold depending on demand and supply factors. Beyond technology, cultural change should never be overlooked. A resilient supply chain necessitates agility in the organisation, achieved by process-oriented and cross functional teams and often the abandonment of rigid policies.
Fixed rules which can’t be broken make supply chains inflexible and weaken the ability to adapt. If manufacturing businesses empower decision-makers to make decisions within trade-off envelopes and advocate a flexible approach to problem solving, managing disruption becomes far easier. Support them with end-to-end supply chain visibility where hundreds of demand scenarios can be modelled against alternative supply responses and resilience increases even further.
The Resiliency Compass helps organisations identify priorities, manage risks and define sustainable strategies to navigate uncertainty and gain competitive advantage. Our survey of 400 senior executives found that only 12 per cent of companies are sufficiently protected against future disruption. The remaining 88 per cent require significant corrective action to become resilience leaders. Resilience leaders are at the forefront of the transition into the future of operations management. They are characterised by the following qualities, which correspond to dimensions on the Resiliency Compass:
- Simplified product portfolio design
- Smart customer orientation
- Financial visibility and agility
- Diversified customer distribution network
- Robust and transparent logistics
- Responsive manufacturing setup
- Strategic supplier relationships
- Advanced planning tools
The next unexpected event
The past few years have shown us that the ‘black swan’ can take many different shapes. Supply-demand imbalances are likely to abate and demand patterns normalise in the midterm but what comes next is anyone’s guess, from rampant inflation to escalating trade wars. In any of those possibilities, getting ahead of the curve in supply chain resilience will be key for manufacturers.
Please visit Kearney.com to view the full whitepaper and learn more about navigating global value chain disruption – www.Kearney.com
More articles like this can be found in the Leadership & Strategy section of The Manufacturer