Supply chain management is challenging at the best of times. Daniel Kohut, Vice President ANZ, Blue Yonder, explains how managers are always under pressure to meet real-time and short-term demands, and shares three priorities to support long-term goals like revenue growth and maintaining a resilient and agile supply chain.
COVID-19 has increased pressure on all those fronts, challenging supply chain managers to maintain their organisations’ revenue targets and market shares in the face of both short- and long-term disruption. Managers need to try and anticipate these disruptions and supply shortages and determine how to respond to subsequent revenue shortfalls, if they do occur.
Here are three of the most important priorities all supply chain managers should be focusing on to help them achieve this.
- Identifying and assessing all external variables
For supply chain managers to make more informed decisions and support their organisations’ economic recovery, they need to be able to identify and assess the impact of external factors in real-time. The good news is that the Australian Government has come to their aid.
In March 2021, the Productivity Commission released its interim report into vulnerable supply chains. It sets out a framework to identify risks that might negatively affect supply chains, and ultimately Australians’ safety and wellbeing.
The commission noted effective risk management depended on understanding the nature of a potential disruption and its impact on supply chains, but this was not always straightforward. The report states: “Supply chains can be long, complex and opaque, and information on a firm’s supply chain can be difficult to obtain.”
It also warned that risk management decisions could be subject to biases. For example, because of their recent experience with the COVID-19 pandemic, firms may over-invest in strategies that seek to mitigate risks from a future pandemic, when in fact other risks may be more probable and imminent.
There are three clear approaches from the framework that supply chain managers can use to manage risks to their organisations:
- Identify the particular risks that make supply chains vulnerable and work out the likely consequences if those risks eventuate (for example, having a strong reliance on manufacturing materials from a single foreign location could be catastrophic if a natural disaster or other form of local disruption occurred).
- Make decisions on how to best manage those risks (such as diversifying the locations where materials are sourced to reduce the possibility of shortages).
- Determine who is responsible for the ongoing management of risks, and regularly reassess risk management arrangements to ensure they are still fit for purpose.
In addition to these considerations, supply chain managers must factor in variables such as dependencies on third-party suppliers, logistics data, weather, and economic factors such as interest rates and GDP. Legacy supply chain planning aids such as Excel spreadsheets do not provide adequate support for such challenges.
To respond better to future shocks, including natural disasters and health pandemics, temporary shortages in supply, or a sudden rise in tariffs, organisations need to constantly re-evaluate their supply chain networks, and identify and assess the likely impact of external variables.
- Understanding factors affecting past demand, and anticipating future demand impacts
Demand forecasting tools draw on regular historical patterns associated with product demand to make predictions about the future. All supply chain managers should be using these tools. However, in order for these tools to work correctly, managers need to identify any extraordinary events that wouldn’t usually occur and remove these from the equation, to ensure they do not skew forward projections. In particular, the disruption caused by COVID-19 is likely to have produced some anomalies that will not recur in a similar fashion in future years.
Managers also need to do some crystal-ball gazing, to try and anticipate future events and assess the likely disruption to supply chains. These could be natural disasters such as an earthquake, or more mundane events like shipping delays or quality issues that disrupt production.
When such events occur, supply chain managers must collaborate expeditiously with other stakeholders to fully assess the situation and develop the most effective response. A rapid, real-time response is paramount to preventing the impact of an issue cascading through an organisation and resulting in substantial disruption and losses.
- Exploiting the power of artificial intelligence and machine learning
In an ideal world, supply chain management would be mostly proactive and minimally reactive. Supply chain managers would spend most of their time on planning and strategy to ensure optimal performance, and a minimum on ‘putting out fires’: dealing with crises and responding to day-to-day supply chain issues. Unfortunately, the reality is the reverse. Supply chain managers spend an estimated 70 percent of their time dealing with external events that disrupt supply chain performance.
Artificial intelligence (AI) and machine learning (ML) technologies enable supply chain managers to automate the analysis of many of these day-to-day issues and the determination of a suitable response. AI and ML can analyse hundreds of variables and develop and recommend scenarios to deal with situations in a fraction of the time it would take a human manager.
The future will be automated
Crises represent opportunity. The need to respond and recover spurs innovation and creativity. COVID-19 created many crises in supply chains, challenging organisations in ways never seen before, and supply chain managers responded successfully with many significant innovations. Even when the pandemic is over, supply chain management will be forever changed. Automation has now become the new normal, and those organisations that heavily adopted automation in their workflows will gain a sustainable advantage over the competition in years to come.
For more information on Blue Yonder, click here.