Three fatal flaws in supply chains – and how to prepare for them
The pandemic exposed three fatal flaws in the way companies manage supply chains. Hear from IBM’s Takshay Aggarwal on how to recognise your supply chain flaws and be ready for the next disruption.
In 20 years of supply chain experience, I’ve never seen a supply and demand shock at the same time.
Yet COVID-19 hit, and instantly the just-in-time strategy fell on its face.
All those informed predictions about stock levels and deliveries were suddenly obsolete.
That’s because consumer behaviour changed overnight. And it hit retailers hard.
Instead of looking trendy, we sought comfort. Purchases of sweatpants were up 80 percent in April, according to the New York Times.
Time travel
And who could have predicted the mass shift to online shopping and remote working? McKinsey estimates US e-commerce jumped forward 10 years in just three months.
No wonder we’re all a bit dizzy.
And as volatility went up, people focused on the basics – paying off debts and stashing cash to weather the storm.
Suppliers and consumers were equally frustrated by empty shelves, never knowing when the next shipment was coming in.
The truth is, we had this disruption coming. The pandemic exposed three fatal flaws that were otherwise laying dormant in supply chains.
Three fatal supply chain flaws
Single sourcing
It’s no secret many supply issues during the pandemic stemmed from an over-reliance on Chinese suppliers. When major industrial cities in China went into lockdown, production ground to a halt.
Companies developed a reliance on Asia by wanting the lowest cost no matter what. It didn’t matter where material came from, as long as it was at the right price.
Low inventory
Who wouldn’t love a just-in-time supply strategy? It works wonderfully well, as long as you stay within a certain degree of volatility.
It’s cost effective, and ensures you aren’t left with mounds of unsold product taking up space.
But then a pandemic hits and volatility skyrockets. The result? A huge unmet demand for basic staples like flour and toilet paper.
Reliance on suppliers to manage inventory
Someone has to keep an eye on all that stock. Since retailers don’t want to, they pass that responsibility to suppliers.
The issue is those suppliers are also relying on their own suppliers, and if you don’t know who they are, you don’t know the extent of your supply chain weaknesses and risks.
That’s why so many companies were caught off guard.
So where do we go next?
We’re already seeing a monumental shift in the way companies approach supply chain management.
The first trend is multi-sourcing, to make sure a chain is not dependent on a single point of failure.
The second, is planning for a higher degree of volatility. Because the world will continue to experience volatile events, like natural disasters, with greater intensity and frequency moving forward.
And the third, is becoming risk balanced. Rather than the absolute lowest cost, companies are looking for a better balance between delivering value and managing supply risk.
What successful procurement will look like
All of these fatal flaws – and the new strategies emerging as a result – all point to one crucial need: end-to-end supply chain visibility.
It might sound like a far-off dream, but it’s actually possible.
The most resilient companies are using control towers to keep eyes on the entire supply chain, and gain advanced warning to avoid disruption.
And I don’t mean the spreadsheets that people call ‘control towers.’ I mean genuine systems that pull in essential data from across departments and across suppliers. Without that total oversight, you’ll never have the visibility you need to make informed decisions.
For example, IBM’s global supply chain uses IBM Sterling Control Towers so that we’re alerted to potential issues far earlier than our companies.
That gives us time to react, and avoid much of the disruption.
Control towers can help you understand the next steps to take, so you’re much more resilient to shocks.
Embrace technology
Investing in control towers is the right way to start improving supply chain visibility. But you also need the right tech infrastructure to match.
For example, I’ve noticed retailers making great strides in becoming omni-channel. Without that seamless experience in store and online, companies risk becoming irrelevant in the next decade.
The fact is, there are tools out there to help your company survive and thrive during this crisis. It’s truly an amazing time to be a supply chain leader, and with the right partner you can offer the answers your company sorely needs right now.
Invest in the right technology and gain end-to-end visibility across your supply chain. You’ll spot opportunities, and you’ll be prepared the next time an ‘unprecedented’ event hits.
IBM’s Takshay Aggrawal sat down with Procurious Founder Tania Seary to discuss end-to-end visibility, and how supply chain management will never be the same. Listen to their full discussion now.
This article was originally published on 24 September 2020
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