The worst of supply chain disruptions has passed – but has it really?
After the pandemic’s extremely disruptive impacts, global supply networks are beginning to show indications of normalcy (1). However, we are not yet completely out of the woods. Sea routes may be threatened by rising global tensions, personnel shortages affect all businesses (2), and the current consumer demand slump is exacerbated by inflation at its current levels (3). Uncertainty in our supply chains is probably going to persist for some time since we live in a dynamic era.
We need to develop strong supply chains that are more resistant to disruption in order to deal with this reality. We must simultaneously get ready to implement change fast and become more agile. The utilisation of data-driven analysis and solutions can be quite advantageous for both components. Of course, customer needs should be top of mind when establishing priorities.
Rebuilding reliability for our clients should be our top goal
Supply chains are typically built to function as efficiently as possible, taking a stable global environment for granted. Evidently, they have not shown themselves to be sturdy enough to withstand the rough ride of recent years. As a result, retailers and manufacturers were not always able to fully satisfy customer expectations, which hurts their reputation as reliable partners and undermined trust.
This requires immediate improvement, perhaps more urgently than focusing just on cost-effectiveness. Looking ahead from this vantage point, should we not re-evaluate how supply chains are built up and prioritise reliability over efficiency? That objective might be divided into two key components: resilience and agility. Resilience to be able to tolerate setbacks by being prepared for any disruption. Agility to be able to switch gears quickly when necessary and successfully carry out these preparations.
Resilience – Expect the best, plan for the worst, and prepare to be surprised
The severity and scope of the disruptions have taken all of us by surprise. We lacked the antennas necessary to detect warning signals, and we were just too unprepared to act until it was too late. Better awareness and preparation should help lessen the effects of upcoming disturbances. A risk management process and an early warning system are two steps in that direction.
A thorough understanding of the multi-tier supply and production structures is necessary for the first step. Adding a strict assessment of risks inside these structures gives an informed sense of where risk mitigation is required and where contingencies are essential. Planning ahead is essential because setting up these contingencies will take time. Even better are logical scenarios and consistent use of this risk-management process.
In order to identify warning signs of potential disruption, an early warning system with close to real-time reporting is also necessary. This will provide the time we need to take corrective action or to activate earlier developed contingencies. The idea behind this concept is to connect logically related data to structural insights and risk components. Open-source data and specialised data sources can be used for analysis and reporting anomalies in a control room style, keeping an eye out for upstream irregularities and changes in risk levels.
Agility – Continuous multi-level planning
The majority of businesses employ separate, hierarchically structured tactical and operational planning levels. A tactical plan is typically a rough or high-level plan, frequently based solely on historical data. Perhaps unexpectedly, many businesses still rely on Excel only to draft their tactical plans. On the other hand, an operations plan is usually focused on specific daily activities. Operational plans are typically created using a planning tool, which is often a part of the ERP suite, and are normally based on current order data.
Three issues surface in the context of the goal to improve reliability. A tactical plan that has a relatively long planning horizon is swiftly rendered ineffective by new events. Operations lack the ability to shift course effectively when disruptions occur due to the rigid one-way relationship between a tactical plan driving the operation plan. Meaningful communication between tactical and operational levels can be extremely challenging because planning data from both levels is sometimes unconnected and have distinct structures and levels of granularity.
When we require agility to swiftly respond to potential disruptions, such as to implement a predetermined contingency, this is far from the ideal situation. Increased operational flexibility is required as part of agility. Continuous multi-level planning is part of this idea, blurring the distinction between tactical and operational planning levels. This necessitates changing the traditional paradigm of tactical and operational planning.
This requires a process for tactical planning with overlapping planning horizons, such as repeating planning on a weekly basis with a monthly horizon. When changing conditions call for an immediate change, a feedback loop is crucial where operations can initiate a fresh iteration of the tactical plan. Crucially is the need to use a single source of data on all levels to make this interaction between planning levels work. This opens opportunities to apply data science, such as AI or predictive analysis, as well as cutting-edge tools like automated scenario generation and decision support.
Allow data to assist in managing size and complexity
Intelligent data use can be crucial in achieving both resilience and agility. When we consider this, we can see the advantages of continuously accessing a variety of relevant data sources and having them analysed and monitored automatically. Our in-depth understanding of supply and production structures can also be used in digital twins or simulations. This could provide us with a new method for swiftly defining scenarios in the event of a disruption threat. All of this may not completely protect us from future disturbances, but it may greatly lessen their impact.
1) Bloomberg; “Supply Chains Inching Back to Normal Brace for Headwinds of Softer Demand”
2) PMI; “Labour Shortages” Global Megatrends 2022
3) KPMG; “Is inflation pushing consumers to the edge?” KPMG Consumer pulse survey Summer 2022