As supply chains scramble to keep up with the 32% net increase in the sale of products (physical goods), teams are reacting. Demand is outstripping supply: inefficiencies abound. Business leaders are simultaneously facing inflation and shortages. Labor, once assumed as available and a cost to be managed, is now an Achilles heel in the supply chain.
As I read business periodicals and watch network news, the supply chain is headline news. However, the reporting is all about symptoms not root causes. For example, “Why is it so difficult to get a container unloaded?” The answer is complicated and multi-faceted. Warehouses are full and shelves are empty. Volume is up. The United States is late in investing in port infrastructure. The processes are inefficient and the labor unions at the ports are a barrier. Containers wait at each ship node for the chassis. Container inventory is imbalanced. Disruptions exist at each node and will continue for many years. The issue? We are out of balance: containers, drivers, and chassis lack synchronization. There is no oversight or coordination. This is not a new problem; but it is exacerbated by volume increases, COVID labor issues, and port infrastructure capacity issues.
What to do? Create a supply chain planning master database to track variability in lead times, conversion rates, and cycles. Feed market actuals–both the averages and the variation–into current engines. Build capabilities to manage planning master data.
We cannot change things overnight, but there are some steps that we can take through the use of advanced analytics.
- Manage Make, Source, and Deliver Together. At the enterprise level, manufacturers and retailers focus on corporate efficiency. Leaders are blind that the most efficient supply chain (lowest cost) is not the most effective.
Market sensing takes months (shifts in the market), and process latency requires weeks (organizational agreement on what to do). As a result, companies make the wrong decisions. Factories were shut down in the face of rising demand during the early days of COVID-19. Fourteen of twenty-eight industries have rising inventories. Supply is greater than demand. In contrast, the balance of the industries lacks supply. All are out of balance.
In Figure 1, I share what this looks like for a company currently participating in the Project Zebra testing.
Figure 1: Current State of a Global Manufacturer of White Goods
Traditional systems distort market signals. The assumption is that the order is a good representation of demand. It is not. The translation of signals with conventional approaches–ERP, CRM, SRM, and APS–further distort the signal and add noise. As a result, in this time of increased variability, organizations are more reactive.
What to do? Invest in analytics to sense and translate demand. Place investment in legacy systems like– ERP, CRM, and SRM–on hold. Change internal metrics to a balanced scorecard and force the functions to work better together.
2. Focus Outside-In. Today’s supply chains respond, but they do not sense. There is no place to put market data–weather, telematics, point of sale/consumption, unstructured data–in today’s infrastructure. We are very early in the definition of outside-in processes. The largest barrier is decoupling ourselves from believing that historic processes are best practices. The challenge is unlearning to be open to new outcomes. While new analytics possibilities exist, business leaders’ understanding of how to use them is limited. Invest time in understanding what is possible.
What to do? Use the Zebra training methodology to define outside-in processes that can work for your company. After alignment, use NOSQL techniques and data scientists to build outside-in processes.
3. Design for Resilience. There is a level of unprecedented inefficiency in today’s supply chain. Labor turnover, supply reliability, and transportation variation are here to stay. As a result, companies need to redesign supply chains based on the inefficiencies of today. The design, and redesign, of supply chains needs to be continuous based on market data.
What to do? Invest in network design technologies. Build an internal team to continually design and redesign flows holistically using the factors of today’s inefficiencies. Redesign flows and determine buffers monthly.
4. Build Networks. We Need a Network of Networks. The supply chain needs a dial tone. Just as the department of defense created the internet, we need a governmental agency to build a business-to-business network. Today’s gap? There are many barriers: authoritative identifiers, multi-tier processes, and data translation across source, make, and deliver for multi-tiers of trading partners. We need a central directory of companies with authoritative identifiers for the company, the manufacturing and logistics locations, and products.
Todays’ networks are self-serving. There is no incentive to drive interoperability across networks.
EDI is not sufficient. Like old-fashioned mail, Electronic Data Interchange is expensive and is delivered party-to-party. It is not bidirectional or multi-tier and the messages do not move at the speed of business.
What to do? Invest in current networks and pressure the players to improve interoperability. Create a group to focus on building network capabilities.
5. A Sole Focus on Volume Is A Mistake. Gasoline prices increased 42.1% year-over-year and are climbing 1.3% over the prior month. Used Cars and Trucks prices rose 24.4% year-over-year while the food increased 4.6% over year-ago prices. Increased price accompanies the increased volume. Traditional planning systems recommend decisions based on volume and eliminate manufacturing bottlenecks.
What to do? Build planning models to manage the trade-offs of price and volume together.
Figure 2. Increasing Inflation
Supply Chain leaders have an unprecedented opportunity to build better. Don’t just react. New forms of analytics can help to accelerate outcomes within organizations.