Despite working with many FMCG companies and understanding and knowing about issues throughout the supply chain I am still shocked when I visit local supermarkets. The days of wandering in and seeing full shelves of produce now seem long gone. Basic food products and over the counter pharmaceuticals seem in low supply, writes Debbie Bowen-Heaton, Partner at Oliver Wight EAME – Business Transformation Specialists.
It’s not an exaggeration to say that global supply chains are in crisis. Whatever the root causes, organisations are facing unprecedented challenges at a time where not only is the public spotlight firmly on supply chains but there is also an expectation that these issues can and will be resolved soon.
We do not believe it will be resolved soon as where once supply chain management was mostly about optimising customer service costs and cash flow, businesses are now faced with the challenge of managing significant supply chain disruptions, staying ahead of consumer demand, while improving resilience, cutting carbon emissions, reducing staff churn and keeping costs down.
Companies are dealing with this in different ways. We have seen clients stockpiling to stay ahead of consumer demand. The repercussions of this are not good for the companies themselves or with suppliers further up the line such as storage or container suppliers struggling to meet expectations. This rising demand, powered by the ‘Bullwhip Effect’, where orders to suppliers tend to have a larger variability than sales to buyers, is artificial as people are ordering far more than they need to clear backlog and holding stock to mitigate lead time risks in the future. Without properly planning backlog clearance in the supply chain and matching orders between different suppliers, all that is being created are peaks in demand and a situation where organisations are holding a significant volume of inventory, which is tying up much needed capital.
This is why end to end planning is so important and companies need to think of the whole value chain. This system includes product design through procurement of materials and components through the delivery of finished goods to the customer. It also includes customer service and warranty responses.
We can offer some advice on how companies need to adapt to the challenges thrown up globally and how to make end to end supply chain management work to its optimal capacity.
Don’t Rest on Your Laurels
While this demand and lead time situation is unlikely to remain forever, it’s nearly impossible to predict when these trends might decrease. And that’s why companies need to turn their attention to the long-term, with the assistance of their supply chain.
The pressure is on the beginning of the supply chain right now and organisations are turning their spotlight on the supplier base as a consequence of product availability. Strategic sourcing has served procurement well, but many organisations have become complacent, resting on their laurels when they have a good first source for key materials and commodities.
However, these same organisations have been let down when they have come to source an alternative, or additional, supplier or suppliers to mitigate their risks. These suppliers are frequently swamped with demand from existing customers and either do not have the capacity for, or choose not to prioritise, new customers. What has been shown to be a key success factor in the past two years is having good supplier relationships but ensuring that you are not inadvertently ending up in a single source position.
Credible Plans, Good Information
How, then, do companies shift their focus from the short to the long-term, while still meeting the needs and wants of their customers? The key is integration of end-to-end supply chains and ensuring that there are credible plans in place with demonstrated capabilities.
Without these plans, matching orders between suppliers is not going to be possible and backlogs in orders will not be cleared effectively. Organisations will be stuck with too much inventory and raw materials and poor cash flow and will be dealing with the current issues for months to come.
For this to become a reality, companies need to implement a process, where the whole organisation and the supply chain work in a collaborative environment to make key decisions and plan and execute strategies in an effective and efficient manner. There is technology available to assist with integration and data collection and analysis and this will ultimately help deliver a better solution for both procurement and the wider organisation.
You are only as good as your data
Unless companies have the right data, end to end supply chain management does not work. Tactical decisions need to be made with real-time data for short-term drops or spikes in demand. If companies have good data intelligence then strategic demand planning can be deployed in times of disruption because planners have more confidence in data quality and insights.
Comments are closed.