Lessons to learn from holiday supply shocks

THE 2021 holiday season was filled with the latest headlines warning us that Santa might not be getting all of our presents under the tree in time. From turkeys to iPhones and sportswear to alcohol, it seems almost everything has been in short supply. In fact, a recent report from Adobe Analytics predicts online spending will grow at its slowest rate for nearly a decade. This is attributed to ongoing shortages of products, price rises and continued supply chain unpredictability in light of the pandemic.

In response to this unprecedented year, there will be some key business and technology-led changes for manufacturers to keep in mind if they want to successfully return to full strength sooner rather than later.

Supply chains are in the consumer spotlight

It’s been a tumultuous year for supply chains globally, and the supply chains in North America have not been an exception. There have been several high-profile events over the last 12 months that have put global supply chains under the public spotlight, from the Suez Canal blockage to the computer chip shortages that have impacted everything from car production to game console manufacturing.

These repeated shortages mean consumers are now far more conscious of the globalised and vulnerable nature of supply chains than ever before.

Witness the huge and widely publicised supply chain associated with Covid-19 vaccine production. There are 280 materials that make up the Pfizer vaccine coming from 86 suppliers in 19 countries around the world. That’s some supply chain to co-ordinate.

It’s been a wake-up call for us all

Just one weak link in the chain can send manufacturers of any product into a tailspin; look at the ripple effect of the fire in a Japanese auto-chip factory that instantly wiped 3 percent off the share price of Toyota, Nissan and Honda. Combined with an existing shortage of semiconductors, this has sparked concerns over global car and electronics production, including in the US.

From JIT to a more demanddriven environment

It’s clear that supply chain risk is higher today than in previous years. The globalised nature of supply chains, along with a shortage of materials and workers, means they need to be far more dynamic going forward. Businesses must work toward agile supply chains or risk jeopardising brand reputations and, more importantly, the customer experience.

Ultimately, businesses must re-evaluate entire value chain operations to understand where technology, processes and people can help anticipate future issues. Simply planning on a “just-in-time” (JIT) manufacturing basis is not responsive enough. Organisations must look to move toward a more demand-driven and flexible approach to supply chain operations.

New problems require new business thinking

The takeaway for many organisations is to focus on building greater resiliency in their own supply chains through identifying and tying in the key inflection points of success or failure across the entire value chain of their operations. These inflection points are directly connected to an organisation’s impact on the customer experience, meaning they bolster or damage a brand’s reputation.

This means thinking service-first. A service-first mindset gives a more holistic understanding of processes and technology and their effects on customers, assets and employees. This also allows organisations to track those key inflection points and take pre-emptive action before it’s too late.

For this approach to succeed, it demands executive-level management to prioritise and be engaged to drive this way of thinking and enable the investments required. As so very often in these business process shifts, it must start from the top.

Supply chain recovery will be technology-led — JIT must welcome DDMRP

Accenture neatly encapsulates the way businesses should approach the supply chain challenge going forward: “This requires holistic approaches to manage the supply chain. Companies must build in sufficient flexibility to protect against future disruptions. They should also consider developing a robust framework that includes a responsive and resilient risk management operations capability.”

This can mean assessing new manufacturing models that offer far more dynamism than current JIT principles. One alternative manufacturing method would be the development of the lean principles associated with demand-driven material requirements planning (DDMRP). DDMRP looks at resource planning differently to help mitigate unexpected shocks such as peaks in demand or unanticipated shortages.

DDMRP monitors how much of a part or resource a manufacturer has on hand and helps determine whether it should adjust supply based not on just pull signals from orders but on additional demand that may or may not materialise.

Enterprise software must have its finger on the supply chain pulse

Enterprise software will have a role to play in more agile manufacturing principles such as DDMRP — but only if it contains the industry specificity to manage more dynamic supply chain approaches. Not all ERP solutions contain the ability to calculate complex material requirements planning equations, and furthermore, there are only a few providers certified by the Demand Driven Institute (DDI) that sets the standard for global demand-driven principles.

Forward-looking enterprise software can even enable the creation of digital twins of the entire organisation, making it possible for businesses to model different disruptive events to understand their impact, plan for different scenarios and reduce the impact of supply chain issues and associated costs.

Technology-led change is for life

The 2021 holiday season once again threw the year’s supply chain shocks into the spotlight. Recovery will, of course, not be immediate, with many forecasts being measured in years rather than months. However, preparing for supply chain resilience today makes strategic sense for businesses, employees and end customers going forward. — Forbes.